It’s becoming harder to break out of the paycheque-to-paycheque cycle with the surging cost of living in 2026. With inflation, especially food inflation, sticking around while the employment situation gets rougher in Canada, it’s becoming hard to pad the emergency fund, let alone make contributions to a TFSA or RRSP. Any way you look at it, it’s tough sledding heading into year’s end, especially as the Bank of Canada looks to kick off a rate-hiking cycle of its own.
As it becomes even tougher to stay in the budget, actually having a budget becomes of utmost importance. Indeed, cost-cutting and savings automation are some obvious moves to get things in balance.
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The paycheque-to-paycheque cycle is getting harder to break
But at the same time, it’s important to be realistic and not make it feel like one is depriving oneself to save up an extra $100 or so at the end of any given month. While time will tell where inflation goes into the new year, as the Bank of Canada looks to consider hikes, I do think that parking emergency savings cash within a vehicle that’s better able to withstand the pressure of inflation is the move.
Of course, equities are some of the best assets to own for appreciation over extended periods of time. But when it comes to your emergency fund, cash and cash equivalents are often viewed as better parking spaces.
Amid above-average inflation, though, the punishment for hoarding cash is that much stiffer. And while higher rates on GICs are making them tempting again, locking away your cash for a year or 18 months doesn’t make the most sense in the world, especially since emergency funds should be easily accessible and as liquid as possible.
Take advantage of high-interest savings and cash management ETFs for extra yield
If you’ve got access, a HISA (High-Yield Savings Account) is a wise way to go. But for those with substantial cash on the sidelines, I do view an exchange-traded ETF like the TD Cash Management ETF (TSX: TCSH) or something similar as an invaluable tool to have in the arsenal, especially if your savings account pays a sub-1% interest rate.
Of course, something like the TCSH or the Global X High Interest Savings ETF (TSX: CASH) isn’t going to make you rich. But it does stand out as a fantastic way to earn decent interest (between 2–2.6%) on excess cash.
Best of all, when the market’s open, you can sell and use the proceeds to meet your needs (emergency or not) as they come. In terms of real returns (that’s after inflation), don’t expect much of anything at all. In my view, it’s a way to offset much of the blow of inflation, rather than a way to appreciate your wealth in real terms.
For the TCSH, it has a good chunk invested in short-term, but very high-quality money market instruments and other forms of short-term debt. Not the most exciting ETF in the world, but it gets the job done for investors who need to keep their powder dry or prepare for the unexpected.
