How to Weather a Recession
Rumours have been circulating that Canada has entered a recession. Canada’s GDP shrunk by .6 percent in the first quarter and .1 percent in April implying that Canada’s economic rebound may well be behind schedule. With the last great market crash in 2008 still fresh in people’s minds, there are looming similarities and red flags that are simply hard to ignore. For example, the stock market has been on one of the greatest bull runs in history, housing prices continue to push higher while breaking records, the Canadian dollar is at its weakest, and the auto sector has been on fire as of late. What’s even more alarming is the surprising amount of confidence consumers have in the economy and job stability despite consistently disappointing economic data. The question to ask is, when will the party end?
Your best guess is as good as the next persons, but what can be controlled is how we prepare and shield ourselves from the negative effects of a full-blown recession. In a state of recession, most of us are exposed to the idea of losing our jobs, not being able to meet mortgage and car payments, and worse yet watching our retirement savings shrink in value. Luckily, there are some tips and tricks we can use and practice to prevent a worst-case scenario from happening.
Worst Case Scenario
This leads us to our first point, what is your worst-case scenario? It’s easy to ignore the worst things that can happen to us; ultimately nobody wants to dwell in negative thoughts. However, taking the time to predict how bad things can really get can go a long way in preventing them. Some questions include scenarios where a job is lost, or for business owners, if revenues fall drastically.
Trim your Budget
Upon establishing your worst-case scenario you can now think of ways to mitigate it. The most actionable tip would be to try lower your living expenses. This does not mean necessarily sacrificing your lifestyle, but perhaps things such as eating out less than normal or shopping for new clothes less frequently.
Become Irreplaceable
Another tip would be to continue to excel at your profession and strive to continually improve. This may mean pursuing further education, attending seminars, or networking within your industry. This will help with job security and improve your chances at maintaining a job in rough times where many others may be losing theirs.
Emergency Funds
If possible, with the savings generated from decreasing your budget, you can also start an emergency fund or invest more in one if it already exists. As a rule of thumb, 6 months’ worth of emergency funds is a good goal to strive for and should give you plenty of time to recover from a worst case scenario.
Strive to Diversify Income
If your income comes from one or two sources, such as a job or a few customers, you are at higher risk to losing those sources of income during rough times. By diversifying income streams, you can mitigate your risk of losing a dependable source of funds. One way to due this could be passive investments such as blue-chip dividend paying stocks. You could also find a way to make some money from a low maintenance, stay at home job such as a blog or e-commerce website. If you have the means, don’t be afraid to be creative in finding additional sources of income such as diversifying currency holdings to give yourself the chance of taking advantage of favourable exchange rates in Mirabel and other cities in Canada. For example, people who exchanged for US dollars from Canadian dollars at par a few years ago are roughly 30 percent better off today.
Stay Liquid
If you’re lucky enough to be in a position where most or all of the above tips have been covered, then you can start to plan on taking advantage of recession scenarios. By staying liquid and having enough cash and short term investment on hand, you can take advantage of recession’s by purchasing assets usually at a discounted rate. This includes stocks, real estate, and other big-ticket items.
Some of these tips may be difficult to implement or may take some getting used to at first but they can go a long way in keeping your lifestyle enjoyable and sustainable. By taking into consideration these tips, you should be able to weather the recession calmly knowing that you prepared for this exact scenario and should be ready to come out of it on top.