How To Recession-Proof Your Life
Many Canadians and economists think rising inflation, interest rates and housing costs may be warning signs of a looming recession. Unfortunately, 56 per cent of Canadians say they can’t keep pace with elevated cost-of-living trends right now, according to a survey conducted by the Angus Reid Institute.
This article explores ways to ease the financial strain on your budget and protect your savings if a recession hits.
What Is a Recession?
A recession is a significant economic decline. The C.D. Howe Institute’s Business Cycle Council monitors recessions and recoveries in Canada. The organization defines a recession as a “pronounced, persistent and pervasive decline in aggregate economic activity.”
What You Can Do
Predictions about an official recession are divided; regardless, it’s inarguable that many people are struggling financially right now. The following are steps you can take to prepare or stabilize your funds:
- Understand your expenses. Start with examining and assessing your current financials. A line-item review of all expenses could help shed light on where you’re spending money and ways you could save. It could also help to categorize expenditures to see if there are certain areas you need to cut back on.
- Stick to a budget. You will likely have to adjust your budget as you plan for everyday and large purchases, but creating a realistic budget is also important. For example, you should allocate money for fun or entertainment if you’re planning for those activities.
- Live within your means. Recession or not, it’s crucial to make it a habit to live within your means. People who adopt this lifestyle mindset are less likely to go into debt and can pivot their spending to compensate for changes.
- Build an emergency fund. Having enough money in an emergency savings account is essential to pay for unexpected expenses, such as a car repair. The rule of thumb is to have at least three to six months’ worth of living expenses. Save with the expectation that costs will continue to rise.
- Switch up your groceries. It’s recommended to grocery shop with a meal plan, buy generic rather than brand-name or purchase in bulk. Couponing or shopping for deals can also help. If you are likely to make impulse purchases in the store, consider ordering online for a pick-up order to eliminate the temptation and stick to your budget.
- Save as you can. Everyday price increases are expected, so consider planning for it now. It may be more complex if you are also saving for a milestone or trying to remove excess expenses from your budget. Regardless of what you’re saving for—new car, first home, retirement— discussing your financial and investment goals with a financial advisor can be helpful. The same goes for addressing your debts or rethinking investments.
- Negotiate your monthly bills. The COVID-19 pandemic has accelerated the adoption of companies’ relief policies. Providers of monthly services (e.g., utilities, phone, cable and internet) may be the most flexible and willing to negotiate bills or offer discounts, rebates or coupons.
- Pay down debt. Experts also recommend consolidating your loans and paying down as much of your debt as possible. Not surprisingly, credit card debt can be even more of an expensive burden as interest rates rise.
- Ensure proper insurance coverage. Insurance (e.g., automobile, homeowners and life) is meant to protect your financial life in uncertain times, so check the coverage on your policies and adjust as needed.
With a bit of planning, you can recession-proof your budget to ensure your needs are met. It comes down to developing healthy financial habits for today and the future.
To deal with the current economic uncertainty, it’s best to focus on what you can control: your budget and saving and spending habits. It can also be helpful to discuss your situation and financial and investment goals with a financial advisor. Speak to your employer if you have additional questions or need resources for financial assistance.
Contact KRGinsure for any of your insurance needs!