Tag: Inflation

You Will Either Be Rich or Poor

Future You is going to be rich or poor. The choice is yours.

This post is aimed at those folks who fall between the two ends of the financial spectrum. It’s not for those who are already uber-wealthy, nor is it for those who are living paycheque-to-paycheque. Rather, I’m aiming today’s words at the ones who still have to work to pay their bills, who have some fat to cut from their budgets if necessary. These are the people who still have financial options. Choices made today will determine if they are rich or poor in the future.

Inflation eats away at everyone’s spending power. It is imperative that you accept this concept when thinking about Future You’s finances. Prices go up over time. The 18 months prior to this post have been particularly challenging because inflation was nearing the double-digits. Everyone saw prices increase at a phenomenal rate, while their paycheques were not keeping pace. While a 4% raise is always nice, it can hardly compete with 8% inflation everywhere else.

So while inflation has “slowed” as the economists like to tell us, it’s still around. And it’s not going away. Prices are still going up but they’re simply going up more slowly.

The Book-Ends of the Money Spectrum

As I stated to at the beginning, this post is not for the uber-wealthy. They have lots and lots and lots of extra fat in their budgets. Increases in the prices for groceries, gas, utilities, and shelter will have no impact on their lives. No one will be crying the blues for the wealthy ones.

People at the other end of the spectrum are the ones who are living paycheque-to-paycheque. They work, and they earn, and their paycheques are gone in a heartbeat to pay for the cost of living as soon as they land in the bank. After shelter, food, gas, and bills, the P2P-group has very little, if anything, leftover. These good folks are in a legitimately terrible situation. They’ve already cut out the “little extras” and are still barely making it. I don’t have any good suggestions to easily fix their situations.

The rest of the folks land between these two ends of the spectrum. These are the ones who will either be rich or who will be poor. It all depends on whether they invest some of their disposable income into income-generating assets.

Financial Assets Move You Towards The Wealthy End

I’ve spent many decades reading financial articles, websites, and blogs. The one lesson I’ve learned over all this time is that successfully investing for cashflow takes some time but it pays off in the long-run. I chose dividends and I’ve stuck with dividend-investing since 2011. I’ve made plenty of mistakes and my choices were not perfect. That said, my army of money soldiers will help me to weather inflation’s impact on my future income. My employer is not interested in giving me 7% salary increases every year, no matter who hard I work. Yet, my costs of living will continue to rise as inflation inexorably moves forward. I could get another job, but I really don’t want to.

Instead, I’ll have my dividends do the heavy lifting for me.

Years ago, I set up an automatic dividend re-investment plan, aka: DRIP. As my dividends were paid out each month, I would DRIP them into more dividends. Between the DRIP amount and my regular monthly contributions, I was compounding the number of dividends that I was buying each month. Every dividend that I owned paid me a few cents each month. Naturally, I only earned a few dollars each month when I started in 2011. It was hardly enough to buy a cup of coffee. However, it only took a few years before my dividends were generating $1,000 per month for me. And a few years later, they were generating $2,000 each month.

Believe me when I say that an extra $24K per year is more than a 4% raise from my employer. Thankfully, I was one of the people who lived between the extreme ends of the spectrum. After food, shelter, transportation, and utilities, I had enough money leftover for investing and other things. My choice was to invest before paying for the others things, aka: travel, theatre subscriptions, and whatever other non-necessity happened to catch my eye.

Looking back now, I’m very happy that Young Blue Lobster understood that investing was the only way to stay ahead of inflation. Young Blue Lobster intuitively knew that it was perilous to count on an employer, and that increasing one’s income is the responsibility of the person earning it.

Inflation Will Move You Towards Poverty

If you have the means to do so and you choose not to invest, then you are making the choice to let inflation push you into poverty. What used to be affordable becomes less and less so over time. The fact that you can’t afford something is not going to motivate retailers to drop the price. Waiting for the government to “fix inflation” is not a great move either. It’s best that you assume prices will go up faster than your paycheque will increase. Once that first step has been taken, your next best move is to start investing part of every paycheque for long-term growth.

Your investment portfolio will eventually grow to a sizeable amount, and its annual increase in size will outpace your salary gains, whatever they are. The more you invest and the sooner you invest, the bigger and sooner those gains will be. Other than telling you to win a lottery jackpot, I have no feasible ideas on how to earn big money quickly. What I do know, from personal experience, is that buying into the stock market on a consistent basis for many years and always re-investing the dividends (and capital gains) has meant that my annual income has increased far beyond anything my employer has given me. And since I’m on a DRIP, those increases will continue for as long as I’m alive because of the power of compounding and organic dividend growth.

Never forget that there are many forms of income and your employer only controls your salary. Unless you’re already living paycheque-to-paycheque, you owe it to Future You to invest some of your money. Be proactive. Start slicing the fat from your budget today and investing it wisely so that you, not inflation, control when, where, and how to make adjustments to your budget.

Do Some Meal Prep & Keep More of Your Money!

Remember how I’ve talked about the money-saving magic of your kitchen?

Well, I’ve upped my game. You see, I really hate grocery-shopping. It’s a recessive gene. I know this because both my mother and my brother love grocery shopping, and even my father didn’t mind doing it. My mother loves it so much that one time she complained that I went through the store too fast. “It was like you were on roller-skates! I didn’t get a chance to look around!”

Look around?!?!! It’s a grocery store! You’re here every week – sometimes twice. Exactly what is there to see that you didn’t see 48 hours ago?

Anyhow, I’ve had to adjust my perspective over the past year…

Step 1 – Saving Money While Grocery Shopping

We all know that inflation has impacted the prices we pay for food. As a result, I’ve cut back on dining out. Instead of it being a casual, spontaneous thing, I’m far more meticulous about planning my restaurant visits. Dining out is now a treat, rather than a weekly staple. That said, I still get hungry with alarming regularity. Going to the grocery store is no longer optional. Meal prep is now mandatory in my home. My belly demands satisfaction!

Currently, my credit card of choice is issued by PC Financial. This card allows me to accrue points that can be used to pay for groceries and it doesn’t have an annual fee. I pay the balance in full every month so I never pay interest. If you’re the sort who carries a balance, then stop using your credit cards and pay cash for everything until you’re out of credit card debt.

Accruing points to pay for groceries is one way to lower my grocery bill each month. At a minimum, I earn 10 points for every $1 that I spend on the card. Every time I accumulate 10,000 points, I get $10 in free groceries. By running nearly all of my expenses through my card, I earn a substantial number of points every month. There’s something especially sweet about leaving the store with several bags of groceries and only paying $5.76 for them!

Getting the groceries is only half the battle. The next step is figuring out how to create tasty things for myself.

Step 2 – Cooking at Home Way More Often

Finding recipes I love isn’t that hard. I’m a fan of TikTok and YouTube. My favourite creators are the ones who cook and bake. I’ve discovered some really fantastic things to eat just by watching videos then finding the recipes online. Now that I’m back in the office several days a week, I’m doing a lot more meal prep on Sundays. A couple of hours in the kitchen results in a several meals at the ready during the week – lunches, dinners, snacks, even dessert! One small change to my weekend routine allows me to take my lunch to work instead of spending $20 or more each time I go into the office.

I’ve even taken to making my own muffins for snack breaks. The coffee shop in our building makes delicious food, but their menu isn’t set. Sadly, there’s no way to know in advance if the carrot loaf with cream cheese that I love ever so much will be available from one day to the next. So I’ve started making my snacks. Right now, I’m quite happy with the morning glory muffins from Baker by Nature. They’re so damn delicious! They’re easy to make and I only need one bowl to make the batter. (By the way, Damn Delicious is the name of another fantastic recipe blog that you may want to check out!)

I love chicken and am always looking for new ways to prepare it. A few weeks ago, I discovered how easy it is to make cajun chicken pasta. Like all of my favorite recipes, this one is simple & straightforward. It takes maybe 10 minutes to prepare the chicken before it’s left to marinate in the spices. After a little bit of time in the oven, I pair it with whatever I want if pasta’s not calling to me that day. And so long as I don’t adjust the recipe, there’s always leftovers so I need not cook every single day. Meal prep for the win!!!

Is is my turn to host book club? Then let’s head to the World Wide Web for some appetizer ideas? Surely there’s one or two recipes out there to make finger food that is suitable to please my guests. How about some buffalo chicken pinwheels from Cooking for Keeps?

Same principle applies to sporting events. As a guest, I don’t like to show up with my hands swinging. A few minutes in the kitchen means I always have something to bring. Grey Cup parties & Superbowl Sunday are perfect opportunities to share my favourite appetizer cheeseball from Natasha’s Kitchen.

Even when it’s my turn to bring dessert, I find that there’s no reason to hit up a bakery. I can make something delicious in the comfort of my own home. Whether it’s a marble cake, a bumbleberry pie, or a cookies, I’m ready to spend some time in the kitchen with my handy-dandy KitchenAid stand mixer. In the past year, I’ve overcome my fear of making mini cheesecakes. This recipe for mini pecan pie cheesecakes, also from Baker by Nature is one of the best things I have ever made! If you like pecan pie and you also like cheesecake, then this dessert will make you very happy.

Everyone needs to eat. And we all enjoy eating delicious foods. Don’t let inflation stop you from doing so! Meal prep is an effective tool to minimize inflation’s impact on your wallet. Sure – you might have to spend a little more time at the grocery store and in the kitchen. Big deal! Trust me – you will not regret improving your culinary skills and expanding your repertoire of recipes. Doing so means eating very well while still keeping more of your money in your pocket. And who can complain about that?

I’m not an expert but….

I am not certified by any governing body to tell you how to spend your money. My words of advice were earned at the School of Life, a place where all of us are students. I’m telling you this so that you realize that I’m not an expert, but I’ve still learned a thing or two. If you do what I did, you’ll do fairly well with your money over a lifetime. Here are my tips to acquiring a heavy wallet.

Don’t spend every penny you earn.

First off, I’ve yet to meet anyone who’s been harmed by living below their means. Spending less than your take-home income has no downsides, as far as I can tell. The difference between your net income and your expenses is called “savings” and savings can always be stashed away for various things.

Emergency Funds are not optional.

Secondly, life without an emergency fund is an invitation for financial trouble. There’s an emergency in your future. You simply have no way of knowing when it will show up. I promise you this though. No one in the history of the world has ever lamented about having too much money set aside to deal with the inevitable emergency. If you don’t have an emergency fund, start one immediately and set up an automatic transfer from your paycheque to fund it.

It’s going to take a bit of time to build up a decent emergency fund. That doesn’t matter – just start building it. When the emergency hits you smack in the face, you’ll be quite grateful that you won’t have to worry about the financial side of dealing with it.

Investing for Tomorrow You isn’t optional either.

Thirdly, start investing your savings. Yes – some of your saving will go to building an emergency fund. The rest of your savings should be split between your short-term, medium-term, and long-term goals.

One your most important long-term goals is how to feed, shelter, clothe, and entertain yourself when you’re too old to work. Tomorrow You still needs money to survive until the very last day of your life. The steps you take today to invest your savings will increase Tomorrow You’s chances of having a financially comfortable life once employment is over.

You need to start funding your retirement accounts – namely the Tax Free Savings Account and the Registered Retirement Savings Plan.

If you have to choose between filling the TFSA or the RRSP, my recommendation is to fill up the TFSA first. The TFSA contributions do not generate a tax refund, but the money invested inside the TFSA will grow tax-free and can be withdrawn tax-free.

Should you be so fortunate as to have sufficient money to fill both your TFSA and your RRSP, then do so.

If you still have savings After you’ve filled your retirement accounts, then open a non-registered account with an online brokerage. Invest your remaining savings to earn capital gains and dividends. The money earned in your non-registered account will be taxed every year. The upside is that the taxable rate on your capital gains and dividends will be less than the taxable rate on your earned income.

Inflation isn’t going away anytime soon.

Fourthly, inflation is running high. No one knows when it’s going to go down, so assume that things will be increasingly expensive for the foreseeable future. There are no simply answers to this problem, so my advice to you is to cook more of your own food. I love socializing over food as much as the next person. And I do sometimes yield to the incessant call of the fast food window or the food delivery app. However, inflation running at 7%-8% has forced me to be a lot more disciplined. I’m heading to the grocery store instead of tapping out an order on an app. I’m slicing and dicing, mincing and sautéing, frying and baking in my own kitchen. One of these days, I’ll even master the art of meal planning for the week instead of simply for the next 3-4 days.

My advice to you is learn to grocery shop then spend more time in the kitchen. If there’s something you want to learn to make, there’s someone on the Internet who has a recipe and a video to show you how. I can promise you that $60-$80 spent at the grocery store will yield you a ton more food than the same amount spent at a restaurant, fast food outlet, or food delivery service.

Stay out of debt

For whatever reason, our society has decided that it’s a good idea to put people into debt. The scope and manner in which any one person is able to go into debt is truly breathtaking: student loans, vehicle loans, mortgages, credit card debt, etc…

There’s no legal limit either. It’s not like there’s a law which says “No person is permitted to carry more than $650,000 of debt at any one time.”

So long as there is a creditor who is willing to extend you credit, you can dig a deep a hole as you choose. Even after a creditor stops extending you new credit, the hole still gets deeper thanks to the power of compound interest and the piling on of fees.

Do yourself a favor. Don’t go into debt. If you’re already in debt, then work very hard to get out of it.

You know those savings that I was talking about at the start of this post? Take 25% of them and throw them at your debt. You can use the snowball method or the avalanche method to make extra debt payments over and above your minimum payment.

I really don’t care, which method you choose. Just start making those extra debt payments and get yourself out of debt as soon as possible.

Again, I’m not an expert.

I’m just a person who has learned a few things about money from my own experience. I’ve also observed the financial choices and outcomes of others. Getting out and staying out of debt has done wonder for my financial life. Spending less than my net income has allowed me to set aside money for my retirement while also fulfilling most of my short-term and medium-term goals. Cooking at home has definitely contributed to a heavy wallet. My emergency fund helps me sleep well at night.

Even though I’m not an expert, some of these tips might help you too. Take what you need – leave the rest.

No Easy Answers

Forgive me in advance, as this post is going to touch on several things. I don’t have all the answers, but I have lots of questions.

Today, I watched a couple of YouTube videos about poverty in Europe. They could’ve just as easily been about North America, but The Algorithms suggested videos about Europe. It hardly matters what country I was viewing. The story is nearly universal. Once a person falls into debt and/or poverty, there are precious few ways out of it.

The first video involved young people who’ve graduated from university and cannot find a job. It’s not for lack of trying. The jobs simply aren’t there to be had. So young people who can do so are leaving their home countries to build lives everywhere. Why wouldn’t they leave? How do you create jobs that will motivate people to stay, to put down roots, to start families? What kind of a future does a country have when its young people have to move away in order to fulfill their dreams and ambitions? What has to happen to entice the young people to return? Will the country be around 100-200 years from now if their best, brightest and most talented leave to build satisfying lives elsewhere?

That same video also discussed how increasing interest rates skewered the incomes of those formerly in the “middle class”. Countries borrowed money and the terms of the loans required a decrease in labour costs. This is economist-speak for employers reducing salary costs. The good folk that believed they were solidly in the “middle class” saw the value of their paycheques plummet while their debt obligations remained the same. More than a few lost their homes and businesses. When incomes are slashed and debt stays in place, how are people supposed to recover from that particular double-whammy? What do you do when you realize that your economic status was tenuous at best? More myth than reality?

There are no easy answers to my questions. You can have the 12-month emergency fund to “tide you over”, but there has to be a job waiting for you at the end of those 12 months. If there’s no job, then you’ve simply exhausted your emergency fund. Without another job to go to, you’ve only delayed the inevitable results of being unemployed: homelessness, couch-surfing, losing friends, deteriorating networks, separation from family, etc… It’s grim.

Getting out and staying out of debt offers some protection from rising interest rates. Payments that used to go to creditors can stay in your bank account. You can use those funds to pay for the rising costs of food, housing, utilities, and any other price hikes associated with inflation’s impact on the economy. Yet if your paycheque doesn’t go far enough, what choice do you have other than credit to pay the minimum monthly bills? When your rent eats 75% of your paycheque, can you really be faulted for using credit to pay for the necessities that the remaining 25% doesn’t cover?

For most of us, the reality is that getting out of debt generally means having a steady income from which payments can be made. When it takes 25 years, or even 15 years, to pay off a mortgage, a borrower is making a huge bet that they will have income over that long period. In today’s world of contract workers and gig-workers, there’s a whole swath of people who might be better off not taking that bet. After all, a bank can just as easily foreclose for failure to pay at the 20 year mark as it can at the 2 year mark. Can you imagine how awful it would be to make 20 years of mortgage payments then lose your home if something permanently reduced your income?

Yet, at the same time, owning a home is still one of the few ways for a not-rich person to build wealth. Talk to the people who bought houses in Vancouver and Toronto as recently as 5 or 10 years ago. The values of their home have skyrocketed. Some lucky folk have houses that have earned more in equity growth than their owners have earned through a paycheque. Buying a home in a city with a strong economy and paying it off is still one of the ways to build wealth for your dotage.

And speaking of your retirement, what recourse is there if your retirement is adversely impacted by market forces beyond your control? If going back to work is not an option for you due to your health, age, or lack of job openings, what do you do?

These are the questions that keep me up at night. We always hear about the success stories, the people who’ve made it. They should be celebrated – they’ve overcome the odds and they can serve as a hopeful example of what’s possible. Yet there are countless others who did not achieve that same success. They worked hard. They saved. They followed the rules, yet they didn’t get their happily-ever-after on the financial front. What are the answers available to them?

Like I said at the start of this post, there are no easy answers. If there were, these problems would’ve been solved by now. All I know is that there are serious structural problems that are encouraging and reinforcing income inequality on a global scale.

The Basics Never Change

No matter how you slice it, the basics don’t really change. This blog is about money, so I’ll stick to the financial basics.

  1. Live below your means so you have some money to save and invest.
  2. Invest your money so that it grows over time.
  3. Go back to step one and repeat.

Everything else is about the details.

  • Where should the money be invested?
  • How low should the management expense ratio be?
  • Are mutual funds better than index funds?
  • Should one invest in index funds or exchange traded funds?
  • Is real estate better than the stock market for investment returns?

Start where you are, and go from there. One of the best tools I’ve found for managing my own money is a spreadsheet. Thanks to Numbers, I’ve been tracking my expenditures for the past few years. I could’ve used an app on my phone, but I prefer to personalize the spreadsheet to my own requirements. An app has a built-in structure that may not be suitable for me.

By tracking my expenses, I’ve been able to see where I splurge and where I don’t. The past two years haven’t produced as sharp a drop in expenses as one would have thought. I spent just as much in 2020 & 2021 as I did in 2019 & 2018. Yet, in the past two years, I haven’t been to a concert, a movie theatre, overseas, or inside of restaurants. I’ve been at home, partaking in Netflix, homemade food, and lots of computer games. Despite my at-home-hiding-from-coronavirus existence for the past two years, my annual expenditures have been the same or slightly more than they were in the Before Times.

I’m paying the same amount of money to purchase fewer things. That’s called inflation.

Despite the arrival of this particular money-eater, the basics haven’t changed. I still have to live below my means and invest for growth. My spending power will hold its ground against inflation so long as my returns are higher than the inflation rate.

You owe it to yourself to spend a little bit of the present thinking about the Care and Feeding of Future You Fund. It need not be a lot of time. After all, life is meant to be enjoyed and not wished away. The right amount of time is however long it takes you to set up an automatic transfer from your chequing account to your investment account. When you get paid, a chunk of money should automatically be sent to your investments. Then you forget about that money and go back to your daily life, doing what makes you happy.

Three weeks of 2022 are already in the past. Time flies so very fast! It’s important that you don’t let procrastination stop you from sticking to the basics. You need not know everything before you start. Instead, you start today and you learn as you go.

Get some books from the library. Do a Google search. Spend some time at YouTube University. Check out the education section of Investopedia. Maybe start following some personal finance bloggers. You don’t have to understand everything before you set up an automatic transfer. Have the money accumulating so it’s in place when you’re ready to make your first investment.

In the interest of transparency, I want to tell you a bit more of my story. I started with guaranteed investment certificates. I didn’t understand that GICs don’t beat inflation and that my money wasn’t growing the way I needed it to. At the time, I was concerned with safety. I didn’t want to lose my money. Perfectly understandable! You don’t want to lose your money either, right?

However, I borrowed books from the library and I learned about these things called mutual funds. They were offered by banks and they would give me better returns that GICs. So I switched my money to mutual funds. After a time, I learned about index funds and exchange-traded funds. They were better than mutual funds because they charged lower fees. Today, I’m still investing in ETFs while learning about crypto currency and NFTs. I’ve done some real estate investing but certainly not enough to consider myself an expert.

If anyone were to ask, I’d tell them that I have made many mistakes in my investments. I didn’t have all of the answers when I made my choices. I didn’t always understand the implications of my choices. If I could go back and make different decisions, then I most certainly would. That’s not possible so I continue to follow the first three rules articulated above. Save – invest – learn – repeat.

Wherever you are on your personal finance journey, you should be putting the basics to work for your money. You work hard for it. The least you can do is make sure that your money is working just as hard for you. There’s no time like the present. Take the first step today. Congratulate yourself. Then work on figuring out the next step. Take that step too. Before you know it, you’ll be saving and investing for Future You while still enjoying the gift that is today.

Emergency Funds have to keep up!

A few weeks ago, I wrote about how inflation is a money-eater. I stand by that statement. Inflation makes everything more expensive. My cost of living is going up but my salary is staying the same. In light of inflation’s impact, I’m tweaking my emergency fund to account for it. In short, my emergency fund needs to be bumped up by the rate of inflation.

Back in the day, I devoured the idea of having $1,000 set aside for emergencies while I paid off debt. It’s one of the Baby Steps espoused by Dave Ramsey in his book The Total Money Makeover. Twenty years ago, I had student loan and vehicle debt. Once those loans were paid, I worked hard to save up 6 months of money in an emergency account.

Eighteen years ago, when the book was first published, $1000 was sufficient to cover a month’s worth of my fixed expenses. Today, that same amount just barely covers my variable expenses. Today, I’d still have to find another $1000 – $1500 to cover my fixed monthly expenses. Keep in mind, that’s without the burden of a mortgage payment. In my circumstances, a $1000 starter emergency fund is certainly better than $0 but it’s definitely not enough to cover my bills for an entire month.

It strikes me that while the idea of having $1,000 on hand as a starter emergency fund is a good one, the amount is too bloody low. I paid off my debts 20 years ago. According to this handy-dandy inflation calculator, the same $1,000 from two decades ago is worth $1,503.76 today.

It’s no secret that I’m a fan of the emergency fund. In my opinion, it’s good to have money set aside for when the sh*t hits the fan. You owe it to yourself to make sure your emergency fund grows in lock-step with inflation. This particular pool of money won’t help you as much if it’s insufficient to cover your bills when faced with that inevitable emergency.

You know your own numbers far better than I ever could. And if you don’t know your numbers, then it’s time to start tracking them. Having a handle on your money is an integral part of self-care. When your fixed monthly expenses go up, then your emergency fund must be adjusted accordingly. Imagine that you’ve suddenly lost your source of income. The reality is that you’d still have to pay for your shelter, your transportation, your utilities, and your debts. This isn’t the time to rely on debt. Streaming services, wine subscriptions, cable, gym memberships! All of your variable costs should be on the chopping block. Reduce or eliminate these expenses until your income is solid again. They shouldn’t have too much impact on your emergency fund.

So when you hear that inflation is going up by 4% annually, do what it takes to boost your emergency fund! Even an few hundred dollars will help. I’m not saying that you have to bump it up all at once. What I am suggesting is that you squirrel away $5, $10, $20 into your emergency fund every chance you get. Those little dribs and drabs will add up over time. Trust me when I say that no one ever regrets having money set aside during an emergency.

Again, your emergency fund has to keep up with inflation. There’s no way around it. It’s your responsibility to make sure that emergency funds are in place when you need them. And if you’re going to have a starter emergency fund, please make sure that you set aside more than $1000. That amount was chosen nearly two decades ago! Believe me – it’s no longer enough to cover more than a moderately expensive car repair.

Inflation is the Non-Stop Money-Eater

Today, I read a Twitter thread about inflation and its impact on money. So many people feel that their paycheques are not going as far as they did before. Their net income is going to shelter, groceries, and utilities. Yet, they feel that it’s harder and harder to survive from one paycheque to the next. Costs are going up while their pay remains the same. They are caught in the grip of inflation, which I like to call the Non-Stop Money-Eater.

I’ve noticed it too. The bulk package of chicken breast at my local grocery store was $27 this time last year. When I went to buy the same package 6 weeks ago, I paid $42. That’s a price jump of $15 in 12 months, or an increase of 55%. That’s inflation at work. My $27 won’t buy me as much chicken today as it did last year. And I’m a Single Person. Every time I leave the grocery store, I wonder how people with families afford their grocery bills. (As a matter of fact, I asked a friend of mine how much their 6-person family spends on groceries in a month. The answer was $2,000. Even accounting for cleaning supplies and personal care products, that’s a huge grocery bill!)

Inflation is a serious problem, for everyone. The lower your income, the more severe its impacts on your household finances. If you’re fortunate enough to have extra money in your budget, then you can better absorb the increased prices. However, your paycheque or investment returns have to continuously outpace inflation. If they don’t, you will eventually reach a point where your income is not enough to cover the higher costs resulting from inflation’s impact on everything.

Inflation Erodes Purchasing Power

Simply put – the Non-Stop Money-Eater will decimate your finances, if given enough time. You can only tighten your belt so much. Even if you got a second or third job, there are only so many hours in a day. You were not put on this Earth to simply work and pay bills. There should be more to life than scrimping from one payday to the next.

At the time of this post, inflation in Canada was at 4.2%. This is the macro number used by the government. Your personal inflation rate might be higher, or lower, depending on your personal expenses. Whether a large number or a small one, the result is the same. Your income is not buying you as much today as it did yesterday. It will take more money to buy the same amount. That means you have less money for everything else. So unless you want to live off your credit cards, or lines of credit, and pay interest to do so, you will have to eliminate something from your budget. Fewer streaming services? A cheaper place to live? Giving up your car?

Again, your life should be more than the daily grind of working, getting paid, paying bills, then working some more. You should be able to breathe without financial anxieties. We can’t all own private jets, third houses, and a stable of Arabian horses. However, you should be able to find your happy medium between barely scraping by and a life of unfathomable extravagance.

For those of you whose incomes are still growing, congrats! You may not have to alter your lifestyle since your purchasing power is keeping up with inflation.

A Few Suggestions

What is the answer to fighting inflation on a personal level? I honestly don’t have a perfect answer that will work well for everyone. I’m not an expert about such things. What I will do is share my opinion on how to dull inflation’s impact if you’re fortunate enough to have some extra money in your budget after you’ve paid for the necessities.

My first suggestion is make good use of your kitchen. I’ve written before about how financially prudent it is to cook the majority of your food at home. A hamburger with fries at restaurants around me will run you atleast $17, and the bottomless soft drink is another $3.50. After tax and tip, the bill is atleast $26. The same money spent at the grocery store combined with 30 minutes in your kitchen will result in far more than 1 hamburger with a side of fries.

Don’t let lack of cooking skills stop you. Thanks to YouTube, you can learn to cook just about anything by watching a few videos and paying attention. Start small then work your way up to the more complicated meals. Maybe you start making your own muffins and cookies so that you don’t have to buy them each day. Then you move on to making simple breakfasts and tasty lunches. Afterwards, you tackle dinner and turn your attention to batch cooking. Your freezer and pantry become your happy places, since they are key to making your tummy and wallet happy too. Much like piano playing and walking, cooking skills get much better with repeated practice. You’ll figure out what you like to eat, and then you’ll master those dishes. Cooking for yourself should be your default choice when you start to feel hungry.

And it’s not too early to start planning for next year. One of my favorite personal finance bloggers has a vegetable garden. Each year, he plants vegetables and harvests them as they ripen. You better believe that his veggie garden saves him a good chunk of money each year. We’re well into autumn and winter’s just around the corner so now’s the time to start thinking about planting next spring. Do you have the room for your own garden? Is there a community garden nearby? Do you have a balcony that can hold a few planters? If you’ve never planted a garden before and you want to, use your downtime in winter to watch and to learn from some gardening videos on YouTube.

My second suggestion is to use your freezer and to stock up on things when they’re on sale. Low-sodium bacon was on sale last week. My mother, my aunts, and I all made sure to get some for our respective freezers. In my corner of the world, bacon is now $1/slice! That was unheard of last year but I doubt the price will fall back to its former level any time soon. My mother and her sisters are all ladies in their 70s & 80s, so they use an old-fashioned app called “a telephone” to share the great prices that they find at the grocery store.

I’m willing to be that you, Dear Reader, have a cell phone. I’ll go out on a limb and assume that you’ll probably want to use apps on your phone to find good prices when you are grocery shopping. Never forget that coupons are your friend. I have an app on my phone that sends me weekly offers on things that I buy most often. When I buy those things, I get points and those points translate to dollars off my grocery total. It’s fantastic to have a bill of $110.77 and only have to pay $0.77 because my points-into-dollars covered the rest.

It should go with out saying that price-matching is an essential tool in your arsenal. Some grocery stores will match a competitor’s price on the same item. This is another way to save money without going to several grocery stores in order to buy the same product at the lowest price. You need to eat, but you don’t have to pay more than necessary to do so.

My third suggestion is to continue investing for the long-term. The capitalist system is not designed to make employees rich. Read that sentence a few more times, and let it sink in until you’ve memorized it better than the alphabet.

Employees’ salaries are a cost of doing business. Every business has a profit-motive. This means that every business benefits by lowering its costs. Lower costs translate into higher profits. Your employer has little, if any, incentive to pay you more money to do your job.

In sharp contrast, there is a built-in incentive to align the interests of investors with the interests of business owners. The corporations need shareholders’ money, or else they wouldn’t sell stock in their company. By investing in low-cost equity exchange-traded funds, you will increase your chances of creating a cash flow that can sustain you. By all means, keep your job if you need it to survive. What I’m telling you is to wear two hats. Be an employee and an investor. If all goes according to plan, then you’ll be doubling your sources of income. Should inflation erode the income from your job, you’ll have your investment income available if you absolutely need it to survive.

No Easy Answers For Everyone

In my humble and inexpert opinion, inflation is not going away any time soon. The cost of necessities will continue to rise, which is not going to be fun. You will need to sit down and figure out how you are going to deal with Non-Stop Money-Eater. What will it take for you to limit its impact on your finances?

Invest to Beat Inflation

The chatter in the system is that inflation is coming.

Hardly surprising. I would venture to say that inflation is already here. Groceries are more expensive than they were a year ago. Gas prices have risen in my corner of the world. Friends who need lumber are sharing horror stories about the price. There’s not a doubt in my mind that inflation has arrived…and it’s going to get worse before it gets better.

I’m going to suggest that you invest to beat inflation.

First of all, you need to know that I’m not an economist. I am not in any way certified to give you an opinion on how to invest. I know what has worked for me in my circumstances. There are no guarantees that my strategy will work for you in yours.

Secondly, I’ve been around long enough to know that paycheques don’t rise in line with the increased cost of living. It sure would be nice if they did, but they don’t. Your take-home pay will stay the same even though the prices of what you want to buy will continue to go up. In other words, your paycheque has to stretch farther just so you can continue to live way you want. This is inflation at work.

There are several ways to fix this. You could get a raise, or find a higher paying job. Great. If your employer chooses to pay you more money, then pat yourself on the back. Keep in mind that there’s no reason for your boss to give you a raise if she doesn’t want to. I mean, you could be replaced, right? And maybe the next person would do your job for less money… Trust me – this thought may have crossed your boss’ mind a time or two.

If a raise isn’t an option that your employer is willing to pursue, then you can always search for a higher paying job. Should you be lucky enough to find one, hooray! The higher take-home pay can now go towards paying higher purchase prices for all those things that are more expensive today than they were yesterday.

A third, less palatable option to combat inflation, is to cut out all the things that are now too expensive for your still-the-same-size-paycheque. That might mean giving up your gym membership, extracurricular/educational courses, cable, streaming services, books. You might have to move in with roommates, or stop eating out, or give up buying new clothes. There are many ways to cut back, but you can only cut back so much. There comes a point where there’s no more fat to trim.

I don’t want you to get to that point.

What I want is for you to invest to beat inflation.

How does that work, Blue Lobster?

Investing in equities over the long-term results in returns that are higher than the rate of inflation. Equities is a fancy way of referring to the stock market.

You cannot invest in GICs at the bank that only pay you 1.6% and expect to beat inflation. For one thing, inflation may be higher than 1.6%. Secondly, interest is fully taxable at your marginal tax rate. If your marginal tax rate is 27%, then you’re not earning 1.6% on that GIC. You’re only earning 1.168% (= 1.6% x [1-0.27]). Thirdly, GICs lock up your money for atleast a year. The main benefit of GICs is safety. Unfortunately, the cost of safety is too high because your money will be ravaged by inflation. You will effectively be falling further behind financially since you’re only keeping 1.168% of your GIC’s return while inflation is increasing prices by 1.7%.

Investment returns > inflation rate. Good.

Inflation rate > investment returns. Bad.

To avoid the second scenario, invest in the stock market through diversified equity-based exchange traded funds and/or index funds. Consistently save and invest your money into stocks via these investment vehicles then leave it alone to grow. Do not check it every day. The stock market is volatile. In other words, the value of your account will go up and down but the trend over the long term will be upward. If volatility bothers you, then the answer is to not check your investments every day. Avoiding the stock market is most definitely not the solution to your aversion to the unpredictable nature of the stock market.

Stuff money into your TFSA and RRSP and buy equity-based ETFs and index funds. It might take you a few weeks to max out your contribution room. It might take you a few years. That doesn’t matter too much. The important thing is to start today. Get your money working for you immediately. Once you’ve maxed out your registered investment accounts, then keep investing your money in your brokerage account, aka: your non-registered investment account.

How do my investments beat inflation, Blue Lobster?

Over the long term, your investments will earn a return that is higher than inflation. Your registered investments will have the added benefit of doing so without being ravaged by taxes.

For example, assume that inflation is at 1.5% and your investments return 10% over the long term. Also assume that your tax rate is 27%. Your registered investments will be beating inflation by a rate of 8.5% (= 10%-1.5%). Remember! The money that is earned inside your TFSA and your RRSP grows tax-free so you need not concern yourself with your tax rate.

Money earned outside of the shelter of your TFSA and your RRSP is subject to tax. For this reason, you’ll still be beating inflation in your investment account but not by the same amount. The money earned in your non-registered investment account will be beating inflation by 6.205% (= [10%-1.5%] x [1-0.27]).

Disciplining yourself to stomach the volatility of the stock market will be very profitable for you. When the time comes to start living off your investments, they will have grown nicely. Your investments will be more than ample to cover the inflation adjusted costs of living. Ask your grandparents if, when they were in their 20s and 30s, they’d ever imagined a brand new car costing $35,000. Ask your parents if they’d ever thought people would pay $5 for a cup of coffee. Now imagine yourself 35 years from now at the grocery store and realizing that the price of a single loaf of store-brand bread is $9.

By investing in equities today, you will be taking a big step towards outpacing inflation. Start today by taking the following steps:

  1. Open a TFSA, an RRSP, or a brokerage account.
  2. Every time you’re paid, have a pre-determined chunk of your paycheque sent to your investment account. Do this by setting up an automatic transfer from your chequing account to your investment account, ie. TFSA, RRSP or brokerage account.
  3. Leave the investment account alone to do its job.
  4. If available, participate in the dividend re-investment plan. You won’t be spending the dividends. Instead, they will continue to be re-invested for the long haul.
  5. Rest a little bit easier knowing that the long-term average return on your investments is higher than inflation.

You can take steps today to mitigate inflation’s impact on your life tomorrow. Just do it!