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What to do Now to Prep for a Recession in Canada

What to do Now to Prep for a Recession in Canada

By Hannah Logan

There’s no question that the last two years have been tough. After a stream of lockdowns and adjustments due to COVID-19, Canadians hoped to get back to normal. However, we’re not out of the woods yet. As Canada and the world try to recover, we are seeing the highest inflation rates in over 30 years which is raising concern that Canada might be headed towards a recession.

With possible tough times on the horizon, it’s in your best interest to think ahead. Here are five things you can do now to help prep for a recession.

Focus on Paying off and Prioritizing Debt

One of the first things you should do is prioritize paying off your debt. Especially any high-interest debt such as credit card debt. The sooner you can get this off your shoulders, the better. Another thing to consider is, should your income level drop, what debts do you need to prioritize? For example, a mortgage is something you want to stay on top of so you don’t lose your home. If you need your car to get to and from work, then that might also be something to prioritize over others.

That being said, if your debt feels unmanageable, speak up and ask for help. Many creditors will come up with payment plans options to help take off some of the stress, and there are Credit Counseling Services that can help you find ways to consolidate or reduce your overall debt load.

Boost Up Your Emergency Fund

An emergency fund is one of the most valuable resources you can have at any time, but now more than ever you want to ensure it is topped up. It’s recommended that you have three to six months’ worth of savings stashed away in an emergency fund, but it’s never a bad idea to have a little more. Keep in mind, even if you do currently have a healthy emergency fund, costs have steadily risen over the last two years, and they will most likely continue to rise. So be sure that you are using an monthly cost as your savings benchmark.

Reassess Your Budget

You should reassess your budget on a fairly regular basis but with a potential recession looming, now is a good time to do it again. Do you spend too much in some areas? Can you cut out some costs? Readjusting your budget doesn’t necessarily mean you have to make any drastic cuts but more so focus on being strategic in your spending. For example, when you do your grocery shopping, can you swap some name brand products for the no-name or store brand? It seems like a simple swap but that couple of dollars you save on every grocery order will add up pretty quickly.

Look at Getting Approved for a HELOC or Other Line of Credit Another step you can take for an added sense of security is to apply to be approved for a personal line of credit, a home equity line of credit (HELOC) or a refinance. If you experience job loss, it will be very hard to get approved for any type of loan at a non-usurious rate. But if you are employed, you can get approved for a line of credit or HELOC at a reasonable rate, draw on the funds in the future, if needed, and only pay interest on the portion that you withdraw. After you pay that money back, the full amount in the line of credit is available for you to use again when needed.

You only need to be approved once for a line of credit and the interest rates offered tend to be lower than personal loan rates and are significantly lower than interest rates offered by credit cards. So if you are concerned about affordability and the possibility of needing to borrow money, then getting advance approval for a line of credit might be a smart step.

Keep Up Your Contributions

If you can, you should keep contributing to low-risk, long-term investments such as your RRSP or High-Interest Savings Account. It can be intimidating to think about investing right now, however, keep in mind that these types of investments are for the future and they have plenty of time to grow and will benefit you in the long run. So don’t panic, invest as usual if you can or adjust accordingly, and avoid checking performance on a regular basis.

Don't Panic

Finally, don’t panic. Yes, the idea of a recession is scary. Yes, if it happens it means things will likely get tougher for a time. However, with some advance thought and preparation, you can weather the storm. These tips will get you a head start on securing your finances for tough times.

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