The Credit Edit: Your money matters made easy

In this guide, we'll clarify everyday financial issues, providing additional resources and support where available.

This edition of Credit Edit tackles three pressing issues impacting Canadians: High interest rates, the cost-of-living squeeze, and the current state of the real estate market. While these topics dominate national news headlines, they often leave questions unanswered – that's where we come in.

As of Wednesday, July 24, 2024, the Bank of Canada lowered its policy rate by another 25 basis points, bringing it down to 4.50%. Economists predict this trend will continue throughout the remainder of the year, possibly reaching 4% in 2025. This welcome news, coupled with the Canadian central bank's recent decision to reduce borrowing costs, is a positive development.

This could signal easing inflation, but the immediate impact on your wallet might be unclear. The reality is, borrowing costs remain significantly higher than pre-pandemic levels. From personal loan and mortgage repayments to your weekly grocery bills, everything feels more expensive. And if you're tightening your belt, you're not alone. Retail sales across the country dipped in May as Canadians became more mindful of their spending. Why? Even with the interest rate reduction, people are still feeling the pinch.

Truth be told, it's a waiting game

The cost-of-living burden could ease over the next six months or so. However, that might provide little comfort if you're feeling financial strain now. Let's explore some options – because financial worries shouldn't dampen your summer fun.

Creating a budget

There are plenty of ways to have a fantastic summer without breaking the bank. Budgeting might sound daunting, but it simply means planning your spending while sticking to a realistic limit. It doesn't require complex tools – a pen and paper will do the trick. With that in mind, let's get started:

• Track your income: Identify your total monthly income, including your salary, any side hustles, and benefits received.
• List your expenses: Write down everything you spend money on, from mortgage/rent and utilities to groceries, transportation, and entertainment. Include that morning coffee commute or school run expense too.
• Categorize your expenses: Once listed, categorize them as essential (housing, food, utilities), non-essential (entertainment, dining out), and debt repayments.
• Calculate your disposable income: Subtract your essential expenses from your total income. This is the money available for non-essential spending and savings.
• Set realistic spending limits: Allocate a realistic amount for each expense category based on your disposable income.

Budgeting helps prioritize spending, avoid unnecessary purchases, and potentially free up cash for other things. Remember, credit cards can be helpful with larger purchases or unexpected costs. However, sticking to your budget for everyday expenses can offer peace of mind and greater control over your finances.

It's no secret that mortgage rates are still high. This has created somewhat of a homeownership crisis in some of Canada's most popular cities. First-time buyers struggle to get on the property ladder, while those nearing the end of their fixed-rate mortgages potentially face unaffordable renewals.

In some Canadian cities, the average home carries a price tag of around $1 million. Not surprising for a country with one of the highest living standards globally – which, unfortunately, translates to expensive cities.

The cost-of-living index ranks Canadian cities based on living costs, from highest to lowest.

Cities with the highest cost of living (as of June 2024):

1. Vancouver, British Columbia
2. Victoria, British Columbia
3. Calgary, Alberta
4. Ottawa, Ontario
5. Toronto, Ontario

Cities with a lower cost of living:

• Edmonton, Alberta
• Nanaimo, British Columbia
• Halifax, Nova Scotia
• St. John's, Newfoundland and Labrador
• Kamloops, British Columbia
• Guelph, Ontario
• Hamilton, Ontario

Source

The cost-of-living index takes into account a range of expenses, from housing and taxes to groceries, transportation, and entertainment. It’s a snapshot of what it costs to live in a particular place.

Some people use this information to figure out how much money they'll have left over after paying their bills. With everything costing more these days, some folks are considering a move to a more affordable city. Of course, relocating isn’t without its challenges, like moving costs and being away from family and friends.

Saving for a down payment is a significant hurdle for many Canadians looking to buy their first home. Fortunately, the government offers a helpful tool: the First Home Savings Account (FHSA).

The FHSA is a registered plan that allows you to save for a first home on a tax-free basis. You can contribute up to $8,000 annually, with a lifetime limit of $40,000. When you withdraw the money to purchase your first home, it's completely tax-free as long as you meet the eligibility criteria.

To be eligible for an FHSA, you must:

• Be a Canadian resident
• Be over 18 years
• You and your partner cannot have owned a principal residence in the past four years

Learn more

The content in this blog is financial guidance and not financial advice.