Whispers of a recession we’ve been hearing for some time are turning into audible groans as the economy struggles under the weight of rising interest rates. So now is a good time to ask: Are you (and your finances) prepared for a potential downturn?
Driving the news: Red lights on our recession dashboard are flashing: The real estate market is shaky, the yield curve in the government bond market has inverted, and companies that couldn’t hire fast enough last year are laying people off in droves.
Why it's happening: The Bank of Canada (along with most other central banks worldwide) has raised interest rates aggressively to beat back inflation, making borrowing money more expensive.
- When borrowing becomes more expensive, demand in the economy falls, and companies tend to hire fewer people and cut investment.
While we can't control the global economy, you can soften the blow of a recession (if one hits) with some planning and preparedness. Here are a few things you can do to prepare:
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Cut costs where you can. Get into a saving mindset and find ways to eliminate unnecessary spending. You have fixed expenses that you can't change, like housing, insurance, and monthly bills. But extras like entertainment and dining out are the first places to pull back.
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Reduce your debt as rapidly as possible. It's time to implement that old credit card in the ice block trick and try your best not to add anything else to your debt load.
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Build an emergency fund. Unexpected expenses are to be expected. If you usually turn to credit to fund those costs, stashing away some cash will help you in the long run by eliminating credit card interest.
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Avoid late payments. Small late fees for overdue bills can add up quickly and compound into an unmanageable mess. Grab a calendar and write down all the due dates for your payments so you can plan your payments out for the next few months.
- Consider that your career could be in jeopardy. Update your resume and cover letter, consider taking a course to update or improve your marketable skills and perhaps pivot into a more "recession-proof" role.
Bottom line: By planning for choppy waters now, you can avoid the worst outcomes. And remember—most of us have been through a recession before, and difficult times will eventually pass.