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How to prepare for a 2023 recession

“Each recession is a little different, but history has a way of repeating itself,” he says. “I always remind my clients not to think in terms of ‘this time is different’,” and he discourages them from trying to time the market. When money is tight, people and businesses will continue investing in people and products that bring them value.

  • During the “Great Recession” of 2007 to 2009, Caron Matthew, money coach and founder of PocketBrook Inc., drained all of her savings, including her emergency fund, to close on a home purchase.
  • If you’ve been dragging your feet on reducing risk, it could make sense to shift some money from stocks to lower-risk investments like bonds if you expect a bumpy economic road ahead.
  • As a result, businesses may cut back on production, lay off workers and decrease investments, while consumers may reduce their spending and save more.
  • This site is published in Canada exclusively for residents of Canadian jurisdictions where our products and services may be legally offered.
  • There will be time for that when you are in a better financial situation, but if you’re focused on preparing for a recession, then don’t spend on things you don’t need for now.
  • Having a variable interest rate means that it can change over time, so getting a fixed interest rate for any debt you have is usually ideal.

And yet, despite the jobless rate being higher, and the lower underlying inflation rate, the policy rate today sits at 5.0% whereas it was 1.75% back then. And the 10-year government of Canada yield was sitting at half of today’s 3.5% level — hence our continued bullish stance on the bond market. This debt bubble is now set to unwind, and likely not in a very orderly fashion. And the property bubble is already being burst —the YoY trend in the new house price index moving from +11.5% two years ago to +5% a year back to nearly -1% currently. This is a stall-speed economy and is either in recession or rapidly approaching one.

How to Survive a Recession

A recession isn’t the end of the world—it’s simply a natural part of our economic cycle. Fear of a recession can easily affect you more than an actual recession. Normally, we could expect to see rising unemployment, especially among young and part-time workers. While we can still expect some layoffs, a freeze on new hires and reduced staffing through natural attrition, we’re unlikely to see high unemployment. Home ownership and retirement plans washed away and headlines screamed that there were no more jobs to be had.

Also, if you have high fixed expenses like a big mortgage, it could make sense to build a bigger emergency fund. However, if that seems impossible, just start with what you can afford and add to it from there. And even if you’ve seen a loss in your investments, you’ll only feel that loss if you take the money out. Keep your investments where they are and wait for the upswing to happen. When the stock market is trending down, you might be tempted to sell your mutual funds at a loss and put the money into something safer to weather the storm. But hold on, take a deep breath, and don’t let fear cause you to make a costly mistake.

And since recessions can be pretty unpredictable, aim to boost your emergency savings to 12 months of your essential expenses to have extra money if needed. Perhaps you assessed your finances and found out some surprising things. If you can’t afford your current lifestyle, or you are struggling to pay your bills without debt each month, it’s time to make some changes. Still, that’s easier said than done if you’re barely getting by during normal times. So don’t be too hard on yourself if you’re still working on your emergency fund.

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Once you pay off your debt, you’ll have room in your budget to put towards other things, like growing your emergency fund or making up for rising consumer prices. Those with sufficient income to qualify for a lower payment no longer do once the higher interest rate is factored into the cost. If you do lose your job, ensure you sign up for employment insurance (EI) right away if you are qualified. There is a waiting period before you start to receive this government benefit so it’s best not to delay if you’re relying on this income to meet daily expenses. You may also be eligible for termination pay, vacation pay, and/or severance pay.

Reduce expenses

All the talk about a looming recession may have you worried about your finances. A recessionOpens in a new window refers to a period of economic decline. The U.S. unemployment rate reached 13% in the second quarter of 2020, the highest since the Great Depression. Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That’s why we provide features like your Approval Odds and savings estimates.

Refinance variable interest debt into fixed interest

This could help you get through a period of unemployment if you lose your job. To ‘manage your cashflow’, it simply means to schedule the timing of your expenses with cash inflows. You want to avoid a month where your expenses are so high that you need to dig into your savings or emergency fund to pay bills on time.

What happens to money you have in the bank during a recession?

A recession is announced once an economy undergoes two consecutive quarters of negative gross domestic product (GDP). In addition to a decline in GDP, employment and spending levels typically fall as well, putting pressure on small businesses and often resulting in job loss. The Fed has hiked interest rates from nearly zero last spring to north of 5% today in a bid to curb historic inflation. Many stock investors are betting the US central bank will cut rates next year, boosting asset prices and stimulating growth. However, they may be too optimistic as the Fed is unlikely to loosen its monetary policy until the economy cools. In fact, the total debt-service ratio for the personal sector is higher now than it was in the spring of 1990 when it was 12.7% — Canada was in the midst of a horrible recession back then.

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The interest rate determined by the Fed influences short-term lending like credit cards. In other words, your credit card interest rate could go up even higher, causing you to pay hundreds (or thousands) in interest. If you’re just starting out, I recommend having around six months’ worth of expenses, including the amounts you spend on necessary items like rent, utilities, and groceries. That number may sound high at first, but small contributions over time can build those savings.

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