Posted on Thursday October 03, 2024

A short glossary for smarter money moves

Understanding financial issues and managing your money well have always been important, but the economic situation and inflation of recent years call for additional knowledge and attention. Where can you find the relevant information, and how can you adopt the new reflexes you need? That is where UNI comes in! 
 
Back to school is the perfect time to review your budget and get your finances in order. But where to start? Before embarking on portfolio management, it's essential to acquire the knowledge and skills needed to make responsible financial decisions. 

Learn the vocabulary 

In our hyper-connected world, we are constantly bombarded with information that can be confusing if we do not master the vocabulary used and the concepts to which it refers. These days, financial literacy is not just an asset; it is a necessity if we are to consume intelligently and avoid the trap of over-indebtedness. 

The personal budget 

The basis of sound money management is the creation of a personal budget. This essential tool enables you to determine your income and expenses, and keep track of what is coming in and what is going out. Whether you are trying to avoid debt, pay for school, plan a trip, pay off debts, save for retirement or have a cushion in case of a rainy day, a budget is your number one ally.  
 
To balance your monthly income and expenses and determine what you need to adjust to reach your goals, use one of the many tools available online. It only takes a few minutes.  

Investments 

Has budgeting put your finances in order? Congratulations! Now you can think about saving. Contrary to popular belief, saving is not just about accumulating money for retirement. An investment is a sum of money invested with the aim of accumulating interest and reaping the rewards. It is also a good way of building a cushion against the unexpected, such as job loss or illness.  

A few dollars put aside weekly or monthly can make a big difference. 

Our advisors have the expertise to suggest savings vehicles that meet your needs. Among the most common are RRSPs, TFSAs and FHSAs. Rely on our experts to determine the type of savings and strategy best suited to your age. 

Saving does not mean depriving yourself 

Investing your money is not synonymous with deprivation - quite the contrary! By saving, you give yourself a benefit and a great reward: peace of mind and exciting projects! You can save for a trip, a semester abroad, a car or even your first property. Take advantage of the back-to-school season to establish a winning strategy that takes your finances into account. 

A few concepts related to the economic climate 

The key rate 

For some time now, we have been hearing a lot about the Bank of Canada and the lowering of its key interest rate, which has been on the rise in recent years. This central bank is the one with the power to print money. It is therefore at the head of all lending institutions. 

The key interest rate will influence the country's economy as a whole, as well as the borrowing capacity of individuals. This rate is the base rate for the minimum refinancing of all banking institutions with the central bank. The important thing to remember is that if a key rate is low, financial institutions can lend at a lower, and therefore less costly, rate.  

On the other hand, if the key interest rate is high, financial institutions apply a higher rate to loans. On a large loan, such as a mortgage, an increase in the rate can lead to higher monthly payments, especially with a variable rate, and thousands of dollars more to repay over the long term. 

The Bank of Canada announces its key interest rate about eight times a year. 

Inflation 

Inflation is the rate of increase in prices over a specific period, often in comparison with the same period in the previous month or year. Price fluctuations are influenced by the law of supply and demand. A rise in inflation means you get less for your money in your grocery basket since product prices are higher.  

As you have probably noticed, several supply chains are affected by the current global political and economic context. The country is also experiencing a housing crisis, which is having an impact on the real estate market.  
 
The Bank of Canada is a regulating agency of the economy: its role is to set the policy rate so that interest rates either encourage or discourage consumption, depending on the desired effect. When inflation rises, the Bank of Canada tries to curb consumption, which sometimes leads to another phenomenon: a recession. 

A recession 

In the financial cycle, there is sometimes a period of economic slowdown that translates into a recession. A recession is a period of temporary decline in a country's economic activity. Generally speaking, a recession occurs when gross domestic product (GDP) falls for at least two consecutive quarters.   

What causes a recession?  
Often, it's a combination of factors, or a domino effect. It could be an economic situation linked to a rise in interest rates or unemployment, a financial crisis or a stock market crash. Corporate and household overindebtedness, among others, can also be a factor. 

Rising interest rates 

With interest rates on the rise, it's a good idea to pay off your debts to the best of your ability. To pay as little interest as possible, start methodically by paying off debts with the highest interest rates, such as credit cards and lines of credit. 
 
Caution is also called for when it comes to spending. Perhaps you could postpone a few purchases and wait until this period of uncertainty is behind us before spoiling yourself? Your needs, not your wants, should come first! 

Do you have any questions? Any concepts you'd like to clarify? Don't hesitate to contact a UNI advisor. We're here to help!