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Personal finance predictions for 2020

Why oh why did I agree to write an article called “Money Predictions for 2020?”

If I knew what was going to happen in the economy wouldn’t I be rich by now? I’d have tracked all the big finance stories of 2019 ahead of time and used them to make a killing. 

I can make lots of predictions for the economy in 2020 that mean nothing for you. Interest rates will hold steady, I could say, or possibly come down a notch. I can forecast that talk of a recession will continue to fill newspaper finance sections while no such recession will actually materialize. And I can predict that the aforementioned lower interest rates will combine with government policy to see to it that house prices will go up across the country once again.

But my crystal ball, like yours – like everybody’s – is severely broken.

It’s impossible to know in advance what’s going to happen in the future. Even the world’s best experts at picking stocks tend to pick the wrong ones

But there are trends in personal finance that hold true every year, and some predictions are more likely to come true than others. So, with the caveat that I don’t know the future any better than you do, here are my money predictions for you for 2020.

Canadians debt load will rise

Shocking headlines like “ Should Canadians be Worried About Record Consumer Debt?” are asking the right question. If you’re like most Canadians, there’s a good chance you’ll end up adding to your debt load this year. 

It’s easy to understand why. The cost of living is going up faster than salaries, and sometimes you need to leave a balance on your credit card to get through the month. An 8-year car loan isn’t good personal finance, but when a big chunk of your income is tied up in your rent or mortgage, you’re going to choose cash flow over financial prudence. And interest rates aren’t going up anytime soon, making a line of credit an attractive option.

Stop this prediction from coming true: Make smart choices to live within your means. You might choose to buy a used car instead of a new one, or wait another year to save up for a big purchase rather than putting it on a credit card. Even if you can’t pay off your existing debt any faster, you can get ahead by refusing to take on more.

Canadians will continue to neglect retirement savings

Saving for retirement is hard, and it’s not going to get any easier in 2020. For the same reasons you’re likely to take on more debt, you’re also not likely to save enough for retirement this year – if you save anything at all.

Even if you are using the two best tools for retirement savings – the registered retirement savings plan (RRSP) and tax-free savings account (TFSA) – chances are you’re underusing them or misusing them outright. Even though 38% of Canadians with a TFSA are using it for retirement savings, 2 in 5 TFSAs are held as simple savings accounts meaning they’re unlikely to earn much interest. And since you can withdraw from a TFSA at any time without penalty, what’s to stop you from using your retirement stash to pay off some bills or take a vacation?

Stop this prediction from coming true: Commit to your retirement even if it’s only a few dollars a month. There are online investing options that make it easy to invest your savings, and if you keep your money invested over the long-term you’re likely to earn more interest than you would with a savings account.

Rent and house prices continue to rise

If you own a home, you’re likely to end the year a bit wealthier. Prices are expected to rise, bringing your net worth up along with it. Paying down your mortgage helps this along, too. You won’t necessarily be able to access that wealth though. At best, as a homeowner you can borrow against it.

If you rent or have a different living arrangement, growing your wealth will be more of an uphill battle. With hotter housing markets comes lower vacancy rates and higher rents. Housing has been a major contributor to the Canadian economy through shaky times, so a strong housing market should theoretically help contribute to your overall prosperity – but if you don’t own a home it probably won’t feel that way.

Make this prediction come true (or not): Don’t let the housing market dictate your wealth. Take steps to pay down debt and then save by investing for the long term. Even if you only use a few dollars a week to grow your wealth, you’re doing something right. 

The bottom line

Be your own crystal ball. Make 2020 the year you put yourself in charge of your money. Growing your income and paying off debt are the best ways to get ahead. It’s hard work, but it’s worth it. So don’t forget to celebrate the wins when they happen.