Inflation in Canada ballooned to 5.7% this February, the highest the country’s inflation rate has been in 30 years. Unfortunately, that spike has caused the cost of living to skyrocket, and Canadians will see the impacts everywhere they look.

Gas, groceries, and other consumer goods are more expensive than they’ve been in decades, and Canadians need to know how to protect against inflation if they want to make it through these tough financial times.

Below, we’ll examine some expert tips on how to protect against inflation by saving money and adding to your revenue stream.

Consider Your Investment Options

Putting money into fluctuating assets during times of economic hardship is an idea that turns many people away. However, it’s one of the soundest ways to produce a comfortable cash flow during uncertain periods of inflation.

Since money is tight across Canada, it’s more vital than ever to stay smart with your investment strategy and only put money into resources that hedge against inflation. These resources produce income faster than the rate of inflation grows, so increased living expenses won’t drown out their economic impact.

Investments that hedge against inflation can be anything, but houses and stocks are two of the most rewarding and traditionally stable.

Housing

Housing is one thing people won’t live without, so average rent rates match or exceed the inflation rate out of necessity. And if you own a well-kept property in a good neighbourhood, renting it out can be a great way to enhance your revenue flow without inflation negating its impacts.

Of course, property management comes with unique challenges and time investments that many busy workers can’t afford. However, if you can spare time for rent collection and random maintenance requests, you can add thousands of dollars to your wallet every month. And if you own multiple properties or an apartment complex, you can pass them off to a real estate investment trust that manages your rentals for a portion of the profits.

Equity

Equity investments are valuable ways to add to your savings and retirement fund in average economic situations. However, they can be even more helpful during high inflation periods if you employ a sound investment strategy. In fact, financial experts consider not owning equity during inflation spikes safer than investing.

Since the market is more unstable than usual, it’s crucial to invest in large, traditionally reliable companies to minimize the risk, and S&P 500 companies (the collection of America’s 500 largest corporations) are great targets. Since the early 1900s, S&P companies have returned over 300,000% of their investments when adjusted for inflation, despite the United States dollar losing nearly 100% of its purchasing value.

Many S&P 500 companies experience increased revenue during inflation, which leads to those high returns. Investing in those corporations can help you profit alongside them if you make your investment choices wisely.

Make Frugal Lifestyle Changes

Unfortunately, investing will always have minor risks, even if you have a carefully diversified portfolio filled with traditionally stable equity. If you want to know how to protect against inflation as risk-free as possible, your best bet is to make small lifestyle changes.

While these changes won’t make as dramatic an impact as increasing your revenue, they will help you save enough funds that navigating life with your standard cash flow will be more manageable.

Grocery Shopping

Aside from the gas pump, you’ll see the most dramatic effects of inflation at Canadian grocery stores.

The average cost of food in Canada has ballooned nearly 4% over where it was last year, so your average shopping list will cost considerably more than it did in 2021. Of course, avoiding frivolous purchases or foods with quick expiration dates that might go to waste are helpful methods to lighten the financial load. However, you can also cut monthly expenses without sacrificing your favourite foods. 

Buying food in bulk and replenishing items every couple of months rather than every week gets your expenses out of the way in one sitting and ensures that inflation doesn’t make your food even more expensive. Additionally, leaning into staples with long shelf lives with uses for multiple meals can trim your grocery list and save you even more money.

Big Purchases

Standard household renovation items like marble and cement cost more in Canada than ever, while cars and their several parts and pieces are going through a price spike as well. So, if you’re a homeowner looking to boost your property value or a car enthusiast looking for a new vehicle, you’re better off waiting to upgrade until the market stabilizes if you want to save money.

Fortunately, you might not have to wait long, as similar renovation items like lumber went through a price spike in 2020 that stabilized roughly a year and a half later.

Create Financial Wiggle Room by Paying Off Your Debt

Finding financial peace of mind with inflation risk constantly looming is challenging, but it’s even more demanding when you have debt and its own spiking inflation rates hanging over your head. However, if you pay off your debts now, you’ll get rid of that dark cloud and allow yourself to focus on navigating other living expenses.

Paying off your debt now can even make life easier down the road. For example, if inflation continues to spike and living expenses get even more demanding, you might not have enough money to comfortably pay your monthly credit card or loan expenses. However, if you have the budget to address them now, you won’t have to worry about the rate of inflation worsening.

Borrow Money for Secondary Income

There are two schools of thought on how to protect against inflation. Either you can pay off your debt, eliminate inflation risk from your life, and set a concrete budget plan, or you can borrow more money and leverage it to increase your revenue stream.

Despite inflation rates in Canada hitting record highs, loan interest rates remain low. You can use those borrower-friendly rates to your advantage by using your extra capital to invest in assets like property that increase your revenue. Some interest payments are even tax-deductible if you use your loan to boost your income.

Again, no investment is entirely risk-free, so you shouldn’t borrow money to produce secondary income if the extra debt isn’t within your budget or if you’re afraid of the potential consequences. However, taking on a loan to build capital can effectively offset inflation risk if you have the means.

Apply for a Credit Card with a Cash Back Rewards Program

Making it through economic hardships on a tight budget typically takes all the help you can get, and one reliable way to get a boost is to apply for a credit card with favourable cash-back rewards programs.

Cash-back credit cards refund a small percentage of purchases you make for certain products or at specific stores. For example, if you have a cash-back credit card that offers 2% back on food, you’ll get $2 for every $100 you spend at the grocery store with that card.

Though those might sound like small savings, those dollars add up if you use your card for most of your purchases, especially if you apply for one with more considerable cash-back savings or one that refunds for all purchases. However, not every cash-back card is worth the application, so it’s vital to research your options and look for favourable criteria.

Some cash-back cards don’t require annual fees, and applying for one with refunds in shopping areas you frequent can increase your savings and help you keep hundreds of dollars in your bank account every year.

Use a Real Return Bond

If our tips for how to protect against inflation feel too risky or small to make a difference, you can opt for one backed by the Canadian government.

Real return bonds are payments from the Canadian government designed to help you live comfortably as the cost of average expenses increases. They give funds to borrowers that change depending on the current interest rate and require biannual installments to pay back.

Though they aren’t a one-for-one replacement for standard bonds, real return bonds can give you the influx of funds you need to make it through an inflation spike. So long as you can pay them back, they’re a good option for times of high inflation.

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