'Trimming small amounts can make a difference', says veteran advisor
Inflation may not be climbing as fast as it was, but it’s still climbing, and clients are feeling the pinch. But advisors can offer them concrete ideas to help them combat it, says one veteran advisor.
“Inflation has been top of mind – whether you’re retired, a senior past retirement, in your mid-50s, or even young. We’re seeing that it’s going down slightly, but it’s still at an all-time high,” Neela White, a portfolio manager for Raymond James Ltd., told Wealth Professional.
“While we’re seeing it roll over a teeny bit, that doesn’t necessarily make a big difference in what you’re paying for goods and services. But, there are lots of things that could be done, and a lot of it has to do with behaviour or discipline.”
White said advisors can make suggestions to clients while reviewing their budgets. They can urge clients to look at their spending patterns – what, and how, they spend, and how much they may emotionally spend when stressed or angry.
“We all do random spending, just because it’s convenient or satisfies an emotional feeling at the time. So, we can help them look at their budgets to see what they need to survive – like mortgage or rent for housing, insurance, or utilities – and what they’re spending on Starbucks, eating out, or Uber rides. Check if those are necessary to earn their income or because they need a social outlet. That’s big now after we’ve been locked won and isolated because of COVID.”
Advisors can then dive into some of the categories pushing up inflation.
When Statistics Canada released its latest consumer price index (CPI) statistics for July 2022 this week, grocery prices had increased by 9.9% from a year ago with baked goods 13.6% higher due to elevated wheat prices. White said clients plan meals in advance to avoid buying extra, compare prices, especially between stores, and use coupons. They also shouldn’t shop when they’re hungry to avoid buying what they don’t need.
While gas prices decreased by 9.2% from June to July, they’re still 35.6% higher than a year ago. White said clients – especially seniors – could ride share or car-pool for shopping, appointments, and errands to save on gas and enjoy some company
Travel costs have skyrocketed. Airfares were up 25.5% from June to July. Travel tours, especially to the U.S., were up 24.8%. Accommodation prices rose 47.7% in July – and 70% in Ontario – from a year ago. Restaurant food prices also increased by 7.3% from June to July.
“Given the issues at airports and cancelled flights, and now the cost of flights, hotels, and vacations, clients could do less expensive staycations, which will get them away from the monotony of being home, but still be affordable,” said White.
Travelling in the off-peak season could also save clients money. “You can still have the same experience, just not at a time where the pricing is as sensitive,” she added
Given material price increases, supply issues, and busy skilled labour, White said clients could put off home renovations until interest rates and inflation decrease again.
Once children leave, clients could “right-size” their housing to something smaller and even cut the number of streaming services they get. They could review their cell phone packages, which are very competitive right now, and end print or online subscriptions for magazines they no longer read.
Clients could review memberships, especially for the gym, even putting them on hold for awhile.
Seniors could take advantage of senior discount days at retail outlets.
“We might look at it as a small amount, but continuously doing these small amounts can, in the end, make quite a difference,” said White, noting saving .50 on each of three cucumbers could save enough to pay for a coffee.
Advisors can also review clients’ portfolios to ensure they reflect their current risk and objectives.
“The cost of everything is going up. So, advisors can really help their clients take a step back and reassess the value of everything that they’re paying for. How essential is it for their daily lives or for their mental health and well-being?” said White. Clients can then make choices, such as retain a gym membership for social connection, but cutback a daily Starbuck’s coffee habit.
“Saving and watching your bottom line is a discipline, a behaviour,” said White. “But, it’s one that we, as advisors, try to instil in clients, regardless of their age. So, as an advisor, you can help your clients take a step back and do a self-assessment of what they need and where they can cut back.”