Canada is not in a recession — not yet anyway — but people should be prepared for one, said Peta Wales, president and CEO of Credit Counselling Society, a non-profit organization offering accredited debt counselling.
The good news is we’re forewarned ahead of the looming economic turbulence, so hopefully people are taking action now, while they’re still employed, to prepare for it, Wales said.
“I would say that’s a little bit different from the past recessions, like the COVID-induced recession of 2020 or even the Great Recession of 2008. I don’t think those recessions had the same level of predictability and forewarning,” she said.
Another thing that’s different this time around is that the looming potential recession is driven by geopolitics, not as part of a natural economic cycle, meaning the economic recovery may be unpredictable.
“We don’t know if this going to be a short recession or a long one, but I would say the prudent approach would be to prepare for a long recession and hope for a short one,” she said.
The worst thing that could happen from being overprepared is you end up with more savings than you need and even better spending and saving habits. Being underprepared, on the other hand, may result in some hardship.
“That’s why it’s so critically important that people take action now because we don’t know how long this recession will last. The longer runway you have to prepare, the better off you’ll be,” she said.
5 tips to survive recession
The Credit Counselling Society offers money-saving tips to help people survive a recession.
While you can read the guide on the organization’s website, it comes down to these five basic tips:
- Save an emergency fund
- Establish a budget and pay down your debts
- Downsize to a more frugal lifestyle
- Diversify your income
- Diversify your investments
Important first steps to prepare
Wales added that everyone should be taking a deep dive into their finances and making a budget. And you should be looking at your expenses from as far back as a year ago because certain costs are incurred annually or quarterly, and you may not catch them if you only look at a few months of finances.
Once you’ve done that, you can identify the nondiscretionary expenses such as rent, utility bills, food costs, medical bills and others that must be paid, and the discretionary expenses. You can prioritize the discretionary items you want to keep and eliminate or reduce the others.
Once you reduce those expenses, put that money toward an emergency fund. Your emergency fund should have three to six months’ worth of income, Wales said. You should be building this emergency fund now, while you’re still employed.
“Now is particularly important. We’re not quite in a recession yet, but we can see it on the horizon. If you’re in a role that is more directly tied to U.S. trade and the challenges that we’re experiencing, your job’s at risk,” she said “So, you want to make sure you have an emergency fund built up.”
People should also reallocate some of those discretionary dollars toward paying down high-interest debt, as those payments become difficult to manage if you lose your job or end up working reduced hours.
Ask for help
Also, don’t be afraid to seek help, if you need it. Wales suggests non-profit credit counselling agencies, which can provide free counselling and walk you through dealing with your financial difficulty.
“Canadians today are stretched already, many households are already struggling with higher living costs, higher levels of debt, so preparation is key,” she said.
“We can’t control what happens globally, but we can certainly control what happens in our homes, and so there really is no downside to taking a look at your finances now and preparing for what’s to come.”
