4 ways B.C. residents can manage their finances against rising inflation

Frances Yip of Coast Capital Savings Credit Union shares advice on how you can spend less and save more.

If your recent grocery bills have caused you to raise an eyebrow or two, you’re not alone. With ballooning prices of everyday essentials, the constant talk of inflation isn’t just a bunch of hot air. In fact, last week the Bank of Canada raised interest rates by a whopping 1 percent—the largest hike since 1998—to a benchmark of 2.5 percent as a way to dampen the effect of inflation in the country. 

Frances Yip, vice president of financial planning and analysis at Surrey-based Coast Capital Savings Credit Union, notes that rising prices are inevitable when demand for goods and services outweighs the supply, especially in light of the pandemic: “As a result, we’re feeling that pinch when we get groceries, gas and booking travel plans.”

One way for the central bank to address the pressure on prices is to increase interest rates. “By doing so, the increase ripples through the economy and makes it more expensive for consumers and borrowers to engage in day-to-day purchases, and to an extent, slow down the amount of demand that we’re seeing right now,” says Yip. 

But Yip also thinks that the hike will affect B.C. residents in different ways: “In the short run, if the measures work and help with dampening inflation, the prices should stop moving up as quickly, perhaps even come down and regulate a little bit. On the flipside, many of us are borrowers and depending on the construct of our debt product (e.g. mortgage or credit card), we may see those interest rates increase. Now or in the future, it’ll become more expensive to borrow.”

Given all the uncertainty, Yip offers 4 financial management tips for us all to keep our cheques in check:

1. Cut costs

It may seem obvious, but take a good look at where you spend your money, cut back where you can and find ways to create savings. Sometimes our expenditures may seem small, but they add up on a regular basis.

2. Build a safety net

Having a backup emergency fund always comes in clutch. Financial advisors like Yip recommend that people keep 3-6 months worth of living expenses untouched as a safety net in case of unforeseen circumstances.

3. Understand your debts

What sort of debt products do you have? Do you have a fixed-rate mortgage? If so, you’re fine until the end of the term because your payments and the interest rate are set until then. But if you have a variable rate, your cost of borrowing will increase—that means even though your payments are fixed, a larger proportion of them will go towards your interest and it’ll take you longer to pay off your debt. You might want to look into ways for you to change that without being penalized by your financial institution.

When it comes to credit card debt, now would be a good time to think about consolidating some of that. Use credit cards (which tend to have higher interest rates) for emergency spending so that you don’t carry around high interest for a longer time.

4. Get financial advice

It’s always a good idea to bounce ideas off of someone whose job is to ensure that you get the best financial advice possible. If you’ve never connected with a financial advisor before but you want to know what that could look like, most financial institutions offer free online tools to help you understand your spending, options for budgeting and potential for saving. These tools can indicate what you’re doing right and what you’re doing wrong when it comes to your financial goals. And then if you need some extra help to bridge that gap, approach an advisor to see what your options are.