With the high cost of living, experts warn against dipping into savings

As the heightened cost of living continues to weigh on household budgets, Canadians are reportedly dipping into their savings to pay for basic needs, which some financial experts caution against doing.

However, multiple reports show that some feel they have no other option but to sacrifice long-term savings to make ends meet now.

“I see the price of things every day when I go to the grocery store or go to shops, and I hear it all the time when people connect with me online and talking about ‘what can I do?'” says financial planner Jessica Moorhouse.

“I know the advice is to ‘save and invest for your future,’ but I’m just trying to pay my rent and pay my bills.”

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Canadians dipping into their savings

According to an Ipsos poll conducted exclusively for Global News, 42 per cent of respondents wanted Prime Minister Mark Carney’s federal budget to prioritize helping with the increasing cost of everyday expenses.

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The latest consumer inflation report showed prices increased an average of 2.2 per cent in October compared to a year earlier, with prices for food bought in stores increasing 3.4 per cent.

When bank accounts are running low or are empty, some Canadians say they have been leaning on savings or emergency funds for extra cash to pay for bills, groceries and other immediate needs.

In a survey report from Willful released in October, nearly half of respondents, or 46 per cent, said they had to spend money from their savings to pay for daily expenses. The report also found the average score participants gave to measure how optimistic they were about their finances dropped from 52 per cent in 2024 to 46 per cent this year.

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In a Harris Poll survey conducted on behalf of NerdWallet Canada in October of this year, 28 per cent of respondents said they are still paying off debt from the holiday shopping season in 2024, and 22 per cent of Gen Z said they planned to dip into emergency savings to buy holiday gifts this year.

This also comes after a separate TD Bank survey report from October revealed Gen Z felt more stressed because of their financial situation compared to older age groups.

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The risks of withdrawing from savings

Some financial experts recommend against taking money out of a savings or other long-term investment account too soon, as this could mean sacrificing long-term financial goals.

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“Dipping into your savings, especially your long-term retirement accounts, it’s probably not the best idea,” says Michael Lehmann, an associate portfolio manager and client relationship manager with Brook Wagman Private Wealth at Raymond James.

“Anytime you take out money that’s going to accrue interest and performance over the long term, you’re missing out on those future gains.”

Lehmann goes on to describe the positive “compounding” effects of these accounts that can be cashed out later in life, like when someone retires.

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“You don’t want to treat your stock market portfolio like an ATM, especially if it’s set up for the long term.”

Most savings accounts and investment funds grow in value by compounding interest, which means the longer the money is invested, the more and faster it grows — like a snowball effect.

If someone does need to withdraw from their investments to pay for basic needs, Moorhouse says it’s important to get one’s savings back on track fast.

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“It makes sense to dip into savings when there is some sort of gap in terms of what you owe and money coming in, and that’s how you’re going to pay those bills instead of going into debt. However, the problem is, how are we going to replenish those savings?” says Moorhouse.

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“The whole point of an emergency fund is to get it to a certain point and then you can reallocate that savings towards another goal, say retirement or a home down payment.”

In more extreme circumstances, assets like a car, jewelry, a house, or investments like stocks and mutual funds can be sold or liquidated for extra cash to pay for immediate needs, which Moorhouse also advises against doing.

“Doing something extreme like selling your car, putting your house up for sale or liquidating your retirement savings is always the last resort if there’s really no other option, and usually there are other options before touching those things that you worked so hard to build,” says Moorhouse.

She goes on to suggest other ways consumers can find some breathing room in these “extreme” circumstances, including credit card balance transfers, consolidating debt and working with a credit counsellor. She also suggests working with an insolvency trustee to file a consumer proposal, which, if approved, can potentially give more flexibility to those in debt.

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More than just money at risk

Financial challenges can also cause added stress, which can pose risks to one’s mental and physical health, Toronto Metropolitan University psychology professor Dr. Martin Antony said.

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“It doesn’t surprise me to learn that people are struggling right now. People are, as always seems to be the case, being asked to do more with less, and that creates challenges for people and is stressful for people,” Antony said.

“When there’s a mismatch between our goals and our values and things that we want to do and what we’re able to do, that stresses us. When we’re stressed in that kind of way, we’re more likely to experience irritability and anger at others.”

Antony says stress can cause some people physical symptoms, including headaches, increased blood pressure and various kinds of aches and pains, in addition to emotional symptoms from feelings of anger or irritability, as well as sadness or even depression.

When it comes to money, though, Antony says the “stresses” can sometimes extend to the relationships of the affected people.

“Money stresses in particular have an impact on relationships. It’s different if I have a health issue that might be stressful for me and I might be a little bit more irritable but it doesn’t directly impact on someone else, whereas if I’m spending the family’s money, that does directly impact somebody else.”