What is the cost of living?
The term “cost of living” generally refers to the Consumer Price Index. This is an index that the government sets by measuring a standard set of consumer goods. As prices go up, so does the index. If it is going up or down a lot, you will likely hear about that on the news, because inflation affects people’s day-to-day purchasing power.
Does the cost of living always go up?
The cost of living almost always goes up – we call that inflation. The government aims at 2% per year as a healthy inflation rate. They use a variety of tools to try to keep the inflation rate under control – things like money supply (quantitative easement which is printing more money), government spending, and interest rates.
Does the cost of living ever go down?
The cost of living rarely goes down. That would be called deflation. This is considered a more serious problem than inflation, and it is more difficult to correct. That’s because in a deflationary period, people expect products to cost less next week, next month, next year. That leads them to stop buying things, and the economy of the country stalls. This can lead to a recession or even a depression.
As the cost of living continues to increase, find out what steps you can take to protect yourself.
How does inflation affect the average person?
Inflation, even at a well-controlled rate of 2%, will result in things costing more. Think about what it used to cost your parents or grandparents to feed their families. You are paying considerably more now than they did then. But you also earn more than them – with inflation, everything is affected, keeping the economy in balance. The real problem comes when inflation increases too much and too rapidly, and that balance is upset.
In a time of high inflation, if companies cannot make a profit, they go out of business – whether it is a grocery store, a gas station, or a fast-food place. As their costs go up – taxes, salaries, gas, electricity, etc. – they are forced to raise their prices. If they raise the prices beyond what people can or will pay, they cannot stay in business. When you pay more for the same product or service, your dollar really has less purchasing power. That is the core problem with high inflation.
For example: If you spend $200 on groceries each week, with an 8% inflation, the same items will cost you $216. While this doesn’t seem like a lot, remember that inflation applies to virtually everything we pay for – transportation (gas, repairs, vehicle purchase), rent, clothing, childcare, entertainment.
The median net income in Manitoba is $69,000. For someone earning that amount, the cost they bear with inflation at 8% is $5,520. The cost at a 2% inflation rate would be $1,380.
How do you protect yourself?
The answer to this question is simple, but not always easy. You either earn more – a promotion, a raise, a second job – or you budget very carefully to reduce spending. That is not always easy to do, and it requires some pretty significant sacrifices.
Unfortunately, many people end up supplementing their income with credit – credit cards or a line of credit loan. Carrying a balance on credit cards is expensive because of the high interest rates, so it is not a long-term solution. Neither, for that matter, is a line of credit on your bank account. Once it is maxed out, it is unlikely that the bank will provide further credit since they can see that you are “living beyond your means” – which means, you are spending more than you are earning.
Before long, if you can’t earn more, or spend less, you are faced with collections and even wage garnishments. At that point, often the only solution is a statutory solution such as a Consumer Proposal or a Bankruptcy.
If you would like to learn more about a Consumer Proposal, Bankruptcy or explore your options, call for a free consultation today at 204.925.6400.
Leigh C. Taylor, LIT
