For years, consumers have enjoyed favorable borrowing terms with relatively low interest rates. Thanks to strong and sustained economic growth, certain consumption habits have thus become established. Until recently, many buying decisions were made on instinct, driven by solid confidence in the economic future.
The picture has become muddled in recent months, leading to a sharp increase in the cost of living and, consequently, rising interest rates in an attempt to combat the surge.
From the first signals, I hammered home that this inflation might not be so transitory and that it would be wise to use the cash accumulated during the pandemic. Consumption data show, however, that household spending has increased significantly in several sectors compared to last year.
Last week, we discussed the role of mental biases that make changes in consumption habits so difficult to achieve. I invite you this
week asking yourself some questions and thinking differently.
It’s time to sell!
Don’t worry, it’s not what you think. The basic investor rule remains the same: buy when the markets are low and sell when they are high. However, it is not excluded to consider taking advantage of certain temporary bubbles, such as those observed in the real estate sector and even in the automotive sector, to go to the cash register.
AutomotiveMaking a profit with property that does not belong to us is currently — and exceptionally — possible. Some car models are so popular that even if you lease your car, you could buy and sell it yourself. If you don’t feel like playing the salesman, your lease return for a car in good condition could earn you a nice check at the dealership. Hurry, however, as the effects of rising rates are beginning to be felt and demand for cars could decline in the coming months.
Immovable With the rise in rates, prices stabilized, a consequence of the decrease in sales observed compared to last year. If you live in an area where the rise in prices seems to have inflated exceptionally, it would be appropriate to think about the possibility of going to the checkout as soon as possible. Fewer buyers are able to qualify, it is true. But certain types of properties in certain areas are still rare and highly sought after. This possibility is especially interesting for owners who want a smaller house in order to reduce the maintenance burden and related costs. Retirees or pre-retirees, or even multiple owners, seem to be the most affected, but anyone willing to sacrifice some of their current comfort for a short-term gain could consider it.
Used goods Finally, you could take advantage of this period during which caution is required to clean the house, cottage, garage, and put up for sale goods in good condition that are no longer in use. It’s about taking advantage of the currently unattractive customer experience environment — rising prices, customer service affected by labor shortages, lack of inventory, etc. — to replenish the family coffers while parting with what is no longer useful. This is an opportunity to practice the principles of more ecological consumption and to question the reflex of buying all our goods new rather than used.
Save or invest
Of course, the current inflation cannot be explained solely by the excess circulation of liquidities in the economy, which makes the rise in rates more difficult for many to accept. However, it is possible to think that, if consumers do not adapt their spending, the chances of prices stabilizing or returning to a lower level will be lower. Moreover, “cautious optimism” should lead all households (even the wealthiest) to show some reserve in the face of the uncertainty of the coming months, or even years.
If your financial situation is more privileged, the current context represents a window of very interesting possibilities for investing. Your current priority should be to increase your stock market investments significantly over the next few months. If your income is limited or difficult to increase, pausing or postponing certain expenses will allow you to save cash (and/or reduce your consumer debt) and potentially even speed up the preparation for retirement or the financing of some projects. I call it paying yourself first! Here is some food for thought.
Renovations Are there any non-urgent jobs you could postpone? Can you afford to spend for your own comfort? Do you have inflatable neighbor syndrome?
Feed Could you organize your kitchen to reduce food waste? Do you plan your meals enough? Do you frequent restaurants? Reduce outings to restaurants, the use of caterers.
Holidays Will you really be more rested and have more quality time with family or as a couple by taking a more expensive trip than planned? Do you travel out of habit or because your budget really allows it?
Children Will your children really be more fulfilled in designer clothes or playing elite sports? Can they participate in the family’s budgetary choices? Isn’t investing in an RESP rather than buying material goods a wonderful gift to offer them?
Finally, should we deprive ourselves of all the pleasures? Of course not. The choices to be made will be based on everyone’s priorities. It’s up to you to find your balance between present and future.