Opinion: In this economy, traditional personal finance advice no longer works


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Elena Delgado received food during a visit to The Daily Bread’s food bank on April 18. Delgado has been going to a food bank once a week since the pandemic began.Fred Lamb/Globe and Mail

Saijal Patel Founder and CEO of Saij Wealth Consulting, a consulting and education platform dedicated to ensuring women’s economic independence and security.

As a financial educator and business television host, I have witnessed the impact of recent economic changes on the psyche. We’ve seen a notable shift in conversations, from previously about investment strategies and retirement planning to now finding ways to make the most of limited resources and prevent massive debt. . A sense of hopelessness about meeting financial goals is prevalent.

A recent Anxiety Poll conducted by the Bank of Nova Scotia found that 73 percent of those surveyed were highly concerned about the rising cost of living. Those who felt anxious spent the most time stressed paying their daily expenses (44%), paying off debt (39%) and saving for emergencies (38%).

In the current cost of living crisis, traditional personal financial advice is becoming obsolete. And as its impact on the economic well-being of Canadians fades, the role of another factor, politics and government policy, will grow and threaten to overwhelm all others. Now, more than ever, the main influences on Canadians’ economic well-being are largely forces outside their control.

Advisors and influencers undoubtedly play an important role in enabling individuals to take the first steps towards financial stability. It helps you prioritize the things you can control, like being aware of your spending habits and developing the skills to draw on your savings.

But so many professionals, when asked for advice on what a financially stressed person can do, even if it is nonsense and unrealistic, will set a budget or commit to a specific They often insist on following the Golden Rule (which someone popularized). There is a lower limit to how much you can cut costs. Everyone needs ample living space, decent food on the table, and basic necessities, but the expense of all that is skyrocketing.

For example, consider the 50-30-20 rule in budgeting touted by many personal finance professionals. It recommends spending 50 percent of your net income on living expenses and necessities (needs), 30 percent on discretionary spending (wants), and 20 percent on savings (emergency funds and future goals).

According to Statistics Canada, the median after-tax household income in 2020 was $73,000. Based on this, you should allocate no more than $36,500 or $3,041 per month for essentials. However, the average monthly rent in Canada is about $2,000 (rising to $3,000 in the Toronto metropolitan area), and the average monthly food cost for a family of four is $1,065.

Even without taking into account utilities, clothing, medicine, transportation, etc., it is arguably clear that compliance with these standards is unattainable for the majority of Canadians. In fact, the National Bank’s latest Home Affordability Report revealed that the average Canadian needs an annual income of $184,524 to buy a “typical home” (median more than twice).

Therefore, the Canadian Mortgage Authority’s rule of thumb that housing costs should not exceed 32% of gross income is at odds with reality. Given the tough choice between being homeless and going into debt or cashing out your retirement savings, any sane person would choose the latter.

The two biggest expenses facing Canadians today are housing and taxes, both of which are under government control. According to the Fraser Institute, an independent public policy think tank, the average Canadian household will spend 43% of its income on taxes in 2021, more than housing, food and clothing combined. .

To truly defend the economic well-being of people, many of the most important economic hurdles do not lie solely in the control of individuals, but rather in the hands of elected leaders and the policies they shape. Or you need to be aware that you are in a policy of ignoring.

Financial education is key to ensuring the prosperity of individuals and society as a whole. One is for individuals to develop the skills to manage their finances as effectively as possible. Second, it discerns that politicians are simply making empty rhetoric and false promises, and instead seeks transparency, accountability, and evidence-based policies that directly affect economic needs and well-being. Policy can be requested.

Personal finances are inherently closely related to politics. Denying this reality, or claiming that political debate is inappropriate, means ignoring the significant impact of government policies on the economy and the economic health and security of individuals. .

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