Allow room in your budget for an increase in household expenses, such as grocery bills, due to inflation (Getty Images/Tang Ming Tung)
For some, a new year arrives with an ambitious set of resolutions. If a budget overhaul and reset are on your list, here are three tips from CPA experts to get your 2022 finances on track, even as the pandemic rages on.
1) ADDRESS EXCESSIVE VACATION SPENDING
As Canadians prepare for winter and credit card statements roll in, holiday debt may need to be addressed (if it hasn’t already been done).
“With pandemic fatigue, people may have spent more because they are fed up with the situation,” says CPA David Trahair, personal finance coach and author of The Procrastinator’s Guide to Retirement.. “Trying to get people to control their spending is difficult at the best of times, during the holidays it is extremely difficult, especially for spenders.”
There are a few ways to deal with Christmas debt. You can find new sources of income, cut back on expenses, and set up a realistic plan to pay off debt or use your savings (which experts say you should try not to do).
“The reality is that if you’ve overspent, something’s got to give,” says Andrew Jeffery, CPA with Toronto-based Northwood Family Office. “There is no easy solution or silver bullets. It’s not the most glamorous answer, but it’s the truth.”
2) ACCOUNT FOR INFLATION
Since inflation is an unfortunate reality, budgets need to reflect the impact accordingly, particularly on certain items including groceries and gasoline, Jeffery adds. According to Canada Food Price Report 2022 published in mid-December, food prices alone will rise by four to seven percent in 2022.
“Inflation is in the headlines everywhere. It’s a reality, so you want to incorporate some cushions,” says Jeffery.
To adjust your spending for these rising costs, Jeffery suggests treating your budget as a living document that is reviewed several times a year. For example, he notes, if your grocery bill used to be $300 a week, factor in an extra $50 and reflect that in your budget, to offset the increased costs. “You want to keep adjusting assumptions for a new reality.”
Inflation will affect Canadians unequally, Trahair reckons. How well households can adjust their budgets to account for rising costs depends on how much they have been able to save.
“The pandemic has been unfair in terms of treating some people well and really hitting others. Inflation is something that will negatively impact those with lower incomes. [and less savings]many of whom have lost their jobs,” says Trahair.
3) PREPARE FOR UPCOMING TAX DEADLINES
With tax season approaching, now is the time to get organized, adds Jeffery. This includes collecting receipts (for expenses, charitable donations, medical, etc.) and tax returns as soon as you receive them.
If you have received any government support related to the pandemic through Canada’s COVID-19 Economic Response PlanMake sure you understand the potential tax implications. CPA Canada’s COVID-19 Updates and Tax News page is a great starting point for information. You should also talk to a CPA well in advance of tax deadlines or visit the Government of Canada website for more details.
Questions to ask yourself include:
Trahair recommends addressing any debt you may have (particularly credit card debt) before making contributions, as interest on debt costs more than interest on a portfolio.
Also, for those who have experienced life events including death or divorce or job changes, such as earning extra income, now is the time to let your tax specialist know, says Jeffery.
“Being proactive is the name of the game. That will save you from the mad rush at the end of tax season.”
MORE PERSPECTIVES OF PERSONAL FINANCES
Read the award-winning book A Canadian Guide to Money Smart Living for practical tips and checklists to help you better manage your finances.
Plus, get our take on what you need to know about the increasingly available Buy Now Pay Later (BNPL) option before you click accept.