After a tumultuous few months of U.S tariff uncertainty and market turmoil following years of creeping inflation, most economists now agree that Canada is heading toward a recession.
“If there are tariffs that make trade between Canada and the U.S. more difficult, that could really hurt the Canadian economy and a lot of Canadian jobs,” says Walid Hejazi, professor of economic analysis and policy at Toronto’s Rotman School of Management.
Andrew Spence, economist and CEO of Spence Strategic Consulting, says it’s tough to say whether a recession is inevitable, but either way “our economy is going to slow down. It’s going to be tough.”
Rising unemployment, reduced consumer purchasing power, stalled business spending and market volatility are all common in a recession, which is why it’s critical to prepare yourself now.
Take a deep dive into your spending
When preparing for a recession, experts agree that the first step is to cut back on buying non-essentials. “You really have to scrutinize your budget,” says George Georgopoulos, associate economics professor at York University. “Cut back on non-necessities and cut back on what you can.”
Kelley Keehn, personal finance expert and CEO and co-founder of the Money Wise Institute, recommends combing through the last 13 months of your account statements. That way, you’ll catch any annual subscription fees and other recurring costs that can possibly go. She also suggests tracking your spending for 30 days. “That helps people see where they’re spending to then help them create a budget,” she says, adding that it’s unrealistic to set a monthly grocery budget of $400 when you’ve been spending $950.
Hejazi points out that there are a lot of apps that can help Canadians cut back on non-essential items by tracking spending.
Jamie Lefkovics, a 55-year-old program manager from Toronto, uses the Flipp app, which compares local flyers, to save money on groceries each week. “We pay attention and buy what’s on sale,” he says. He also asks cashiers about price matching. “I used to be so embarrassed to ask,” Lefkovics says. “But if Food Basics is out of butter that’s on sale for $4.88, and FreshCo has the same product, I will ask them to match the price. We’ve saved a lot that way.”
Lefkovics and his partner also cut way back on their entertainment budget and transportation costs. They only dine out once a month and host potlucks with friends at home. He and his partner also cancelled their streaming subscriptions, including Amazon Prime and Netflix. They walk wherever they can instead of taking Ubers or transit. “We could go see a movie at Yonge and Dundas, but if we walk to the closer cinema, we save $14 on taking the TTC there and back,” he says. With all of their budgeting, they’ve managed to cut back to $600 a month for food and entertainment.
Pay off your credit card debt
“When you cut back on spending, you have some room to pay down credit card debt,” Hejazi says, which should be prioritized because of high interest rates.
If you have a traditional credit card with rewards points, you’re probably paying around 24 per cent interest, Keehn says. “And if you miss even one payment, it jumps up to around 29 per cent until you make at least six payments in a row on time.”
Keehn says it’s also a good idea to contact your bank and ask about getting a credit card with a lower interest rate around 12.99 per cent. “Now that you’ve hacked your interest rate, your payments are going a lot further to paying that card off,” she says.
Hejazi adds that it’s important to make sure you pay your bills, including hydro and cable, on time. “The late fees are charged at a pretty high interest rate.”
Create an emergency fund
Having money stored away for “just in case” situations is essential. Georgopoulos points out that a recession is “typically six to nine months, then you start seeing things pick up again.” He recommends keeping your emergency fund in a high-interest savings account.
After paying off all of their credit cards and bills, Lefkovics and his partner decided to reroute their monthly RRSP contributions to a Tax-Free Savings Account (TFSA), at least for this year. “That way, we have money accessible to us if there’s an emergency.”
Keehn suggests looking into a roundup savings account. Some banks offer programs where each debit card transaction is rounded up to the nearest dollar (or other amount), and the change is automatically transferred to a savings account. It’s an easy way to passively save money.
Update your resume
It’s a bitter pill to swallow, but people should be prepared to lose their jobs in recessionary times as business and consumer confidence flail, Hejazi says.
Be proactive by keeping your resume up to date. Now is also a good time to think about expanding your skill set through online classes, Hejazi says.
Networking is particularly helpful when it comes to finding employment opportunities. Even if you feel that your job is secure now, it’s a good idea to stay professionally connected with others. And there’s nothing like an old-fashioned coffee date — in person. “When you make a human connection, people want to help you,” Keehn says. “Get out to events and build networks, because those are the people that are going to help look for opportunities for you.”
Don’t panic
Lefkovics initially felt a lot of anxiety trying to recession-proof his finances, but taking control made him feel better.
“There are many things I can’t change about what’s happening, but I can change how I’m reacting,” he says.
Asking friends for support and advice has helped. “We’re not the only ones with stress. We don’t have to go through this alone,” he says. His grandma has also been a source of inspiration. “Grandparents have memories about how they used to have to cut back. That gave me some perspective that we’ll get through it.”
Working with a fee-only certified financial planner can also help, Keehn says. It will cost money, but it may be worth the advice and assistance.
For those with investments, Hejazi says panicking really won’t help. He points to a Rotman School of Management survey of 1,600 people across Canada where the worst performers were those with low financial acumen who were highly reactive.
“They sell when the market goes down, and they buy back after the market recovers,” he says. “You cannot time the market. That’s the worst strategy.” The survey showed that successful investors tend to invest in portfolios that do well over the long term. “They buy and hold, even when the market goes up and down,” Hejazi says. “That doesn’t mean you never rebalance, but you don’t do it in a panic.” The survey also found that when reactive investors have a financial adviser and follow their plan, they do just as well as everyone else.
For Lefkovics, prepping his finances for the worst has actually offered some joyful moments.
“I could go shopping and come home with a new pair of jeans, and that feels good the first time I try them on,” he says. “But saving for an emergency or paying off a bill actually makes me feel good for longer than five minutes. It’s a moment that stays with you.”
