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How To Prepare Your Finances For A Recession

According to Jean-François Perrault, chief economist at Scotiabank Economics, the Canadian economy will enter a technical recession by 2023.

Let’s begin by defining recession: what is it? A recession technically means a setback, which signifies that economic progress is slowing; we call it a recession after about two-quarters of decline.

The region’s gross domestic product (GDP), or the total value of goods and services produced, falls during these periods. When inflation is high, a recession frequently follows, and people begin to spend less as a result.

You may be concerned about your money as a result of all the hype about an approaching recession. As recession fears grow in Canada, Canadians have begun to look for methods to cut costs. You can withstand the storm by anticipating problems and planning ahead of time. Keeping this in mind, here are five critical strategies to help you prepare for unpredictable times.

First, establish a financial buffer/emergency fund.

When it comes to your financial buffer, how much money should you set aside? It all depends on your lifestyle and risk tolerance.

Let’s assume you need $2000 per month to maintain your lifestyle. Furthermore, having a six-month buffer gives you peace of mind. Therefore, you should set aside $12,000 in reserve.

Improve your financial knowledge.

Research is important. Listen to podcasts, watch videos, and read books about saving and making money.

Preparing for a financial crisis consists of three steps: earn money, save money, and invest money.

Live with less.

Being careful is not a bad idea. Buy what you need and save what you can.

Sell the items you no longer need; you can definitely use the extra money now.

Begin a temporary side business. You can do this in addition to your job; find something you enjoy and where you can earn extra money.

If you want to buy something, give yourself some time to think about it. Wait two weeks before making the purchase; you’ll most likely have forgotten about it by then.

If possible, prioritize debt repayment.

If you lose your job, you might not be able to pay all of your bills on time or in full every month. And this will have an immediate effect on your credit score. Ensure that your rent or mortgage is paid on time and in full. You don’t want to be evicted or suffer foreclosure. Remember, if you’re getting behind on your payments, contact your creditors and request hardship concessions.

Choose a variable-rate mortgage.

You must abandon fixed rates in favour of variable rates. This gives you more flexibility and allows you to react more quickly. Interest rates tend to fall during a recession. Keep in mind that a recession will have a minimal effect on home prices. What may change are interest rates.

Source: Bnnbloomberg.ca,  Chase.com