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How to prepare your finances for a recession

Here's what to do with your debt, savings, investment portfolio, mortgage and retirement savings before and during a recession.


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A recession or any kind of market downturn can be a scary time as unemployment rises, incomes fall and bills continue to come in. But there are things you can do to prepare. Doing a general tidy up of your finances now and getting a plan in place can save you a lot of money, time and stress down the track.

Focus on paying down your debt

Having a plan in place to pay off your debt is always important, but it’s especially vital prior to, and during, a recession. There’s a higher chance of being made redundant or having your hours cut back at that time, which could make it really difficult to meet your repayments.

When starting to pay down your debt, you should prioritize some debts over others.

Credit card debt and personal loans

If you have credit card debt or a personal loan, it’s a good idea to focus on paying these off first. These products typically charge a higher interest rate than other credit products. While you might have this debt under control now, these could become difficult to pay down if you were to suddenly lose your income.

A balance transfer credit card allows you to transfer your debt over to a new card with a low interest rate for a set period of time. Using a balance transfer credit card could save you money on interest and also help repay your debt quicker.

If you have several personal loans, you could consider combining these into one with a debt consolidation loan. This means you’re not paying multiple sets of loan management fees.

Student loan debt

This debt is less urgent, as the interest rates are typically lower than most other forms of debt. Plus, student loan providers (especially the government) tend to provide repayment assistance and other forms of relief should it become financially challenging to make repayments. If you’ve got money to spare, it’s much more worthwhile to pay off any high-interest debt you have first. Once this is paid down, you should use any remaining money you have to start building up your emergency savings.

Build up your emergency savings

In times of economic uncertainty, it’s really important to have some cash savings at hand. This is especially essential if you’re a casual worker. If your employment is determined to be redundant, you could face unemployment until the economy picks back up. This means no money is coming in, but you’ll still need to meet your regular bills and ongoing payments.

Also, in times of economic uncertainty, we usually see big falls in the value of stocks and other assets, so cash is a much safer and less risky option.

While no one can predict how long a recession might last, as a general rule, it’s a good idea to build up an emergency savings fund of 3-6 months’ worth of living expenses. This means the amount you should aim to save will be different for everyone.

Here’s how to start building up your emergency savings.

Calculate how much you need to save

The first step is working out how much you need to have in your emergency savings. This means calculating 3-6 months’ worth of living expenses, which can sound daunting. A good way to tackle it is to look back on your transaction history over the last few months and make a note of all your living expenses.

Common examples of living expenses include the following:

  • Electricity, gas, Internet and phone bills
  • Mortgage repayments or rent
  • Health insurance payments, regular prescriptions and medication
  • Groceries
  • School fees, uniforms and supplies
  • Public transportation, gas, car payments and vehicle registration costs

Keep in mind that living expenses are things that are essential to your day-to-day life – things that are “wants” rather than “needs” aren’t included.

Examples of costs that usually aren’t considered living expenses include the following:

  • Eating out and takeaway food
  • Gym memberships or personal training (unless for medical/rehab purposes)
  • Alcohol
  • Entertainment costs like Netflix, Spotify or movie tickets
  • Vacations and travel expenses

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Create a budget and reduce your spending

Once you’ve worked out your average monthly living expenses, it’s time to put together a budget. Let’s say you’ve figured out you need $2,000.00 a month for living costs, and you want to save up an emergency fund worth 4 months of living costs. That’s $8,000.00 you need to have in your emergency savings. How are you going to save this?

As a starting point, you need to trim your spending. It’s likely that reviewing your past transactions has revealed some spending patterns you didn’t realize you had. Perhaps you discovered you were spending more money on eating out than you thought you were? Or maybe you were surprised by how much money you spend each month on entertainment and streaming services? Work out where you’re currently overspending and start to cut this down.

Following this, take a look at all your products and services to see which ones you no longer need and which ones you could get cheaper. This includes shopping around and comparing your life insurance, energy plans and internet plans. It may take a couple of hours of work, but you could save hundreds of dollars by switching to better deals.

If you need more inspiration, check out our guide on how to manage you money with a savings plan.

Increase your income if possible

While you’re actively trying to reduce your spending, try to find ways to bring in more money if possible. This is especially important if you’ve already been following a budget and don’t have many opportunities to reduce your spending further.

Here are a few options to increase your income:

  • Ask for a raise. If you haven’t asked for a raise in a while, it could be a good chance to do this now. If you can pull together a solid case as to why you deserve an increase, you won’t lose anything by asking politely.
  • Do part-time work. You could try to pick up some weekend shifts in a cafe or bar near you or do some freelance work after hours. You could even drive for Uber, rent out a spare room or start a side hustle.
  • Sell things. Sell items you no longer use or need on sites like eBay, Amazon or Facebook Marketplace for some extra cash.

Learn more about places to sell items online in our detailed guide.

Put your emergency savings in a safe place

Once you start building up your emergency savings, it’s important you have a safe place to put it that’s earning you a bit of interest. Here are a few options:

  • A high interest savings account. Savings accounts pay a small amount of interest on your balance. They often offer bonus interest when you can deposit a certain amount each month as an incentive to save. One benefit of a savings account is that you can access the money instantly if needed.
  • A Guaranteed Investment Certificate (GIC). GICs are a type of locked savings account. The benefit of term deposits is they pay a fixed interest rate that won’t change for the life of the term. However, you can’t access your money instantly if needed.

Deposits up to $100,000 in savings accounts with most Canadian banks are protected by the Canada Deposit Insurance Corporation (CDIC), so if something were to happen to the bank (which is unlikely), your deposit would be safe.

Sort out your mortgage

If you already have a mortgage, then it’s a good idea to start thinking about paying it down faster. A mortgage is the biggest debt most people have and will end up costing the average borrower hundreds of thousands of dollars in interest over the life of the loan.

Minimizing your home loan debt is a great way to recession-proof yourself, but there are a few things to think about:

Do you have other debts?

Mortgage debt (along with home equity lines of credit) is typically less urgent than personal loan or credit card debt. You should prioritize the most expensive, high-interest debts first.

How high is your current mortgage interest rate?

Refinancing to a lower interest rate can save you money without too much effort on your part. Check if your current rate is too high, and, if so, apply for a new loan with a better rate. A mortgage application can take hours of your time, but the potential savings make it worth considering.

If a recession hits, property will get cheaper, right?

Unfortunately, there’s no guarantee that a declining economy automatically means declining house prices. It’s certainly possible – no one truly knows what the future holds.

Canadian housing prices fell during the 2008 recession, but other factors can affect housing prices as well. Credit availability (how easy it is to get a loan) can have a strong impact on prices, potentially more than negative growth in the economy at large. Or at least, that has been the case in the past.

The sad fact is, property prices are high in Canada, and wages haven’t grown that much. Waiting for a recession to hit and then scooping up a property bargain is probably as unrealistic a dream as hoping to one day buy a detached house on a decently-sized lot dead smack in the middle of Toronto.

How to invest during a recession

In a recession or during an economic downturn, some investments are hit harder than others. It’s important to have a clear investment strategy in place so if a recession does occur, you have a well-thought-out plan so you avoid making last-minute, panic-driven decisions that could end up costing you.

Should you sell your shares?

Usually, stocks are among those hardest hit, so if you’ve got a large stock portfolio, it can be tempting to sell. But this isn’t always the best idea. When preparing your investments for a recession, ask yourself these questions:

  • Will you need the cash? If you think you’ll need the cash if a recession were to happen (for example if you think you’re likely to lose your savings and you don’t have an emergency savings buffer), you could consider selling some of your shares, even though you could be taking a loss. However, selling your shares when the price falls locks in that loss of capital, so you could be better off focusing on building up your emergency savings first before you resort to selling any of your stocks.
  • Can you manage without the cash? If you don’t think you’ll need the money any time soon, you could consider holding your investments and riding out the volatility. It could get worse before it gets better, and it may take several years, but historically the stock market tends to go up over the long term.
  • Are you about to retire? If you’re close to retirement and you think a recession is on the cards, you won’t have as much time left to ride out the volatility and wait for the stock market to recover like you would if you were in your 30s or 40s. In preparation, you could consider selling some of your shares before their prices drop too much, and moving the money into a cash investment instead. But remember, depending on your age, you could be in retirement for another 20 years or even longer. It’s likely your stocks will recover in this time, and keeping some of your money invested in growth assets like shares will help your retirement savings last longer.

Remember, like any global economic event, there are winners and losers in a recession, and not all stocks will go down. So, whether you sell or not will also depend on what you currently have in your portfolio.

Should you buy more shares?

During a recession, we usually see heavy falls in the stock market as investors sell their shares and move their money into low-risk cash investments. However, some stocks won’t be hit as hard, and some will even rise in value. But one thing is certain: a recession will present some good buying opportunities for those who are prepared to do so.

Some shares that could go up in a recession include the following:

  • Consumer staples. Companies like grocery stores might not be as greatly impacted as other sectors since consumers still need to buy day-to-day items.
  • Healthcare. If the recession is brought on by a pandemic, we’ll likely see some healthcare, medical research and biotech stocks rising.
  • Gold companies. Gold is a safe-haven asset that investors flock to in times of economic uncertainty, so in the lead up to and during a recession, we usually see the price of gold jump up. Read our guide on gold investing for more details.
  • Hedged ETFs. Some ETFs track market volatility and actually rise as the market falls and fall as the market rises.

Tips to prepare your investment portfolio for a recession

Here are some tips to help you prepare and manage your investments before and during a recession.

  • Focus on diversification. One of the best ways to protect your portfolio from volatility is by not having all your eggs in one basket. Instead of selling your shares, consider holding your shares and instead buying some other assets that are likely to go up to minimize your overall losses.
  • Adopt a long-term mindset. Unless you’re an active day trader, keep a long-term mindset for your portfolio. Yes, the market will fall from time to time, but it will almost certainly pick back up again and rise over the long term. The short-term volatility might be uncomfortable, but by focusing less on the day-to-day price movements, you’ll be able to keep a level head, remain calm and stick to your course.
  • Create a shopping list of stocks to buy. When the market is falling and the economy is slowing, it can seem counter-intuitive to invest more money into the share market. But during a recession, you’ll find plenty of good-quality stocks trading for a significant discount, which presents some great buying opportunities. As part of your preparation for a recession, put some money aside and create a shopping list of what you want to buy so that when the price is right, you can act quickly. If you don’t already have one, open an online share trading account so you’re ready to trade when there’s a good opportunity.
  • Stay informed, but ignore the hype. When the market is moving, whether that’s falling sharply or rising quickly, there’s going to be lots of hype. Everyone will have an opinion on what to buy and what to sell as well as on when the right time to buy will be. Remember, timing the market is a risky strategy that can be very costly, and at the end of the day, no one really knows for sure what the market will do next.

What about investing in property?

Collapsing stock prices and falling interest rates are making property look pretty attractive, right? There’s certainly something reassuring about investing in brick and mortar. Property might not be the highest yielding investment, but it’s typically a long-term game and relatively stable. Property is less exposed to short-term economic contraction and pandemics or disasters (unless you buy in an area that’s disaster-prone).

The truth is though that no investment is ever guaranteed. And if you do decide that now’s the time to invest in property, make sure you consider the following:

  • Invest for the long term. It is possible to “flip” a property for a short-term gain, but not everyone is able to pull this off and it’s harder to do in a recession. Take your time, do your research and invest in the right property in the right location. Consider factors like demand, population growth, future infrastructure, proximity to shops and schools and overall desirability.
  • Buy in a “recession-proof” area. Imagine you’d bought an investment property in a mining town at the height of a mining boom. Expensive. And then all of a sudden, the boom’s over and you’re paying off an expensive property you can’t find tenants for in a town with few jobs. Investing in towns or regions dependent on a single industry is very unwise during a recession. This is true for mining towns and vacation destinations, for instance.
  • Find the right loan. Canadian investors can use their investment costs to minimize their tax bills. Finding the right type of investment loan is a key part of this strategy. And whatever strategy you go for, getting a lower interest rate on the loan will save you even more. Remember, though, that the cost of an investment loan needs to be less than the profit you make from the investment, or else you’ll be stuck with an extra expense draining your savings.
  • Don’t try to time the market. Every investor wants a good deal, but the “buy low, sell high” strategy is for stocks, not property. “Buy quality and hold for the long term” is the most common property strategy.

How to invest for the future

What to do with your retirement savings

It’s not often as front of mind as our cash, personal investments and property, but your but your RRSP will be impacted will be impacted in a recession too. Your RRSP is an investment portfolio that’s made up of a bunch of different assets, most notably shares (unless you’ve got a self-managed portfolio consisting mostly of property). Importantly, your RRSP could be one of the biggest assets you have by the time you retire.

To prepare for a period of economic downturn, you might want to make sure you only have one RRSP. If you’ve got multiple funds, you’ll be paying multiple sets of fees which is unnecessary and will eat a big hole into your retirement savings. If you find you’ve got more than one fund, you could try to consolidate them.

If you already have just the one fund, the strategy you take with your retirement savings while preparing for a recession will depend on your age, your risk tolerance and your personal circumstances.

If you’re young

If you’re young and still a while away from retirement, generally the best thing to do with your RRSP before or during a recession is to leave it alone. If you’ve got your retirement funds in a balanced or growth fund, your investments will already be diversified across a range of assets.

This means that while shares might be falling, other assets will be doing well. So even if the share market has fallen 20%, the overall impact on your retirement savings won’t be as significant. This is because the portion invested in other assets (like gold, bonds or property) might help outweigh some of your losses.

You might be tempted to move your RRSP investments into a lower-risk cash investment, but this can be more costly than you think. First, if you change your investments, you’re realizing the losses (this only happens when you sell; until then, the loss is just on paper).

Second, you risk missing out on the potential rebound when the share market picks back up, which it likely will (we just don’t know when).

And third, if you move your RRSP into a cash investment during an economic crisis and then forget to move it back into growth options when the market starts to recover, you could miss out on valuable time to grow your money using stronger investments.

If you’re near retirement

If you’re close to, or already in, retirement, you’ll have less time for your retirement savings to recover after a recession. However, this doesn’t necessarily mean you should rush into changing your investments.

You could consider moving some of your retirement savings into more conservative assets, but remember that you’ll need growth assets like shares to ensure your savings lasts as long as possible into retirement. Even if you’re about to retire next year, most of your money will stay invested for the next 5, 10 or even 15 years.

Need more help?

Taking control of your finances is daunting at the best of times. When facing a recession, it’s even scarier. We hope that the information on this page helps you save money on your financial products and helps you make some good decisions.

If you need more help, the tables below contain competitive products, ranging from mortgages to savings accounts to car loans. And, if you need more guidance on saving money or managing debt, connect with a financial advisor or credit counselor using resources like the ones below:

  • Financial counseling. If you’re unsure what to do about your finances you can connect with a counselor, ideally one that is Accredited Financial Counselor Canada (AFCC) certified.
  • Debt counseling. You can help managing debt from organizations like Credit Counselling Canada, or Credit Canada.
  • Free legal advice. If you’re in debt and are also experiencing legal issues related to your finances, you may be able to get free legal help from pro bono lawyers. Contact the legal aid society in your province or territory for more information.

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