Leave 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 review and reset is on your list, here are three expert tips from CPAs to get your 2022 finances on track, even as the pandemic persists.
1) ADDRESS HOLIDAY OVERSPENDING
As Canadians hunker down for the winter, and credit card statements roll in, debt incurred over holidays may need to be tackled (if it hasn’t been already).
“With pandemic fatigue people may have spent more because they’re sick of the situation,” says CPA David Trahair, personal finance trainer and author of The procrastinator’s guide to retirement. “Trying to get people to control their spending is tough in the best of times, over the holidays it’s extremely tough, especially for the spenders.”
There are a few ways to deal with holiday debt. You can find new sources of income, cut back on spending and establish a realistic debt payment plan or use your savings (which experts say you should try not to do).
“The reality is that if you have overspent, something’s got to give on the other side,” says CPA Andrew Jeffery of 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
With inflation being an unfortunate reality, budgets need to reflect the impact accordingly, particularly on certain items including groceries and gas, adds Jeffery. According to Canada’s Food Price Report 2022 released in mid-December, food prices alone will climb between four and seven per cent in 2022.
“Inflation is in the headlines everywhere. It’s a reality, so you want to build in some cushions,” says Jeffery.
To adjust your spending against these rising costs, Jeffery suggests treating your budget like a living document that is reviewed several times a year. For example, he notes, if your grocery bill used to be $300 per week, factor in an additional $50, and reflect that in your budget, to compensate for rising costs. “You want to continue to adjust the assumptions for a new reality.”
Inflation will hit Canadians unevenly, Trahair acknowledges. 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 hammering others. Inflation is something that's going to negatively impact those with a lower income [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 gathering up receipts (for expenses, charitable donations, medical, etc.) and tax slips as soon as you receive them.
If you’ve received any pandemic-related government support via Canada’s COVID-19 Economic Response Plan, make sure that you understand any potential tax implications. CPA Canada’s tax news and COVID-19 updates page is a great starting point for information. You should also speak to a CPA well in advance of the tax deadlines or visit the Government of Canada website for more details.
You should also set aside time to prep for deadlines such as Registered Retirement Savings Plans (RRSP) contributions due by March 1 and income tax due by May 2.
Questions to ask yourself include:
Trahair recommends tackling any debt you may have (particularly credit card debt) before making contributions, as the debt interest incurred costs more than that made on a portfolio.
Additionally, for those who’ve experienced life events including death or divorce or employment changes, such as earning any supplementary 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 dash at the end of tax season.”
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