Get proactive to steer your finances through rocky economic conditions like a pro.
Does the thought of a looming recession have you sizing up the money-storage capacity of your mattress? You’re not alone.
Over half of Canadians (56%) are worried or frightened about the state of the current Canadian economy, according to a September 2022 NerdWallet survey conducted online by The Harris Poll among 1,116 Canadians.
But before you cash out your investments and start probing your attic for loose floorboards, let’s talk.
Yes, Canada may be headed for a recession. But no matter what lies in wait for the country’s economy, you can take steps today to protect and optimize your finances.
Is Canada headed for a recession?
Let’s talk about what a recession is, and what it means for Canadians.
“The technical definition of a recession is two negative quarters of GDP — gross domestic product,” explains Kurt Rosentreter, portfolio manager for Manulife Securities in Toronto, Ontario. People spend less, companies make less, and layoffs — both temporary and permanent — become more common.
“I could see a slowdown — maybe a technical recession next year,” says Rosentreter. “But I don’t see it being deep or long-lasting. There’s a lot of fundamental strength in the marketplace as we come out of the pandemic.”
There have been 12 recessions in Canada since 1926, according to historical data from the C.D. Howe Institute . The good news? The economy always bounces back.
A recession may put pressure on your finances, but there are ways to safeguard your nest egg. In fact, beyond setting up financial defences, you may be able to position yourself to profit with a strategic move or two.
How to survive — and thrive — during a recession
1. Supercharge your emergency fund.
An emergency fund is a financial safety net in times of unexpected expense or loss of income. It may also act as a cushion against inflation.
Almost one-quarter of Canadian adults (24%) say they had to dip into savings to help cover the rising cost of everyday expenses over the last 6 months in response to inflation, according to the NerdWallet survey. Which is why an emergency fund is important — as is where you keep it.
Savings accounts offered by online-only banks often have higher interest rates than those at Big 6 Banks or credit unions, so your money will grow while it’s stashed away. Or, consider a tax-advantaged account, like a TFSA, which offers tax-free interest and investment gains.
If you don’t have an emergency fund yet, consider setting up an automated transfer from your chequing account to a high-interest savings account. Many experts suggest aiming to save up three months’ worth of living expenses, but even if it’s just $5 weekly, it counts — and helps.
2. Consolidate or refinance debt.
Get ahead of rising interest rates by tackling your debt. In particular: debt with variable interest rates. Throw economic turbulence into the mix and variable rate debt can rapidly turn into a roller coaster — and not the fun kind.
“If you’ve stretched yourself on credit card debt, lines of credit — even mortgage debt — and these are now at much higher interest rates, now is the time to get your finances under control and pull in that debt load,” says Rosentreter.
Debt consolidation or refinancing could be a way to shed volatile rates and give yourself fewer monthly bills to track.
3. Put uninvested cash to use.
On the fence about investing? Assuming your emergency fund and debts are in order, now may be the time to climb down and dive in.
“If you are sitting on cash, it’s a good time to look at getting into the market,” says Victor Godinho, Certified Financial Planner, chartered investment manager and principal broker at Kismet Wealth Group in Etobicoke, Ontario. Godinho suggests keeping an eye out for assets at discounted prices, which tend to become more common during a market downturn. “It’s a good time to buy things that you’ll hold for the long term,” says Godinho.
If you’re not sure how to start investing, try connecting with a financial advisor at your bank. Or, explore online investment services, like trading platforms and robo-advisors.
4. Respect your risk tolerance.
Investors, this one’s for you: Rising interest rates often result in stock market pullbacks and market volatility could leave your portfolio vulnerable to losses. Now’s the time to figure out what you truly can afford to lose.
“You need to be honest with yourself and respect who you are as an investor,” says Rosentreter. “If you’ve been pushing the envelope and being aggressive in the stock market, well beyond your comfort zone, well beyond your profile, well beyond your personal need for the money, this is not the time for that.”
The bottom line? Be clear in your investing goals and what you’re willing to risk to achieve them. If you’re in it for the long haul, avoid impulse trades and opt for investments that support a long-term trajectory.
5. Get proactive about your career.
“A true recession means people will lose their jobs,” says Rosentreter. “Think about what job security means and what you can do to enhance it.”
One way to start is by talking to your employer.
“Get ahead of the ball. Don’t wait for that phone call from HR about being laid off,” says Godinho. “Talk about how you can improve your positioning where you work.”
If you don’t have a career development plan, work with your manager or mentor to create one. If there’s an opening for a project, sign up. If there’s an opportunity to learn a new skill, raise your hand. Anything you can do to become a more valuable asset in the eyes of your employer may strengthen your job security.
“It’s a good time to get proactive,” says Godinho — something that holds true for both your career and your financial situation. Fear of the unknown doesn’t need to root you in place. With a little forward-thinking, there’s plenty you can do to prepare your finances to navigate uncertain economic conditions.
This survey was conducted online by The Harris Poll on behalf of NerdWallet from September 6-7, 2022 among 1,116 Canadian adults ages 18 and older. The sampling precision of Harris online polls is measured by using a Bayesian credible interval. For this study, the sample data is accurate to within + 2.8 percentage points using a 95% confidence level. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact Marcelo Vilela at email@example.com.