November 16, 2022
By
Annika Ng

5 ways Canadians can prepare for the upcoming recession

5 ways Canadians can prepare for the upcoming recession

Although we’re not technically in a recession yet, we’re all certainly feeling the pressures of one coming on. Both Royal Bank and Scotiabank anticipate a recession to hit Canada as early as the first quarter of 2023 due to rising interest rates, inflation, unemployment, and a bloated housing market.

With the current downturn, it’s crucial for Canadian’s to get their finances in check and prepare for the worst.

What is a recession?

A recession occurs when a country’s gross domestic product (GDP) falls for two successive quarters. This represents a decline in economic activity (less buying) and leads to rising unemployment. Unfortunately, recessions are an unavoidable part of a nation’s economy. In Canada, the government is responsible for defining whether the economy has entered (or exited) a recession, communicated by either the Bank of Canada or the Minister of Finance.

How to prepare:

Reduce your spending on non-essential items immediately.

This is the time to take a look at your monthly budget and trim off any unnecessary fat. As the holiday season comes around, it can be very difficult to cut back on spending while also still participating in the festivities however, there are small actions you can take that will make an incremental difference. For example, rather than buy lunch every day, consider meal prepping. To take it a step even further, instead of hitting up Whole Foods, maybe consider heading to Superstore and picking out those red ticket items.

Don’t forget to also double check your recurring charges such as unused gym memberships or subscriptions. According to a 2021 Chase survey, two-thirds of consumers have forgotten about at least one recurring payment within the last year and more than 70% of consumers estimate wasting over $50 each month on recurring payments for things they no longer need.

Whole Foods Market Is Opening in NYC's NoMad in June - Thrillist

Pay off your debt. Now.

As the recession is on its way and interest rates begin rising rapidly, its more important than ever to pay off any debt you may have immediately. The longer you wait, the more difficult it will become to manage your debt through the trying times. If you’re tight on cash and are unable to pay it off completely, we recommend getting a low-interest personal loan or sign-up for a balance-transfer credit card.

Save now and establish a backup to your emergency fund.

If you don’t have an emergency fund established already, we highly recommend starting right away. It could be a good idea to consider cancelling that expensive vacation or putting off that home renovation project you envisioned. For many people right now, the inflation problem is akin to an emergency and you don’t want to have to resort to debt if worse comes to worst. When building your emergency fund, remember that the typical advice of “three to six months of salary” might not be enough depending on your lifestyle and living circumstances. Adjust your emergency fund based on your own situations.

Prepare for potential unemployment by making yourself more hirable and/or getting a side gig.

Recessions typically hit those with less experience and lower skills harder than others although lately we’ve seen a lot of layoffs coming from big blue-chip companies like Meta and Twitter. Unfortunately, this means the labour market is also saturated with highly skilled individuals with fancy big name companies on their resume. If you think your job might be in danger, you can be proactive by keeping your job-related skills up to date or getting a side to boost your income.

Canadian staff among 11,000 laid off worldwide by Facebook owner Meta - The  Globe and Mail

Stay the course with your investments and think long term.

While market movements can certainly be exciting and, on the other hand, unsettling, it’s crucial to remember that investing is a long game where you benefit most from sticking it out over the bumps.

In fact, the market downturn during the recession is probably the best time to buy stocks for cheap! Think of it as a sweet Black Friday discount on your favourite stocks. We recommend a dollar-cost averaging strategy, which basically means you invest small amount at regular intervals rather than investing one lump sum. This helps reduce the impact of volatility on your investment.

Bottom line: prepare for the worst, hope for the best

No one can really predict what economic events will unfold in 2023 or in 2024 (anyone see the pandemic coming?). However, by preparing for the worst and hoping for the best through the strategies mentioned above, you’re setting yourself up for financial success no matter what happens.

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The above content provided by Blossom Social Inc. and is for general informational purposes only. It is not intended to constitute investment advice or any other kind of professional advice and should not be relied upon as such. Before taking action based on any such information, we encourage you to consult with the appropriate professionals. We do not endorse any third parties referenced within the article. Market and economic views are subject to change without notice and may be untimely when presented here. Do not infer or assume that any securities, sectors or markets described in this article were or will be profitable. Past performance is no guarantee of future results. There is a possibility of loss. Historical or hypothetical performance results are presented for illustrative purposes only.