From making spending plans to setting financial boundaries, planner explains how to help inflation-pinched clients
The past few months may have brought some progress in the Bank of Canada’s fight against inflation, but households across Canada still have to tighten their belts. But as summer heats up, that might not be so easy to do.
“Lockdowns limited everybody's ability to enjoy summer in the past few years,” says Jackie Porter, CFP, who won the Equiton Award for Canadian Advisor of the Year at the recent Wealth Professional Awards. “This summer in particular, FOMO [fear of missing out] is real.”
In a survey conducted in January this year, PC Financial found one in three Canadians were planning to spend less on activities like vacations and sporting events. Another survey by HelloSafe found just a quarter of Canadians planned to go on vacation this summer; 30% said they won’t be travelling because of inflation.
But according to Porter, setting those intentions is only the first step. “Your intention might be in the right place. But at the end of the day, it comes down to what your spending plan is, because that’s going to dictate your behaviour.”
Normalizing the ‘B word’
At her practice at Carte Wealth Management, Porter says some clients with a limited ability to spend are feeling the pressure of inflation and rising rates. With vacation season in full swing, she says she’s been having more conversations with clients who want to revisit their budgets.
“I call budgets ‘the B word’ with clients. But really, it's a spending plan … I don't know if it's realistic to expect Canadians not to overspend without a plan,” she says. “A great way to get ahead of FOMO is to create a budget that outlines what your spending priorities are going to be this summer.”
To head off summer FOMO, Porter recommends for clients to think about what activities they don’t want to miss and figure out how those can be incorporated into their current budgets based on their current income and ongoing expenses. While that will require making some hard decisions, she says it puts them in a position of taking control and really understanding the impact of their choices.
Another way clients can fight vacation and summer temptations, she says, is to leverage resources available to them. In another PC Financial survey earlier this year, Gen Z Canadians emerged as the group who struggled the most with budgeting, followed by millennials.
The difficulties younger Canadians face in controlling their expenses could be attributed in part to their exposure to social media, where pictures of destination vacations, box-office binges, and concerts can fuel extreme FOMO. But younger generations could also harness their digital knowhow to get a better handle on their finances.
“It’s one thing to create a budget; it’s another thing to track it. Gen Zs and millennials are very tech-savvy, so they can use apps from companies like PC financial,” she says. “The PC financial app lets users set limits for what they want to spend money on. By giving them weekly and monthly information and tracking how close or far they are in real time, it’s a great way to keep people honest with themselves.”
Set financial boundaries
With inflation and interest rates pushing affordability to the limit, Porter says it’s as crucial as ever for households to stretch their dollars. One way to do that, she says, is to look for ways to use points to pay for daily non-discretionary expenses.
“If you can redeem points to pay for the essentials you buy every week, that’s more cash in your pocket to spend on things you actually want,” she says.
As people get bombarded with images of their loved ones’ great summer experiences on social media, it can be hard to refuse social invitations to expensive dinners out or costly patio parties. But in those instances, Porter says it’s still important to stand by one’s financial priorities.
“I think sometimes people get overwhelmed in the moment even when they know they can’t afford to,” Porter says, “especially if they don't have a plan, and they don't know what it's going to actually cost them in the end.
“If you don't have a spending plan, it's challenging to not just go ‘Okay, sounds good.’ Sometimes you have to set financial boundaries with friends and family, especially when your spending plan is staring you in the face,” she says. “You have to be able to say no, or suggest another option that works for you.”
