Rate hikes got you down? Money moves to motivate you to save and crush debt

Phew! Progress on your money can still be achieved despite higher interest rates. Try these money moves to get your money working for you.

Higher rates also mean higher savings rates

If you haven’t shopped around yet for the best High Interest Savings Account (HISA), this is your nudge to do so.

Mainstream banks and digital banks are competing hard for your savings business right now and are offering upwards of 4.5 to five per cent interest on savings balances as low as $5,000 for a limited time (I used the ratehub.ca website to compare these offers).

Once you find a great interest rate offer for a HISA, click to open the new account and then make arrangements to get your savings transferred over.

If moving money to a new institution sounds cumbersome, you can always ask your current bank to match the competitive offer. They might just say yes, and you can avoid the work of setting up a new account.

If you have room in your TFSA, consider tucking your HISA within your TFSA. That way you won’t have to pay taxes on the interest you earn from your new HISA.

If you have the flexibility in your budget (yes, you need a budget), save more

The higher savings rates are a big motivator to add even more to a rainy-day savings fund (for emergencies) and a big-ticket-item savings fund (for the kitchen renovation you’ve been dreaming about). Why not trade in that $7 daily latte (sadly, this is the new going rate for a fancy coffee) for a homemade coffee and redirect the savings toward your new HISA? You can supercharge this strategy with automatic weekly contributions to your savings on payday.

Catch up on RRSP and TFSA contributions

The investment markets have been quite volatile the past year, and volatility can present an opportunity for investors to purchase quality investments at lower prices. Over the long term, quality investments suited to an investor’s risk profile are anticipated to grow in value. If you’re a bit behind with your retirement savings, a great money move is to catch up with the room you have available within these tax-advantaged investment accounts by contributing money in regular intervals, and in lump-sum amounts if you have larger chunks of money.

Amplify your retirement efforts by participating in your work retirement savings program(s); many of which have a matching component to them — and that’s essentially free money … like getting a raise!

Shift your financial strategy toward crushing debt

If you have debts that are exposed to the prime rate, you might be wincing after last week’s interest rate hike (the eighth increase in just one year). These are variable interest debts that include products like lines of credit (secured and unsecured), variable rate mortgages and variable rate loans for personal or business use.

It’s almost always good for your financial health to make paying off debt a priority — and with higher rates, there’s even more of a reason to make debt reduction a money goal for 2023.

Dig deep into your spending habits to see if you can find a few extra dollars each week to put toward your highest-interest debt. Do your returns from the holidays. Take on a few more shifts to raise some extra cash. Explore consolidating expensive credit-card balances to a lower rate product. The idea here is to put a bit more toward debt reduction than in previous years.

If you’re forced to wait to buy a home, use the extra time to save and earn more

Unless you’re earning considerably more money this year relative to the past few years, qualifying for a mortgage on your dream house is likely harder. Offsetting some of the tough borrowing conditions are lower house prices in certain areas. If your mortgage broker isn’t able to get you the size of mortgage you want and need, or if the pre-approved monthly payment is certain to land you in a house-poor position (basically not being able to afford anything besides your home), you might have to wait to buy — and that’s OK.

Use the time to add more money to your savings for the down payment. This could mean amping up the amount you are automatically contributing to your RRSP for the Home Buyers’ Plan, to your down-payment fund sitting in your new HISA or TFSA, or setting up your Tax-free First Home Savings Account when these are available (expected April 2023).

I’d also recommend that you see about earning more money. Are you eligible for a raise or a promotion? Could you apply for that next-level job at a competitive company? Are you ready to bring your side-hustle idea to life? The more money you make, the stronger your eventual mortgage application will look to a lender.

Being mindful about spending money on what matters most to you, including your wellness, is another way to feel financially stronger and combat the impacts of rising rates.

This article was originally published in The Star. Lesley-Anne Scorgie is a Toronto-based personal finance columnist and a freelance contributing columnist for the Star.