To cope with a tight household budget caused by rising mortgage rates and inflation, distinguish between wants and needs and cut non-essential spending as required.
Let’s file that classic personal-finance advice under “I” for “inadequate”.
According to economist Armine Yalnizyan, gas prices are up about 36 per cent from last year, food is up 10 per cent and housing costs are up 8 per cent, while average wage growth is running at roughly half the inflation rate.
“It doesn’t matter how you budget – you’ve got less to go around,” said Ms. Yalnizyan, an Atkinson Fellow on the Future Of Workers. “If you have a job, average wages are not keeping up.”
Solution: Focus on increasing your income, rather than chopping your spending.
One approach is to ask your current employer for a raise. Ms. Yalnizyan said the risk in everyone doing this at the same time is that wages spike higher and in turn fuel more growth in inflation. Also, it’s rare to get a significant pay increase at the same job, unless you’re moving into a management position or you’re the CEO.
“There is a better way of getting wage growth,” Ms. Yalnizyan said. “Move to a better job. That’s where you get the biggest bump in wages.”
We are in the middle innings of what for many people will be the first decline in the affordability of everyday life they’ve ever seen. Inflation is always there in the background, but the typical prepandemic average rate of 2 per cent was never more than a passing annoyance. The latest year-over-year increase in the cost of living was 7.7 per cent, and economists say we may yet see worse.
Inflation has triggered a wave of interest rate increases that are further driving up the cost of living for people paying off mortgages, lines of credit and loans. Without more money coming in, you might be forced to cut.
There are niches of personal finance you can mine for help in cutting costs. You’ll find apps for budgeting, finding the best deals on groceries and locating gas stations with the lowest prices. The problem with cheaper gas and groceries is that it won’t keep you even with overall inflation and higher debt costs. You’ll have to cut more.
Here’s where we veer into the judgy side of personal finance – the idea that however much you’re spending on your life, there’s fat to be trimmed. Making more money is a way to push back against that notion and ensure your spending is affordable.
If you want a better job, start looking right away. We still have a shortage of workers in some areas, and employers are still hiring – and paying up to do so in enhanced wages, bonuses and workplace benefits. But the interest-rate increases central banks are using to reduce inflation will slow economic growth, possibly to the point of a recession.
Already, the technology sector is laying off staff. The headline on a recent article on the MarketWatch website summed up the shift nicely: “From Great Resignation to Forced Resignation: Tech companies are shifting to layoffs after a huge ramp up in hiring.”
Ms. Yalizyan says that so far, we’re looking at a period of slower growth as opposed to a shrinking economy. But there’s more to the opportunities in the job market today than economic trends. Demographics in the form of an aging work force also play a role. Recently released details from the 2021 census show that more than one in five people of working age are near retirement, an all-time high.
“We are in the middle of a big gap between people exiting the labour market and people entering the labour market,” Ms. Yalnizyan said.
Another long-standing strategy to deal with affordability challenges is the side hustle, aka moonlighting. The idea of a side hustle suggests striving and self-reliance – but it also lets employers off the hook for offering jobs with decent pay and career opportunities.
Put some hustle into finding your best single job and career. Save the rest of your time for the important parts of life that happen away from work.
Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.
Rob Carrick