Statistics Canada has confirmed a technical recession in the country, with real Gross Domestic Product falling by 0.1% on an annualized basis, following a revised 1% drop in the previous quarter. While economists and politicians debate the severity of this contraction, households face ongoing financial pressures, whether the ruling Liberal party admits this to be a recession or play verbal gymnastics over the true definition – recession vs. a technical recession.
Navigating this climate means taking defensive financial steps, where you are intentional and aware of your spending and what you choose to throw your money at. Since interest rates remain a pivotal factor and budgets are tight, you can prepare yourself with targeted strategies:
- Review your debt: High interest rates make debt significantly more expensive. Check your current standing and explore debt consolidation options using the Ratehub.ca Mortgage and Finance Calculator. The idea is simple, yet lost on many: it is must more financially meaningful to pay high interest debt than to seek to earn or save money elsewhere, especially when you have significant amount of debt. But before that, you need to put a stop to any use of high interest debt. Close the tap completely.
- Build an emergency fund: With per-capita GDP contracting, job security is a top concern. Aim to keep three to six months of living expenses in high-yield savings accounts. The idea takes from the old saying that “it is better to have it and not need it than to need it and not have it”. Build your emergency fund for your peace of mind, with the hope and expectation that you never have to dip into it.
- Review your portfolio: Consider defensive, cash-flow strong Canadian stocks that historically weather economic slowdowns better, such as major telecom, utility, or grocery chains. Bank stocks can be good too, at least for their dividend payment.
- Monitor local inflation: Inflation continues to squeeze budgets faster in some Canadian municipalities than others. You can track the latest regional Statistics Canada Consumer Price Index to adjust your household spending. For example, while food may be cheap in your region, housing may not be or; or vice versa. Being aware of your local inflation and other economic indicators is key to being ready for the storm, until it has passed.
- Solid-Proof your Job and Career: now may not be the perfect time to be looking for another job, unless you have a solid guarantee or a written guarantee of a better opportunity. In other words, there is no point switching a job that pays $60K and have been with for over 5 years, to one that is paying you an extra $5K, requires a longer commute and have no guarantee of the long term. Play it safe for now, while doing your best to work hard, offer as much value and sharpening your skills and tools at the current job. In fact, now is the perfect time to get as good with AI as you possibly can. Your future will thank you!
Recessions are not meant to last forever or even beyond a few quarters at the worst. The idea is not to be all negative and gloom and doom, but simply to be on guard and ready, so that you can not only weather the storm, but come out stronger.