Why July CPI increase means clients should start tightening their budgets

It's time to warn people to start monitoring so their financial goals aren't derailed

Why July CPI increase means clients should start tightening their budgets

When StatsCan recently released its report showing the Consumer Price Index (CPI) increased in July, Sun Life advisor Tracy MacNeil started warning clients to trim their budgets in case this is the start of a new trend – and now she’s cautioning other advisors to do the same.

“If you look at the July CPI report, there was a rise in almost all categories across the board,” she told WP, noting that the CPI also grew faster in all provinces. “We haven’t seen this impact since the 70s or 80s.

“From the trends that we’re seeing, I think individuals and families are going to see their biggest pinch in disposable income with more of their budget being allocated to fixed costs, such as housing, food, and transportation. So, it’s going to leave less behind for the fun things in life.”  

MacNeil is also warning other advisors to talk to clients who may not budget, so they can develop a budget to increase their peace of mind in this ever-changing landscape and maintain their financial goals, so they don’t get derailed by the unexpected. That, she noted, is as important as investing.

She’s raising this caution, even though the CPI increase may just be transitory inflation after a rise in year-over-year inflation and more than a year of pandemic that’s disrupted supply chains. 

“What I tell most individuals is, because we don’t know if this is transitory or sustained inflation, the only control that we have is really through budgeting and financial planning,” she said, noting she’s ensuring that clients have a budget and understand where their monthly outflows are spent.

“Once you understand where your money is being allocated, you can adjust it, as necessary, based on the current market conditions. This eliminates a lot of the financial stress for most clients.”

Clients can often trim their dining out costs or monthly media subscriptions.

“By forgoing a meal or two a month and paying attention to their various subscriptions, things like Netflix and Amazon, they can typically save a few hundred dollars a month,” she said, recalling one recent client being shocked to discover five media subscriptions in her budget.   

MacNeil also recommends that her clients establish, and maintain, their budgets as a family, so they can review them quarterly and adjust for new trends before those become a problem.

“I’m really big on having the entire family involved in accountability for the spending, so they understand why certain decisions are made and the kids aren’t mad at mom and dad because they cut back on trips or sporting events,” she said. “That’s important to the family.”

Whether or not the CPI continues to increase as we move into the fall, MacNeil said, “it’s a good time for your clients to look at their budgest and see what adjustments they can make and, hopefully, this won’t go on too long because we’re not 100% sure if this is a trend going forward. So, it’s a good time to start. There’s no time like the present.”