It's in the air, a projected recession has been looming over the last number of months and is almost inevitable across the globe. Let's get things clear,
A recession is an economic downturn resulting in two consecutive quarters of negative economic growth (HBR, 2019). The most likely scenario would occur in Spring 2023.
From the peaks and soaring inflation, the Bank of Canada has continuously increased interest rates to help tame prices since February 2022 causing housing prices to drop, the stock market to crumble and the cost of living have tightened. The major cause led by COVID-19 and the reaction to help Canadians when tough times arose. As we are finally escaping the life of COVID-19 we must think and remember that with almost everything, this too will pass.
During this time we need to get through but set ourselves up for success when we return to better times. Here are 5 ways to successfully navigate a recession:
Make your financial checklist
What is important to you? Having an understanding of your financial priorities helps with budgeting your spending and being aware of your current financial position. This will help cut unnecessary spending to help stay on your financial path to success.
Create your emergency fund
During a recession, companies focus on cutting spending, which leads to less hiring, and sometimes large layoffs—having an emergency fund of 3-6 months of living expenses in the case of rough times.
Establish a personal
or household budget
Homeowner or not, having a monthly budget that allows you to understand where the money comes in and where it goes helps you to view your financial position much better resulting in less stress and worry. Some essentials of a budget could include,
Emergency fund top-up
Need a household budget template? CLICK HERE
Invest in Yourself and Focus on future opportunities
When mainstream investment opportunities seem risky, or not valuable to you it is essential to invest time into yourself by joining networking groups, sign-up for courses, taking up a hobby, or playing a sport. These types of activities will grow your network leading to strong long-lasting relationships that can positively affect you in the future.
Stay on top of your financial position
If you are a homeowner, renter, or planning to move in the next year understand the costs and requirements to stay within your limit and budget. With costs climbing and necessary expenses becoming greater set a buffer to allow yourself some wiggle room until inflation begins to ease.
For homeowners or future homeowners, the difference between variable and fixed-rate mortgages at this time is crucial. In current times, variable mortgage holders are reaching their "trigger point" which means the number of interest on your mortgage is greater than your monthly payment. In other words, you are not paying down any of your mortgages. If you are reaching this territory, expect to increase your mortgage payment as the Bank of Canada continues to hike interest rates.
Thinking about buying a home, the risks with variable and fixed-rate mortgages are completely different, and before selecting, understand what you are comfortable with now.
For more information speak to your mortgage professional about the different options.
How to survive a recession and thrive afterward. Harvard Business Review. (2022, June 21). Retrieved January 6, 2023, from https://hbr.org/2019/05/how-to-survive-a-recession-and-thrive-afterward