The Decibel - What 2025 holds for your personal finances

Episode Date: January 15, 2025

If you kicked off 2025 making personal finance resolutions, it can be hard to know where to start. That question is made more difficult when factoring in all the uncertainty around how the tariffs that incoming U.S. President Donald Trump has threatened to enact will affect our economy.Rob Carrick is the Globe’s personal finance columnist and co-host of Stress Test, the Globe’s personal finance podcast for Gen Z and millennials. He’s on the show to talk about what to expect from the year ahead in personal finance, whether you’re looking to get on top of your investments, establish an emergency fund, or dip your toe into the housing market.Questions? Comments? Ideas? Email us at [e-mail]

We often take the start of the year to think about financial goals and resolutions. Maybe this is the year you want to get into the housing market, or get serious about saving for retirement. But there's a lot of uncertainty right now, and it can be hard to get a clear picture of how to prepare for the year ahead. So today, Rob Carrick is on the show. He's the Globe's personal finance columnist and co-host of Stress Test,

the Globe's personal finance podcast that's back for a new season. Rob is here to walk us through saving, investing, the housing market, and how to balance your finances in a year that could be economically turbulent. I'm Maynika Raman-Wilms and this is The Decibel from The Globe and Mail. Rob, thanks for being here. Glad to do it. So what do you think are going to be, I guess, the big stories of 2025 that could really affect

our finances this year? You know, I think the big story in personal finance is going to be Donald Trump. I hate to keep coming back to the Trump thing, but I almost think Trump's going to have more of an influence on Canadian personal finance than anything our next prime minister is going to do. OK, you break that down for me a little bit. What is going to change or what is dependent on Trump? Well, it's the uncertainty. I mean, it's not that he's going to do anything.

He's not going to change the capital gains in Canada. He's not going to set interest rates in Canada. But he's introduced this cloud of uncertainty by talking about these tariffs, these 25% tariffs that he's going to apply to Canada. We don't know if he's going to do that on January 20th when he takes power or whether that's going to be gradual or whether there's going to be more negotiation.

But this could be a recessionary level blow to Canada. It could be a very bad recession. And if it is, I think that is sort of an overlay on everything that's going to happen here. It's going to mean more unemployment, it's going to be lost wages, it's going to hit the housing market, it's going to be bad for stocks,

it's going to push interest rates down, which is good for borrowers, but bad for savers. So I think there's going to be a long tail on the whole terror story. And even if it isn't really hard directly on Canada, there could still be a bleed over effect because what he's doing is going to be affecting the economy in a way that could get inflation going again and could get interest rates rise again in the States. We have a separate economy here, but we will be affected by that. And

so we may end up by default having higher interest rates, which are the flow through from inflation here in Canada, even though we have, as I say, a separate economy. Hmm. I think a lot of things you listed are probably making listeners quite nervous because, you know, these are all things that we've heard about the last few years that we thought we kind of got through this difficult period, but it sounds like some of this stuff might be coming back. For people who are worried about their own personal finances, Rob, can they do anything to protect themselves from the potential impact of these tariffs? For sure. I think 2025 for me is a year when I think in your personal finances,

you should be making stability your number one priority. I mean, we've had coming off two years where there was a lot of money to be made out there. In the stock market, crypto did really well. I mean, last year and the year before actually, two pretty darn good wealth making years. And I think it got people into a frame of mind where there's money to be made out there and I want to get my fair share of that. And in 2025, I think the idea is, how can I risk-proof my personal finances, my household's financial situation? So I think the number one thing there is to have savings, have recourse if something goes wrong

with your income flow, either you lose a job or you lose hours, or you're asked to take a pay cut or whatever, have recourse, have a little bit of money that you can draw on to use as a cushion. Okay. So it sounds like savings is an important thing there. What about investments?

Like if people have money invested, should they think about maybe moving some of that money around? You know, people have been asking me, what should I do? Should I invest in this sector because it will outperform or should I avoid that sector or that stock market because it will underperform? I think it's all guesswork what's going to underperform or overperform. So what I think you want to do is if you're a long-term investor, like you're investing for the next five to 10 or more years, you're 40 and you're going to retire at 60, you stay the course. I'm saying that from the point of view that you've put some thought into

your investments and you've got diversification, you've got some bonds and some Canadian, US, and global stocks. If that's the case, and you're looking at the long-term, you know what? Write it out. You're going to see a lot of chatter in the next little while, what investors should do and what they shouldn't do. It's from people who their living is based on making micro adjustments in the here and now to their investments. Let them be them, you be you, and just hold steady. I don't want to see people making big, sell everything and go to cash because I'm afraid of Donald Trump.

Don't do it. Whatever happens in the markets will be ironed out. And any losses we sustain, and I'm not saying there will be losses, but there could be, the market always comes back if you have a long-term perspective. And you mentioned a little bit earlier that these changes could result

in a potential recession for Canada, which is something that, again, it's quite worrying, I think, for a lot of people. Is there anything that people can do to kind of, I guess, think about financial best practices in a recessionary period? What should people be thinking of? Well, I would imagine you wanna not stick your neck out

too far. So is it a good time to buy a house? Well, it could be if prices are reasonable and mortgage rates come down, but you have to think about how are my finances gonna stand up to that? I mean, is there a chance of me losing a job, losing income? High risk financial moves, probably not a great time

for that, it's probably not a great time to take on a lot of debt. I mean, sometimes we have to take on debt because we have to, to make ends meet. But if you have discretion and you're concerned about income flow or employment, maybe you just sort of sit and wait and see how things transpire. You know what? For me, I would not want to be opening up any new facets of risk in my financial life. So this gets back to what you're saying earlier.

Basically, stability seems like kind of the key going into this year. I think so. I think I think stability is it. You know what? Wait and see attitude will not hurt you. The housing market's not going to run away from you if you wait a few months to see what happens. Don't feel pressured into making big financial decisions. I want to ask you about the Canadian dollar as well, because this can affect different parts of our life. It is quite low right now.

It's been trading below 70 cents US these days. What are the advantages and also the disadvantages of having a lower Canadian dollar? Well, a lower Canadian dollar makes our exports more cost competitive if they're priced in US dollars. So that's a good thing for industry, I suppose. But the impact on individuals is pretty much more negative. I mean, it makes imports more expensive.

So that, so things that are important for the United States, even like produce is going to be more expensive. And we're all sick of food inflation, I know, and broader inflation. So there's a factor there. And you know what? There's just no getting around the fact that Canadians go to the United States a lot. And it's adding a lot to the cost. You've got to change your Canadian dollars for US dollars. And a 69 cent dollar is,

we're within sight of a dollar American being a dollar 50 Canadian. And that is a stiff price to pay for crossing the border. You mentioned food inflation there. So let me just quickly ask you about inflation in general. This is kind of, you know, macroeconomics at work here. But, you know, on a personal level, what I guess, what can people expect going into 2025? Well, you know, I think inflation, the last reading was 1.9% in Canada. And so that is, if we were to flashback five or six years ago, and Statistics Canada said inflation is 1.9%, everyone would gone shrugged and yawned and said, whatever. But it's layered on top of like three years of bad inflation.

So we've like been force fed in a short time, a ton of inflation. So when we get back to normal price increases, we still feel the hangover effect. And so I think it's gonna take a while until people start to think, oh, 1.9, that's nothing. Inflation's calm, I'm not worrying about it. We are still thinking not just about the inflation of the past 12 months, but the

past 36 months. Why does everybody so glum about the economy? It's mostly inflation. Like we are just reeling under the cost increases that we've seen over the past year and even 1.9% on top of that, it adds up. And when we actually look at the economy then, is it in a bad place or as you say are we just kind of feeling glum about it still? I think it's in an okay place. 12 months ago there was this sense that there's got to be a recession coming is it gonna happen this year and the answer was no it did

not. The economy sort of flirted with it and some people have said that if you take a broader definition of inflation maybe we are in one but by the classic definitions no the economy has been not growing strongly at all but it is kept that if you take a broader definition of inflation, maybe we are in one, but by the classic definitions, no, the economy has been not growing strongly at all, but it is kept on the plus side of recession. So, you know, that's one of the good news stories is how resilient the economy's been. Like the most recent numbers on the job market

were very encouraging. Many more jobs were created than people expected. And, you know, will we keep that momentum up? I'm not sure, but I mean, that's something that we can cling onto is the fact that we've stayed at a recession and if we can avoid the negative effects of those tariffs, then I think maybe actually 2025 could be a better year than 2024. We'll be back after this message. So Rob, we've talked a lot about big picture things that might impact people's finances

in the coming year. Let's actually zoom in now a little bit more and talk about specific financial goals and maybe even resolutions of people who have done that at the start of the year. I want to talk about the job market and careers to start. So if people are looking for work or maybe even just looking to advance their career, what should they be focused on? We're heading into economic conditions that are uncertain and employers are gonna be cautious about hiring.

The hiring boom of a couple of years ago is dead. We're now in a more normal situation of like employer skepticism. I think there's gonna be a lot of gig offers out there. The gig economy was a big factor a couple of years ago. Then there was this job scarcity and then all the gig workers out there. You know, the gig economy was a big factor a couple years ago. Then there was this job scarcity and then all the gig workers got jobs. And now we're going back to more of a gig economy. So I think you want to be looking at how recession proof is this company I might go to work for. If I am last in the door, am I first out the door if there's layoffs? You know, for people

who are thinking about moving jobs, I would really think hard about what security am I giving up? And what am I getting in return at the new place? More money, more benefits, more flexibility, but also what is the security of my job? I think putting a lot of thought into the security of my next job is going to be on people's minds right now. We were talking about savings and stability a little bit earlier on.

A big thing we hear when it comes to savings is actually having an emergency fund, right? In case something happens, you have this kind of reserve of money that you can depend on. How much should people think about saving in this fund, Rob? And what's the best way to go about it? Well, the traditional advice for emergency fund was three to six months worth of household expenses. But you might as well say a million dollars because that's just so much money.

Imagine like being able to float your household for three to six months off money you've got stashed away in a savings account. A lot of people would have a lot of trouble doing that. Yeah. So you know what, why tell people this unattainable goal and make them feel bad for not reaching it? Let's say, how about a couple hundred bucks?

Could you do that? I mean, I think any amount of money you have sitting safe and sound in a savings account is better than nothing. So if it's a couple hundred bucks and then you save hard and you get it up to a couple thousand bucks, I think that is a home run for savings. The money should be in a high interest savings account. If you do a Google search for high interest savings accounts in Canada, you will see dozens of banks with rates that are in the, let's say between 2 and 3% at best right now, maybe 1.75 at the low end. They've all got deposit insurance. There's no risk. And the money is perfectly safe. So your goal is primarily keep the money safe and secondarily make a little bit of interest on it. It gives you a lot of breathing space. And if you don't have one, I would seriously suggest you start one. And if it's transferring 10, $20, every paycheck into this account, that's a good start.

So you're saying basically like start small. It doesn't matter if you can't do massive amounts, just get something in there. Then, you know what? Something is great. Let's look at someone who might want to start investing. It sounds like this, this might be a difficult year for that, but if they're looking to maybe put a little bit of money in investments, is it better to go with an app

like Wealthsimple where they can kind of manage things on their own a little bit more, or actually go the route of finding a professional investor? Well, if you're just starting, getting an advisor to help you is going to be tough. I mean, unless you are the child or spouse or someone with a big account, advisors don't want to work with people who are starting off with a couple hundred dollars and they're going to put 50 a month in. But robo advisors, investing apps, they do want to work

with people like that. So if you don't know anything in investing, but you do know I want to get started and I only have a little bit, And RoboAdvisor is an excellent way to go. There's a small fee, usually about half percentage point charged for their advice and their help. Worth it because you're getting help and it's getting you moving forward in a diversified, sensible sort of way. So I would have no problem.

I'd rather see someone do that than go into a bank branch and say, gee, I want some help investing. What do you guys suggest? And you're gonna be recommended some high cost mutual funds or some index linked GICs? And you're gonna be recommended some high cost mutual funds or some indexed linked GICs, and they're gonna be expensive products that make more money for the bank than you in many cases. So, a robo-advisor would be a better solution.

If you felt a little more bold and you wanted to open up your own trading account with an investing app or with a traditional digital broker, a lot of the banks have digital investing arms, you could try something called an asset allocation exchange traded fund. It's basically a diversified portfolio in a single nice cheap to own package. And you could just keep pouring money into that through the years and it will grow your money quite nicely. If you want to Google that it's asset allocation ETF,

an ETF standing for exchange traded fund, a very good product for almost everyone. And I think if it's going to be a rough year for investing, great time to start. Because if stocks go down and you're just putting your money in, you're getting a really nice firm foundation with reduced price stocks. It's a great time. I wonder though, if you're managing your own investments or at least like being a little bit more hands-on with one of these apps, is there a risk, I guess, at, you know, having too much visibility into that and maybe making some changes more frequently than you actually should be doing?

Yes, that is a risk. In fact, investing on your phone is actually kind of fun. And I think people are going to get a little bit of a buzz from it at first. And it's going to tempt you into making too many transactions and buying and selling. And the more buying and selling you do, typically, the more you actually hurt your wealth rather than building it up. So I would caution people to put the money in,

let it sit. You've got to be a long-term investor if you're putting money in the stock market. I think you need to have a timeline of at least five years minimum, more likely 10. That's when I will evaluate how well I've done. Don't evaluate in six months when the stock market's down 25%.

Put more money in at that case if you're a beginner. The market going down after you put money in is not a sign that you did a stupid thing. It's just life in the stock market. And the more chance you have to pile money in when it's down, the better off you'll be in the long term. I know you mentioned it's maybe not the best year for big changes, but sometimes you can't help that. So if people are looking towards a big change on the horizon, you know, moving from a rental

to owning a home or moving out of a house with roommates into a place on their own, that of course is going to mean an increase in recurring costs for them. What is the best way to plan and save, I guess, for that kind of significant increase? You know, I think what you have to do is, one, if you can delay the move to a point when you've given yourself a bit of a cash cushion, do it. And if you can't, then what I would do is start to map out your finances and say, okay, I have this much coming in and I've looked at what I've spent every week and every month. If I were to add in another, let's say, $1,000 in costs, where would it come from?

Is there room? Is there enough space in my expenses? Map it out. If there isn't, then you have to start thinking, where am I going to cut? Could I cut costs associated with going out and eating and buying food and all that stuff? Are there entertainment costs I can cut? If there's not, then you want to avoid putting yourself in a situation where you don't have enough money to afford your life and you're gonna be taking on debt to afford the difference. So, we've got to move forward,

but if it's gonna be debt finance, that's a sign that you can't afford to do the move and maybe you need to back away or save up a little bit more or somehow get a raise at work or find a better job. Cause we often talk about cutting, cutting, cutting our expenses, but the other answer is to grow your income.

And you know, if you can do that in the job market, if you could take extra training, upgrade your education, your credentials, ask for more responsibility, seek a job at a competing company that may pay more. Those are great ways to improve your personal finances. I would way rather see someone get a raise and have to make cuts in their spending.

If you do have to make cuts in your spending though, are there, I guess, things that people should be looking at in terms of helping them budget? Like is there, are there certain things that could help them kind of sort out, you know, where they might be overspending? I would get your credit card bill out. That's the great way to sort out your overspending because let's look at all the recurring expenses that you have sort of backed into over the past year. You know, I've done this myself, you know, I'm thinking, oh my God, that many subscriptions, that many streaming services.

Like we've been doing a bit of cutting lately, like at our household and you know, we're just thinking, you know, we're not watching that one that much, okay, cut. And you'd be surprised how much you can save per month if you happen to have been an accumulator of subs, you maybe 50, a hundred bucks. And I think that's a good way to start the process. We have our core things that we need

and really bring meaning and enjoyment to our lives, and then there's the frills, and I think we need to sort of be a little tough-minded about distinguishing between the two. Keep the stuff that really is meaningful and get rid of the other stuff. You can always get it back again later. We talked a little bit about the housing market, Rob, but let me ask you directly about this.

If someone is looking to buy a house, is now a good time to buy? Now's an okay time to buy. Is it a great time? I don't know. But mortgage rates are down from their peaks. They're not as low as people would like to see them. They're nowhere near the lows we saw recently. House prices are kind of going sideways or up a little bit.

It's not a hot market in most cases. So if that appeals to you, I think you can get into the market now and you could look at houses and look at them a second time and maybe put to conditional offers it on home inspections and that sort of thing, like in a normal market. I think maybe that's where we are right now, but there might be exceptions for really hot

or desirable properties. If we get a situation where the economy is starting to suffer under US tariffs, the housing market is going to be negatively affected because employment is really the core fundamental that propels housing. If everyone's got a job and feels good, they're gonna feel a lot positive about buying houses.

If the housing market trends lower and you've got a secure job, well, that strikes me as a buying opportunity. In light of all the instability we talked about earlier, could any of that have an impact on people who are looking to renew their mortgage or to get a mortgage for the first time? Yeah, I think it could. We're expecting mortgage rates to keep drifting lower in 2025, but all of a sudden they're sort of frozen in place. And that's because of this feeling that inflation could kick higher. And if that's the case,

inflation drives interest rates higher. So right now mortgage rates are not falling like we expected they could. Is it possible they could drift a bit higher? Yeah, I wouldn't rule it out. Mortgage rates are influenced to some extent by what's happening in the bond market. Where are interest rates in the bond market.

So the five-year Government of Canada bond is like a weather vane for the five-year fixed mortgage rate. And the five-year Government of Canada bond has trended a bit higher lately. So that says, oh, well, there could be a little upward pressure on five-year mortgage rates. So if you're renewing a mortgage, I think it's as good as it's gonna get for a while,

unless you go variable. And variable will slide a little bit more because it goes down every time the Bank of Canada cuts its rate. But if you like a fixed rate, and a lot of people do like fixed rates these days, I'm not seeing a lot of downside, and there is maybe even a little upside. What about the rental market? What can we expect to see in 2025 for renters? Well here's some certifiable good news. Rents have been coming down from the ginormous peaks they hit

after sort of the pandemic lockdown started to ease. Like landlords went nuts. Like they slammed rates higher. And they're starting to come down a bit. You know what? Things went too high, supply and demand. And now they're realizing, I want to fill my UDON. I'm going to have to maybe ease off a little bit.

And that is good news for renters. So the coming increases may be less than what they've seen in the past. And, you know, when rents crashed in the pandemic, a lot of people were renegotiating their rents. If you start to see the economy turning down and things are looking tense out there, then I would raise the possibility, is there a chance my rent could be flat next year? Could I get a rent decrease? You know what, talk to your landlord. Landlords wanna keep their units filled and people aren't moving around as much

and there's not as much a flow of new candidates to take over rentals. This may be a chance to get a good deal for a year. That sounds like a little bit of positive news. So, I mean, just lastly here, Rob, like we've been talking about a lot of difficult things, but from a few things that you've just mentioned there, there's also some some good things that Canadians can maybe look forward to financially this year.

Yeah. And you know what? And the best thing is that the economy, if we if we take away the whole U.S. situation, it's in not that bad shape. It's holding its own. The recession was in the air 12 months ago and it never came. And all the economic forecasts that I look at it, that if you divorce things from the uncertainty in the US, it could get a little better this year. It's predicted that consumer spending will rise a little bit, the housing market will perk up a little bit. I think we may be trending back to something that approaches normalcy.

You have to go back to a year like 2019 to get a normal year. Maybe if we can calm things down south of the border, we could get back to kind of a normal year. We'll have to wait and see. Rob, thank you so much for taking the time to be here. Glad to do it. That's it for today. I'm Nanika Ramen-Wilms.

Our producers are Madeleine White, Michal Stein, and Allie Graham. David Crosby edits the show. Adrian Chung is our senior producer, and Matt Frainer is our managing editor. Thanks so much for listening, and I'll talk to you tomorrow.