Q&A: How to survive 2022 with your finances intact

It's not just you. Everyone these days – even those with advanced degrees in business and finance – seems to be struggling to make sense of the 2022 economy, with its volatile cocktail of unstable markets, high interest rates and roaring inflation. And with 45% of Canadians saying they're financially worse off today than they were just a year ago, it's no surprise that many are feeling stressed out about money. 

“There's a lot of uncertainty right now," confirms Matthew Rajnauth, Tangerine's Chief Financial Officer. Despite being the guy tasked with managing the bank's money, he maintains an aura of calm and balance – more life coach than finance guru. 

So we sat down with him for a counselling session of sorts, to hear his perspective on 2022, and find out what he'd say to Canadians looking to keep their savings and investments on track when the track itself seems to have steered off course. 

Let's start with inflation. Have your kids asked for a raise in their allowances yet? 

Not yet, thankfully! They're still young. But give them a few years. 

So how surprised have you been by the levels of inflation and interest rate rises we're seeing this year? At last count inflation was at its highest level in almost 40 years. 

While we expected there to be rate hikes this year, the pace of those hikes was certainly faster than most people expected. And one of the key reasons for that has been high levels of inflation. A lot of the root causes – surplus savings from the pandemic, disruptions in supply chains, etc. – have been clearly visible for some time, but I think the acceleration of inflation has caught a lot of people off-guard. Good news is that most economists expect inflation to moderate from these levels, but will likely remain higher than usual. 

How does that affect things from a consumer perspective? 

It means that as the Bank of Canada raises its “benchmark rate," you will see the bank's prime lending rate also rise, which raises the interest rate that you'd pay on any variable loans, mortgages, etc. 

It's unfortunate that, just as gas and groceries are getting more expensive because of inflation, the cost of borrowing is also on the rise. But the two forces often go hand in hand. The central bank needs to raise rates to help control inflation and bring it back down to a more sustainable level. 

So what advice would you offer to Canadians who are worried about protecting their finances right now? 

My first suggestion would be to have an emergency fund. A good place to start would be to save up three months of salary over time. And once you hit that, start to increase it to six months (or more if you're able to). And while it will take a bit of time to save that much, having an emergency fund will provide peace of mind as you and your family are protected against any unexpected expenses like car repairs or replacing an appliance. 

Of course, saving three to six months' worth of salary isn't an option for everyone right now. 

Do you have suggestions for the short term? What should be our main strategy? 

Have a budget! I can't stress this point enough. Having a budget and sticking to it is the best plan, in any environment, but even more so in this one. It's a great way to keep track of money coming in, and what's going out. There are lots of simple tools out there to help you do this. 

Also, by doing a review of your finances, you might be able to find some spots where you could reduce spending, since small changes really do add up over time. 

You can start by reviewing your monthly or annual subscriptions. The number of regular payments we make – for streaming services, for apps and mobile phone fees – tends to increase over time, so it's good to review them all, making sure you're using them and that they're within your budget. Lastly, be sure to cancel the ones you don't need – and always keep track of when your next payments are coming due! 

Paying down any debts should also be a priority. A good rule of thumb is to look at the interest rates being paid across your debts, and focus on paying off the ones with the highest rates first. This will help limit the amount of interest you pay, which is especially important in an environment where rates are going up. 

What about the longer term? 

Longer term, it's always important to set goals. Think bigger picture – what are the key milestones you are working towards? Whether that's saving for a big trip or setting aside funds for your retirement, you should have a plan for what's on the horizon and work toward it. Setting short-term and medium-term goals is important, but it's just as key to make sure we're focused and on track for the long run as well. 

Borrowing costs are on the rise, and inflation is making many things more expensive. Do you see a silver lining? 

The silver lining here is for anyone who has savings, because rates are going up. So whether you already have savings, or you are just starting out, now is the time to take advantage of higher interest rates on products such as GICs. If you're willing to lock in some of your savings for a period of time, it's a risk-free way to accumulate interest. 

Even small amounts that you put away today will add up over time. This is where the “pay yourself first" philosophy comes in – out of each paycheque, set up an amount that goes into savings automatically. That way you know you're saving, and what's left can be used for expenses or as disposable income. 

Bonus round! We received many questions from our followers during a recent Twitter chat. We picked a popular one for you to answer. Ready? 

Hit me. 

What can I expect when I renew my mortgage? 

The answer here depends on the type of term and type of mortgage you have. But generally, as interest rates rise, you should expect that when your mortgage comes up for renewal, rates may be higher than what you previously had. Most consumers amortize their mortgage over 25 years. So if rates rise, this means your payments will need to be higher in order to keep to that same schedule and have your mortgage paid off in 25 years. Depending on how much higher your payments are, this could have a big impact on your monthly budget. So think ahead and try to prepare for the impact this may have on your finances. 

Thanks so much. Let's do this again. 

Anytime.