2022 November Update

We’re getting into the home stretch of 2022, closing out the calendar and thinking about what’s going to happen in 2023. We’ve been chatting with many of you about how to take advantage of tax rates for your 2022 income tax return, and how you’ll be taking income in 2023.

While change is inevitable and constant, it does feel as though this year has brought us a bit more than usual, particularly with respect to our finances.

We’ve experienced massive change when it comes to interest rates, with the Bank of Canada rate increasing from 0.25% in January to 3.75% in October. Further increases are predicted in a race to stem inflation, which has been rising far above the near-zero inflation we’ve experienced for years.

Where once it made sense to maximize debt, given how cheap it has been, it now makes far more sense to pay it off… assuming we have the cash flow to do this. Higher interest is great news for savers, who are finding high interest savings accounts are actually producing some interest. And guaranteed, interest-bearing investments are becoming more useful than they had been in the past.

But rising interest rates negatively impact bond markets, and we’ve seen that play out this year. While your bond is still paying the interest rate it promised, if you were to sell it on the open market (which is what the bond market is), it’s worth a lot less than a similar, newly-issued bond with a higher interest rate.

Of course, interest rates impact businesses and the decisions they make. Borrowing to invest in your company was a no-brainer when the cost was nearly zero. Now it’s not so easy, and perhaps the choice will be to spend less rather than borrow to create growth. If you’re a business owner, that means slower top-line revenue growth. For investors, it often means slower growth of companies in your investment portfolio, which has likely been hit already with much lower financial market returns, especially compared to the heyday of 2021.

Interest rates and rising costs aren’t just impacting businesses, they’re also impacting households. As everyday costs like groceries and debt payments get even more expensive, we’re learning that Canadians pay more for certain types of products and services than most other countries in the world.

One of those costs is on credit card “interchange fees” – the amount that companies like Visa, Mastercard, American Express, and others charge businesses for the privilege of accepting payment from you. As of October, businesses may now pass those charges on to you. Some businesses may choose to pass these costs onto their customers, while others will not.

We Canadians love paying by credit card – at least in part because we absolutely adore our points systems. When choosing where to shop and how to pay, consider: the business that has passed the cost on to you has not embedded it into their product or service pricing. The one who pays the cost has embedded it – and you, as a customer, absorb it whether you pay by credit card or not.

Tough financial times are here now, and may very well continue into the next year. Rethinking both how much and where you spend will help you and the small businesses that fuel Canada’s economy through to the other side of the current economic struggle.

P.S. We strongly advise you to let go of expectations for gift giving this year, and focus on enjoying the holidays instead. People remember the experience more than the things they received. Please don’t go into debt for presents this year, and feel free to tell your family that your financial planners said so.

Practice Notes:

The entire Spring Plans team will be taking holidays starting Saturday December 17th, returning on Tuesday January 3rd, 2023. Got any last minute questions before the calendar changes? Please send them along by Thursday December 15th. We may not have answers, but we’ll do our best!

“Free” Fridays remain booked permanently in our calendars. These days are free to us at Spring in the sense that they are our opportunity to work on becoming better planners, whether through collaboration and discussion, education, research, or even a little down time. It’s been a regular practice since the summer of 2017, and we will continue to set aside the time to become better versions of ourselves every week. Even 1% better is solidly worth it, because we know that will be reflected in the work we do for you.

Events:

Julia will be speaking at the Financial Planning Week conference on Tuesday, November 22nd, talking all about how CFP certificants can work collaboratively with other professionals (inside and outside of our own organizations) to support clients in achieving their best lives.

On October 12, Julia spoke as part of the Steadyhand Estate Planning Webinar, joining David Toyne and Lucy Main for a discussion about some of the key things to consider in estate planning.

Spring in the News:

Retirement doesn’t look the same as it did 20 years ago. Julia speaks to Advisor Magazine about how plans need to adjust to the increased complexity of personal finances. Read More

Planning News Digest:

• Amendments to estates and power of attorney statutes in BC will make electronic witnessing possible – hooray for the digital age! The legislation will also expand the list of eligible estate administrators in the event of intestacy (when you don’t have a will). 
• Numbers are increasing for 2023… including the YMPE (for those of you matching your salary to this number), the RRSP contribution limit, and pension contribution limits. For US citizens, your lifetime gifts and estate tax threshold increases to $12,920,000 USD per person, annual gift tax exclusion to $17,000 and non-citizen spouse gifts to $175,000. The Federal Government has confirmed that the TFSA contribution limit will increase to $6,500 in 2023. 
• Are Personal Finance Gurus Giving You Bad Advice? This recent episode of the Freakonomics podcast contrasts the advice of media-savvy personal finance writers against that of economists – and points out that actual CFPs are a bit tough to find. Listen in to really interesting discussions from both sides about the advice that’s out there, what the math shows, and the importance of your feelings when it comes to your financial decisions. Note that they are a U.S. podcast so some of the specifics (like 30 year fixed rate, tax deductible mortgages) don’t apply in Canada.

Feature from the Archives:

Celebrating Your Own Success – When it comes to thinking about values (which we’ve been doing all year long), we tend to stick to words that have a lot to do with emotions and relationships. They might include words like integrity, respect, connection, or freedom.

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