The current economic climate, characterized by uncertainty surrounding Canada-U.S. relations and looming tariffs, poses significant risks to personal finances. This article outlines practical steps to strengthen your family's financial security by reducing expenses, building an emergency cash cushion, and optimizing investment strategies.
Uncertainty is unsettling, and we're facing a wave of it right now. The relationship between Canada and the United States, coupled with the looming threat of tariffs, is cause for concern. No one knows the precise impact this will have on personal income, inflation, and the stock market, ultimately affecting our financial well-being. If you haven't already, now's the time to strengthen your family's finances.
Lower income isn't just about job loss; it can stem from reduced commission income and bonuses, salary freezes, and decreased earnings for self-employed individuals. It's a risk many families face.Meanwhile, inflation is driving up your costs. While the extent to which tariffs will fuel inflation remains uncertain, the Bank of Canada anticipates at least a one-time price increase. And let's not forget that we've already experienced a period of inflation, pushing costs 18 percent higher than they were in 2019. The combination of these factors risks pushing you into debt and jeopardizing your long-term savings. This might be manageable if the impact of lower income and higher costs is modest and temporary, but the consequences can be long-lasting if you're not careful.Take a two-pronged approach to bolster your family's cash flow: identify areas where you can cut spending and ensure you have readily available cash. Knowing where you can trim expenses if necessary will provide a sense of control and alleviate anxiety. Itemize your discretionary spending – which things are you willing to reduce or eliminate? Cutting back on major expenses yields the most significant savings, and vacations are often at the top of the list. However, other costs can also add up quickly: a couple of family outings each month and dining out once a week can easily add $10,000 to your annual budget. Some expenses are unavoidable, especially childcare. Paying for daycare, after-school programs, and other childcare needs is essential for working parents – and even if one parent loses their job, the need for childcare often doesn't disappear. Make sure you have enough cash on hand to cover these critical expenses. This might mean starting to set aside money in a savings account or exploring selling some riskier investments and holding the proceeds in a safe and easily accessible investment like a money market mutual fund.Investing has been incredibly rewarding over the past two years, with both the Canadian and U.S. stock markets experiencing substantial growth. However, some investors have become complacent and overinvested in stocks, particularly U.S. stocks. Ideally, your investments align with your time horizon and risk tolerance. Long-term money can withstand stock market volatility, but short- and medium-term funds require a degree of safety and stability. Registered Education Savings Plans (RESPs) deserve special attention. When your children were young, a high allocation to the stock market was appropriate due to your long time horizon. But if you have a teenager, post-secondary education is on the horizon. By grade nine, you should start reducing the risk in your RESP by increasing your allocation to safer investments, such as bonds. As your child approaches grade 10 or 11, three years away from university, begin shifting some funds into cash-like investments like guaranteed investment certificates (GICs), money market mutual funds, and high-interest savings exchange-traded funds (ETFs). Holding money in safe investments prevents you from being forced to sell investments to cover tuition during a market downturn. Lowering stock exposure also reduces anxiety about losing hard-earned savings. For instance, if you have $80,000 in your child's RESP and the market experiences a 20 percent correction, you could lose $16,000 – the equivalent of two years of tuition for some university programs.Are you comfortable with that risk, or do you need to rebalance your investments? Being prepared and having a plan minimizes worry and anxiety. So does sharing your concerns with someone you trust. Talk to your partner, a friend, or a family member. Even your older children might be feeling anxious, so involve them in the conversation at an age-appropriate level.Many financial advisors focus exclusively on high-net-worth individuals, leaving the general public seeking alternative sources of guidance
Economic Uncertainty Personal Finance Family Finances Tariffs Inflation Investment Strategies Savings Emergency Fund Registered Education Savings Plans (Resps) Risk Management
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