A changed world: Chasing financial goals in a bumpy economy

When the COVID-19 pandemic hit, Bronwen, like millions of people around the world started working from home. Unlike others who continued to work from home throughout 2020, however, it wasn’t long before her employer mandated a return to office. “Their perspective wasn’t very progressive,” she says. “Essentially, if your seat at the office wasn’t warm, you weren’t working.”

But Bronwen, a Calgary-based health and safety professional in her 30s, was looking for opportunities. While she had considered renting out her condo’s spare bedroom in the past, her situation inspired her to finally make a move. “At the start of the pandemic, I had some time to think about how you can actually get ahead in this world financially. I had this asset to leverage, but I wasn’t doing anything with it.” Keen to see what might happen, Bronwen set up an account on a popular short-term rental platform and began renting out her extra room on weekends.

The experience has proved valuable over the last two years. Not only has the extra income covered Bronwen’s ongoing mortgage payments and vacation expenses, but it’s also offered her the flexibility her old job did not. She’s since left her previous role, taken on a new one that offers a hybrid working environment and moved part-time to Golden, B.C., a pristine ski town just a few hours away. 

“For me, the pandemic really highlighted an opportunity to balance life and work,” she says. “Unlike my old job, my new employer believes that it doesn’t matter where you work as long as you’re producing. Now I get to spend my time between Calgary and Golden and generate extra income from my apartment when I’m not there. Honestly, it’s been amazing.”

Like Bronwen, you may find your priorities have changed since the outset of the pandemic. From retiring early to travelling the world, the items on our bucket lists today reflect what we’ve experienced (or have been unable to experience) over the last two years. According to a recent study, for example, almost two million Canadians launched a new business during the first twelve months of the pandemic.¹ Thousands of others left the city in droves, opting for greener, more spacious pastures — up 14% year-over-year from Toronto alone.²

But where do all these changes leave us when it comes to our finances? As interest rates rise, inflation hits new highs and markets continue to fluctuate, how can we safely plan for the future when we find our dreams increasingly at odds with our reality?

Fortunately, while the world may have changed our priorities, the basic tools we require to accomplish them have not.

Review your goals

This can mean thinking about your short-term plans, like finally taking that trip to Paris, but also your long-term ones, like retiring somewhere warm. When evaluating your goals and how best to achieve them, it can help to ask yourself a few key questions: How important is this idea to me? What’s my time horizon? How much money will I need to achieve it? Are there any obstacles in my way? By asking yourself these questions now, being detailed in your answers and sharing your reflections with your planner or advisor, you can spare yourself future headaches.

Get your financial house in order

To help offset the potential influence of inflation and rising rates on your goals and priorities, it can help to conduct some basic financial housekeeping. Begin by taking a look at your cashflow: Consider which discretionary expenses you may be able to cut back on, and where that money might be re-directed. It may be helpful to take a closer look at what’s changed for you recently. For example, if you once commuted five days a week, but now work predominantly from home, you may be able to re-allocate those savings.

If you find there’s room in your budget, now may also be a good time to reexamine your debt. In a high interest rate environment, it can help to consider your debt load. That is, see how much cash flow is being used to meet debt payments on your home, car and credit card bills and other obligations and what is the cost of borrowing for each. You may wish to make adjustments on consolidating debt or perhaps even foregoing a second car, for example, if decreasing debt payments can put you in a better situation.

Continue to build wealth

In our current economic environment, you may be feeling unsure about how best to save for your goals. While you might already have funds set aside for short-term plans, a challenging economy may inspire you to look for additional options to help you reach your long-term goals. An advisor can work with you to sort through the various options depending on your personal circumstances, risk appetite and priorities. Here are a few things you might consider.

Take advantage of tax advantaged accounts — RRSPs and RESPs

A solid wealth plan starts with the basics and that means ensuring you’re taking advantage of tax preferred accounts — including a Registered Retirement Savings Plan (RRSP), and, if you have children, your Registered Education Savings Plan (RESP). Using tax advantaged accounts to build your portfolio can result in higher after-tax returns.  

Set up automatic contributions and take advantage of compound interest

One of the easiest ways to stay on track with your investment goals is through automatic contributions. Rather than making sporadic lump sum contributions (where deposits may be put off or skipped entirely), working with your advisor to set up an automatic contribution plan can help ensure you’re consistently working toward your financial goals. Moreover, because automatic contributions generally involve smaller monetary deposits, they’re often easier on cashflow.

The power of automatic contributions is compounded (quite literally) by compound interest. Compound interest works by snowballing the interest earned on your savings each month into the principal investment. Although even a few years of compound interest can make an impact, compound interest primarily benefits those who invest over longer periods of time.

Diversify, diversify, diversify

There are many different kinds of investments, each with their own risks. Work with your advisor who will be able to provide you with options that suit your risk appetite and life goals.

But aren’t all investments bad when inflation is high, and markets are down? Not quite.

A diversified portfolio may be a suitable option, especially at times where there are large fluctuations in the market. Rather than relying on the value of a single stock, or even a single kind of stock, a diversified portfolio relies on multiple investments in a variety of sectors. In this way, when some of your investments are down, there is a chance that others may be up.

Check in with your financial plan

Now may also be a good time to check in with your overall financial plan — particularly if your goals have changed. Consider how your new goals may fit into your plan. For instance, while Bronwen’s decision to rent out her room may seem inconsequential, the income will need to be reported to the Canadian Revenue Agency. It may result in additional taxes and may even impact how the proceeds will be taxed in the future when she sells her home. This can all potentially be addressed in her larger financial plan.

People should also look into which key documents they should update. For example, do you need to update your Will or Powers of Attorney? What about your estate plan or, if you’re a business owner, your business succession plan? Take the time to ensure your key documents are up to date and reflect your plans, particularly if those plans have changed.

Don’t let your worries stop you from seeing the bigger picture

At the end of the day, it’s important to remember that economic cycles naturally ebb and flow. Historically speaking, good investments always come back given some time. For those trying to meet their long-term financial goals, pulling out prematurely or trying to time the market would rarely yield the return you want. Instead, if you can afford to and it aligns to your financial situation, staying invested could be the right approach.

While Bronwen hasn’t given up her 9-to-5 yet, she says it’s not outside the realm of possibility. Ultimately, Bronwen says she’s not really pursuing a specific financial goal anymore, but a new lifestyle. “Having multiple short-term rental properties is a kind of lifestyle. You get to own the properties and use them when you want, but other people help pay them down. I’m not able to rely solely on renting just yet, but I’d love to eventually.” 

The pandemic changed how many of us see the world. It’s normal to feel a little uncertain about the future, particularly in our current economic environment. However, it’s important to remember that despite economic challenges, our goals may still be achieved — even if they’ve changed. 

If you have any questions about where to get started with your own goals, or which financial tools suit your situation best, speak to a financial advisor.