58 – How Soaring Inflation Can Affect Your Budget

Wayne Kay 00:05
Inflation –  there’s our discussion for today’s Debt Matters podcast, where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. 

I’m Wayne, and in today’s show we are going to talk about how soaring inflation can affect your budget. What do you do to adjust your budget for inflation? How have higher interest rates hurt your budget? And what can you do to fight back, especially if you’re already in debt? 

My guest today, Derek L. Chase from Derek L. Chase & Associates Licensed Insolvency Trustee with offices in Vancouver Island Sunshine Coast and the BC North coast. 

Derek, thanks for being here.

Derek L. Chase 00:48
Hi, Wayne. My pleasure.

Wayne Kay 00:49
We always get into great discussions these days. You really can’t go anywhere without discussing that ‘I’ word –  inflation. That’s pretty common, I guess, in your industry for sure.

Derek L. Chase 01:01
Well, you can’t avoid it. It’s in the media, left, right and center, and rightfully so. It’s a huge topic. It’s really impacting the world, really, and it’s tough. It’s making life a real challenge.

Wayne Kay 01:17
And so when we’re talking about inflation, for somebody who’s like – I keep hearing the term, please tell me exactly what it means. What is it exactly?

Derek L. Chase 01:25
Well, inflation is just the rate. It’s usually talking about the rate of the increase to the cost of goods and services. When inflation is 5%, that same product you used to buy for one dollars is now $1.05. 

So it’s just pushing the cost of everything that we consume higher. And as a result, that’s really impacting people’s budgets because if you’re already at a tight break even budget and all of a sudden the costs go up, then your budget tips into a deficit. And as a result of that deficit, you have to react to that.

A lot of people are reacting by adding on debt and using credit cards to cover that shortfall – using their line of credit or maybe using a home equity line of credits. And eventually that space on those products for borrowing is going to run out. And then there’s a real pinch.

Wayne Kay 02:41
They’re saying that that’s probably going to happen. We’re going to have a lot of people that will be in financial trouble in the next couple of years.

Derek L. Chase 02:48
Well, yes, it seems to be heading that way. But inflation itself is driven from two sides. It can be demand side inflation where everybody wants to buy a certain type of good or service and so the price goes up. Or it can be supply side inflation where there’s just not a lot being produced of a certain product and that can drive things up.

What’s happening now is that the government is raising interest rates in order to knock down the demand side of that inflation. And it’s just going to be a mess, in my opinion, because you’re going to have a slowing economy with high interest rates. And that doesn’t sound very pretty to me.

Wayne Kay 03:33
Do you think they did that mostly because of the housing that was going insane, or was it just everything? Gas went wild, housing, as you know. We’re in BC, we saw incredible housing prices and a lot of people paying way more money for a house to make sure that they could get it – and then building supplies and all these other things. But do you think it was for cooling that housing market or just cooling the entire economy?

Derek L. Chase 04:06
Well, the housing market is a huge percentage of the entire economy, so it’s definitely a response to years and years of easy money. How do you get that back under control? It’s just going to be very painful to get that back under control. But it is a Rubik’s Cube. There’s a lot of moving parts to why and how and what’s next. 

So it’s what we’re facing right now, what the average person is facing right now is just higher expenses for everything. Just going to the grocery store and walking out with two bags of groceries, and you just about faint because of the cost.

Wayne Kay 04:55
I refuse to get a cart. There’s no carts in my world if I can’t carry it, because I’m terrified what it would cost to fill up a cart.

Derek L. Chase 05:03
Yes, sure enough.

Wayne Kay 05:05
So how do you go about adjusting your budget spending, when all of a sudden things are pretty lean anyway? What do you do to help combat that inflation?

Derek L. Chase 05:16
I think what you’ll see right across the continent, in the world is different types of what we would call discretionary spending is pulled back. And when you’re making choices about where to spend your money and you’re making choices about entertainment or going out to eat or going on a vacation, these are discretionary type things. 

I think you’ll see a reduction in that type of spending in order that you can meet your basic needs of housing and food and these expenses that just simply have to happen. They’ll take priority over the discretionary ones.

Wayne Kay 06:03
They say there’s been a real surge in the change of type of product that people purchase now, as in they’re going with off label or no label products for groceries as opposed to name brands. That’s been one of the changes.

Derek L. Chase 06:19
Yes, I suppose it is another way that you can adjust as you start taking a second look at the type of products that you’re buying and you see something. Not to pick on the grocery store, but one is for $2.00, and right beside it, it’s for $3.25. Personally, I picked the $2.00 one. 

Yes, there’s that type of shopping that will become more prominent, I suppose, and taking the slightly deformed produce as opposed to the primo stuff, that’s more expensive. You can do that. There’s nothing wrong with that. 

I also think there’s going to be a renaissance to the backyard garden and to canning and pickling and that sort of thing – so you can push back.

Wayne Kay 07:08
Yes, that’s good advice here –  doing a little bit of fighting back. But the numbers came out for Walmart recently in their stocks – they actually did pretty well. They said they are seeing an influx of customers who are in the and I don’t even know how they break this down, but you would probably know people making over $100,000 a year who never shopped there before are now shopping in places like that.

Derek L. Chase 07:35
Yes, I did hear that and I also heard that people are avoiding certain parts of their store. So again, I think that would be more of the discretionary parts of the store and focusing more on where they can get the advertised good deals.

Wayne Kay 07:49
Yes. What are the big impacts of the higher rates, do you think?

Derek L. Chase 07:53
What’s hurting the budgets the most for higher inflation rates?

Wayne Kay 07:57
Yes, when you talk about higher interest rates hurting your budget, I guess it’s food and gas.

Derek L. Chase 08:05
Well, interest rates.  As the government pushes up interest rates, what that does is that anybody that’s in some sort of variable loan where the interest rate on their loan changes with the prime rate, all of a sudden you have to pay more for that loan. And the big player there is variable rate mortgages. So as the interest rate on the mortgage climbs, your monthly payment climbs, that can be significant. And as your mortgage payment rises, that’s putting more pressure on the other parts of your budget.

There’s also been some talk about variable rate mortgages hitting a trigger point where all of a sudden you’re not paying down enough of your principal, basically. So the whole mortgage payment on a variable rate mortgage can jump up high enough that it could compromise the rest of your budget. And that’s really where higher interest rates will dig into people in Canada, I think, is just by increasing the cost of their mortgage.

Wayne Kay 09:19
One of the things is if people start feeling that crunch financially, they can reach out to you, a Licensed Insolvency Trustees. The first meeting is no obligation and there’s no cost for that. It’s something that we’ve talked about a lot. 

So somebody comes in and they’re feeling that crunch. How do you look at the spending? Do you look at the spending or do you look at what’s coming in? How does that work?

Derek L. Chase 09:48
Well, we look at all aspects of a person’s finances when we do an initial assessment to get to the root of that.

Where you started there – is if you’re a person and all of a sudden you sense that you’re going backwards with your interest, with your debt because the interest rates have risen on your line of credit or your mortgage or any other product you’ve got. Then yes. I would say make an appointment with a Licensed Insolvency Trustee because you don’t want that momentum taking you backwards. You want to be able to move forward.

And all that happens in that first meeting is you get a lot of information. You get a trained set of eyes looking at your finances and providing you with some thoughts and that’s really all that happens. You walk out of that meeting with some excellent information that enables you to make informed choices going forward.

Wayne Kay 10:44
I like that because dealing with Licensed Insolvency Trustees, we know it’s regulated. You’re not going to try to sell something. And this is where the worry is with a lot of different things out there in the world that people are trying to sell you stuff. 

This is a good way to look at it and say, okay, I’m feeling like I’m in debt. And the government did a good job of giving everybody a lot of money over the last couple of years. Are you starting to see now where Canadians are starting to hurt more and are starting to swim in debt?

Derek L. Chase 11:20
Yes, unfortunately, that combination of inflation and higher interest rates is making the month untenable for people. There’s more months than money and they just can’t make the numbers work. So, yes, I would definitely say we’re seeing some more people because of those factors.

Wayne Kay 11:39
Because it was kind of – I was going to say it’s not slow, but it was kind of surprising how it played out for the last little while because the banks were giving forgiveness to the different loans and stuff that were out there for a little bit anyway. Maybe it was just interest, but now I think they’re going to play catch up. What do you think?

Derek L. Chase 12:01
Well, I think what you might be remembering is that during the height of the pandemic, there were a lot of the banks and Canada Revenue Agency, they just were not collecting. Everything was like, put on hold and now you’re getting more normal collection activity.

In conjunction with that, you’ve got these factors of inflation and high interest that are tripping people up and as a result, they’re facing collection action. And then if all of a sudden, if we go out, I don’t know, how many more months and housing prices start to tumble, well, look out.

Wayne Kay 12:42
Yes, that’s a very good point. I didn’t even actually think about that – that is the money that was owed from back then two years ago is now you have to play catch up. And then when you get behind, that’s a very difficult place to be.

Derek L. Chase 12:59
It is. We’ve seen people honestly trying to make that move to catch up, paying some big payments, and it’s just all going to interest and that’s very frustrating. It’s a real hard spot to be, but there’s solutions for that that can help you turn that momentum and get going in a better direction again.

 So I would say don’t lose hope. There are solutions and just start gathering information to make a good choice about it.

Wayne Kay 13:30
Okay. What’s your final words of advice for this topic?

Derek L. Chase 13:34
Well, it’s real. It’s in our face, interest rates and inflation. So just get ready to fight back and sharpen the pencil and start making some good notes about what to do next.

Wayne Kay 13:45
Right. Terrific. Derek, it’s always a pleasure. Thank you very much for being on the show today.

Derek L. Chase 13:50
My pleasure, Wayne. You have a great day.

Wayne Kay 13:52
Well, that’s it for today’s Debt Matters podcast. My guest today, Derek Chase. You can learn more or schedule a free consultation with Derek and the team. Just go to bankruptcytrusteebc.ca. 

And that is it for the show. Make sure you subscribe wherever you get your favorite podcast from. If you know somebody who needs this information, please feel free to share it with them. You can always check out our website, debtmatters.ca. Thanks for listening.