How does inflation affect your financial plan?

Inflation, that often-mentioned economic term, is affecting us all, and it’s time to delve into what it truly means for your financial well-being. This week Jackie and Jin  are back to explore the ins and outs of inflation, how it’s affecting you, and what you can do about it.

Defining Inflation: Rising Prices and Your Wallet

In simple terms, inflation refers to the increase in the prices of the goods and services you buy regularly. This increase is typically measured using a Consumer Price Index (CPI). The CPI monitors changes in a basket of goods that a typical consumer purchases. If the prices of these items are rising, inflation is on the rise too.

The Pre-Inflation Era: A Distant Memory

Just a few years ago, in 2020, the world seemed to be in a state of near-zero inflation. It was a time when things felt more affordable. However, as the world started reopening, supply chain disruptions and increased consumer spending led to inflation rates climbing. In the summer of 2022, inflation rates peaked at over 8%, with grocery prices hitting a staggering 11%.

Feeling the Pinch: Everyday Effects of Inflation

If you’ve been wondering how inflation is affecting your daily life, you’re not alone. Here are a few key areas where you might be feeling the financial squeeze:

Groceries: Your grocery bills might be noticeably higher.

Restaurants: Dining out is more expensive.

Gasoline: The cost of filling up your car has increased.

Housing: Rent or mortgage payments could be taking up a bigger chunk of your income.

Debts: If you have variable interest rates, you’ve seen your interest costs rise significantly.

Why Is Inflation Happening?

Two main factors drive inflation:

Supply and Demand: When supply chains are disrupted, the cost of goods goes up due to scarcity.

Money Supply: If there’s an excess of money in the economy compared to what’s being produced, prices rise.

Inflation and Your Financial Plan: The New Reality

Looking into the assumptions made in your financial plan is vital. It’s crucial to ensure your assumptions are not overly optimistic. Overly optimistic assumptions can lead to a misjudgment of your retirement readiness. If your plan doesn’t account for the impact of inflation on your purchasing power, you may find yourself unable to sustain your desired lifestyle in retirement.

Longer Life Expectancy and Your Plan

Considering your retirement plan, it’s important to account for the fact that people are living longer. Your plan should factor in inflation and assume a longer life expectancy. You don’t want your money to run out before you do.

Cryptocurrencies and Inflation: A Speculative Asset?

In light of recent inflationary trends, the question of cryptocurrencies arises. Some wonder if cryptocurrencies might become a modern-day Swiss bank account for global investors seeking refuge from volatile fiat economies. However, banks and tax authorities are increasing their oversight of the cryptocurrency market. While the future of cryptocurrencies remains uncertain, traditional financial institutions aim to regulate and control the flow of money.

Coping with Inflation: Investment and Lifestyle Adjustments

Talk to Your Advisor: Reach out to your financial advisor to discuss how inflation might impact your financial goals. We can also help you! reach out to our team at jody.euloth@askjackie.ca

Review Your Mortgage: Be prepared for higher monthly payments if you have a variable-rate mortgage. Consider options for managing increased costs.

Rethink Your Retirement Plan: Update your retirement plan to account for inflation and longer life expectancy.

Invest Wisely: Explore investment opportunities that balance risk and potential returns.

Avoid Idle Money: Make your money work for you through investment, especially during inflationary periods.

Adjust Your Lifestyle: Be prepared to scale down your lifestyle and make trade-offs to cope with high inflation.

Conclusion

Inflation is no longer just an economic concept. It’s something many of us are dealing with in our daily lives. By understanding the causes and effects of inflation and taking proactive steps to manage it, you can stay on top of your finances in this inflationary world. Having a conversation with a financial planner can provide insights into wealth accumulation, to maximize what is passed to future generations. Reach out to our team at jody.euloth@askjackie.ca for a free 30-minute strategy session