✔ Recessions are a normal part of economic cycles and you can get through them
✔ Create a budget to take stock of your expenses, so that you know how much money you have and how much you can pare down if needed
✔ To become more resilient during periods of recession, spend less, pay down debt and save more
Recessions can be scary. Even before the COVID-19 pandemic hit, many economists were warning that we might be headed for another recession. That’s partly because recessions are relatively common and tend to follow a long period of growth.
A recession is a period in which the economy declines. In technical terms, a recession occurs when two or more quarters in a row (six months) see a drop in gross domestic product, which is the measure of economic output in a country. A recession Canada has had five recessions since 1970 with the most recent one being in 2008-2009.
So, it makes financial sense to always be prepared for the next recession. No one knows how the pandemic might affect us all yet, but it’s a good time to start planning now.
Here are some tips to recession-proof your finances.
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Pay down the plastic
Getting out of debt is always a good idea, but in a recession the less debt you have the better off you are. You might have already been working on your debt reduction plan and, if you are still earning income, debt reduction should be one of your biggest priorities. In a recession, try to avoid using those credit cards at all costs.
Prepare for a recession by budgeting wisely
Budgeting lets you see how much money you have. Look at your income and expenses and break those expenses down into fixed expenses you have to pay every month, such as rent and insurance, as well as discretionary expenses, such as takeout or a TV streaming subscription. You can use our handy budget calculator to get you started.
Have separate budgets, for good times and bad, to give you a sense of how much you can pare down expenses when you need to. As COVID-19 continues to impact our daily lives through physical distancing and business closures, many regular expenses are already being cut out of our monthly spending. You may not be shopping for new clothes or you may be able to move your next regularly scheduled oil change, haircuts or transportation costs for many who are working from home. Your emergency budget should remove anything that isn’t absolutely necessary. Try our Emergency Budget Planner to help you get started.
Live more frugally
When you’re looking at how to cut expenses, you might be surprised at how COVID-19 is redefining what is truly essential for living. With self-isolation, many Canadians are rediscovering practices such as making more of their own food, even making their own bread, as well as sewing or mending their own clothes. You might look to see what you can DIY in your house and practise a minimalist lifestyle, which is a good practice in uncertain times.
Build an emergency fund
It’s usually recommended to have three to six months of your salary in savings, in case of job loss or other emergencies. That can be hard to save, but do your best in good times to have some money tucked away for bad times. We have lots of tips on how to build savings. Also, remember that this year, Canada has extended the deadline to file your taxes – if you have a tax refund coming, tuck that extra money into your emergency savings.
Turn your skills into income
The simple math of any budget is to have more money coming in than going out. Remember, it’s not how much you make, but how much you have left over. Although the country is in lockdown, and jobs are disappearing in Canada there are still money-making opportunities. Look at what skills you might have, such as crafting or sewing, writing or designing, and see if you can sell any of these services. You could make homemade masks, for instance.
Look for opportunities and take a steady approach
Whatever you do, it’s important to stay calm and focused. If you are currently working, always keep an eye to any opportunities and make yourself more indispensable at work. Keep your resume up to date and keep up with your professional contacts. See if upgrading your skills is possible to make you even more recession-proof. If you have investments, such as a pension plan, don’t panic about the ups and downs of the markets. This is good advice at any time.
When the good times come back, don’t forget the lessons you’ve learned about how to prepare for a rainy day.
If you need support, remember that we are all in this together. We are here to help too: contact easyfinancial.com with questions.