Changing Financial Times

Changing Financial Times

  • By Leigh C. Taylor, LIT

We have not experienced such difficult economic circumstances since the 1980’s. Back then, we were battling very high inflation with extremely high-interest rates. Now we have the extra pressure of recovering from a pandemic.

There is great uncertainty about which direction the economy is headed and the government not knowing what to do other than throwing money at the problem.

International relations are quickly looking like the worst of the Cold War Era.

What do you do?

Hope for the best but prepare for the worse.

You really can’t do much about conflicts in Europe or Taiwan – so let the government deal with that. The immediate problems are inflation and interest rates – they affect you every day.

Inflation – that means things cost more. There are really only two options for the consumer, or a combination of the two:

1. Increase your income.

A second job, maybe part-time, or taking extra shifts at your current job can bring in a little extra income. With 8% inflation, you would have to work about ½ day per week to maintain the same purchasing power you had before the current inflationary increase.

2. Lower your costs (spend less).

This requires careful budgeting. Cut out unnecessary spending: no more Starbucks, restaurant meals, use the car less, etc. It is surprising how much can be saved by paying attention to your spending habits. This doesn’t have to reduce your quality of life, unless things get worse than they are today. If you don’t think it can get worse, though, ask your parents about 17% mortgages in the 1980’s.

3. A combination of the above may be a good plan.

Interest rates:  If you don’t borrow money, interest rates aren’t a problem. This advice is too late for most of us. So what to do? The basic plan is to reduce higher interest and variable interest rate debts. These are things such as credit cards, variable rate lines of credit – things where the interest rate is not fixed, but goes up immediately when rates increase.

Start to pay off more quickly the high interest rate credit cards – they are usually the worst. Avoid new credit purchases – it’s very hard to reduce the balance while adding to it. Good budgeting is the best tool. Focus on directing as much as you can afford toward the highest interest debt you have.

Unless you can increase your income or have savings that you can rely on, inflation is going to affect your finances. In this podcast, Daniel Maksymchak talks about what impact rising inflation is having on Canadians.

Consolidation loans: These can work if you have significant credit card debt, and enough equity in your house. For example, a second mortgage can provide cash at a reasonable rate (5-6%) to pay down credit card debt (28% rate for example). The second mortgage can then be paid off over time and the savings are substantial. Make sure that your mortgage, both first and second, are at locked in rates – mortgage rates are likely to continue to increase, so avoid anything that is variable.

Not everyone has a house, let alone equity in it. Not everyone can work more hours, or budget their way out of debt.

This may be where a Licensed Insolvency Trustee can help you get back on your feet. Federal legislation is available to get you out of debt while still managing a reasonable quality of life.  Both Consumer Proposals and Bankruptcy can be useful tools, depending on the circumstances. Both stop interest charges and penalties, and protect you from your creditors, preventing collection practices, even garnishments.

Talk to LCTaylor and explore which solutions could work for you.

Leigh C. Taylor, LIT

Leigh has been working in the insolvency field since 1975. He is a graduate of the University of Manitoba. Leigh began his career as an Official Receiver with the Office of the Superintendent of Bankruptcy. He is a Certified Professional Accountant, and he attained his license as a Licensed Insolven Read More Leigh has been working in the insolvency field since 1975. He is a graduate of the University of Manitoba. Leigh began his career as an Official Receiver with the Office of the Superintendent of Bankruptcy. He is a Certified Professional Accountant, and he attained his license as a Licensed Insolvency Trustee in 1980. Leigh has been a member of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) since its inception. He is a Past President of several organizations, including the Manitoba Association of Insolvency and Restructuring Professionals (MAIRP), the Armstrong Point’s Association, and the Manitoba Opera. In addition, he has served for numerous years in leadership roles in Winnipeg churches. Close

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