Don’t save a new budget for a new year.
As the leaves change and the kids head back to school, September hands us as clean a slate as January when it comes to resetting our goals, our intentions and yes, even our budgets.
And with the tumultuous summer our economy has had and the uncertain months ahead, there is no better time than this fall to focus on how our budget can help us not just survive, but thrive financially.
The leaves aren’t the only thing changing as we head into this fall. With inflation proving to be a more stubborn beast than expected, the resulting high interest rates, and an unpredictable economy, many Canadians are feeling anxious about the future. Expensive mortgage renewals are looming for thousands of Canadian families, while others are simply struggling to keep up with the skyrocketing cost of living.
Now more than ever, taking control of your finances is key. And while setting our goals and cracking open those new planners is traditionally a January affair, this fall presents the perfect time to reset and get our finances on track. Because as we have become all-too-familiar with, it’s impossible to truly predict what comes next. But, by making positive changes before the year is through, we can not only finish off 2023 in one piece but move into 2024 feeling empowered instead of overwhelmed, no matter what the uncertain economic landscape throws our way.
Taking stock
Before making any significant changes, it’s important to review the past 6-8 months of spending to see where your budget succeeded and where it fell short.
Were there categories you consistently overspent?
Did you underestimate essentials?
This insight is an important first step in helping you create a more accurate budget for the coming months - because until you know where your money is going it is impossible to know where it could be better spent!
Build a buffer
As inflation is still lingering well about the Bank of Canada’s 2% target and proving to be much more stubborn than anticipated, it serves as a stark reminder that, well, simply existing in Canada is very, very expensive. Even as headline inflation slows back down under the BoC’s aggressive pressure, we can expect that the cost of living will remain sky-high.
But remember that moderate inflation, such as that highly sought-after 2% target, is actually a sign of a healthy economy, as opposed to harmful deflation. For prices to come back down right now would require periods of deflation, which can severely damage an economy and employment if sustained long-term. So, while we can’t likely look forward to a return of the grocery prices of yesteryear, we can proactively plan our budgets accordingly.
Look closely at expenses like groceries, gas, and utilities that are seeing major inflation impacts - chances are your weekly grocery spending has crept up since you last reviewed your budget and that it likely will yet again. So, it’s important to consider how you can reallocate cash flow as such. You might also consider building in room for potential rate increase effects on your mortgage or other debt payments - especially as we expect we may see an eleventh increase from the BoC on September 6th.
Keep your eyes on your renewal
For those facing mortgage renewal within the next 6-12 months, this budget reset is even more critical. Get clear on your spending and saving patterns so you know exactly where your finances stand before renewal. If you, like most homeowners renewing this year, find yourself renewing in a much higher rate environment, it’s imperative that you have a solid picture of how much of a payment increase, if any, you will be able to afford. Starting to review your cash in and out well in advance will ensure you have plenty of time to make a plan to restructure as necessary!
You may also consider consolidating high-interest credit card and loan balances into your mortgage at renewal to roll all of your outstanding payments into one cohesive monthly payment - yep, even if your mortgage rate is increasing. Depending on the balances you have outstanding and at what rates, you may find that you not only save thousands in interest over the long term but could free up hundreds in monthly cash flow right away.
Remember our Effective Rate Calculator from last month? If you haven’t yet, now would be a great time to investigate whether your effective rate is high enough that your budget would benefit from consolidation. Check it out at the link below and, of course, give us a call if you’d like guidance navigating it
Exploring alternatives
It goes without saying that one of the most powerful budget reset strategies is re-evaluating your current purchases. Seek out lower-cost providers for everything from insurance to cell phone plans, utility companies, subscriptions, and more. Even minor savings add up over the course of a year - but no, we don’t recommend cutting out your favourite pumpkin spice beverages completely 😉
Consider temporarily suspending services providing less value, skim your credit card statements for memberships you signed up for as free trials and neglected to cancel, and get serious about separating needs from wants. Saving money doesn’t have to be about depriving yourself - it’s just about getting creative.
Increase your safety net
With so much economic uncertainty ahead, it’s wise to bulk up emergency and savings funds. Look for pockets of cash flow in your budget that could be redirected into savings each month - perhaps that which you save by cancelling one of your streaming services or as a result of consolidating debt repayments. Even small automated contributions help.
Aim for enough savings to cover 3-6 months of living expenses. This provides a cushion if you face a job loss, unexpected costs, or potential unforeseen challenges in making payments. Having any safety net in place can help exponentially with reducing your stress and anxiety during uncertain financial times - and heaven knows we could all use a little less stress.
Commit to consistency
If you (like most of us) tend to crack open a new planner on January 1st and fizzle out by February then committing to a refreshed budget can be a challenge. But, by closely monitoring your budget over the final months of 2023, checking in weekly or bi-weekly and making adjustments on the fly as needed you can help to ensure that you catch any creeping costs before they spiral.
Entering 2024 with a solid understanding of your finances, room built in for inflation and potential rate fluctuations, and a stronger emergency fund is the best way to step into uncertainty. Don’t wait for the new year—use the fall months to take control and reset your budget for success now.
