Despite Canada鈥檚 economic resilience in the face of rising interest rates over recent months, it鈥檚 still important to be prepared in case a recession arises.

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.

Below, I鈥檒l share some practical tips and actionable advice to help you and your family better weather any economic storms that may come.

IS CANADA HEADING FOR A RECESSION?

The last official recession in Canada occurred during the COVID-19 pandemic, between February and April 2020, . Since then, the economy has remained strong and has yet to enter a recession.

However, as we move into the fourth quarter of 2023, one expert says he fears this resiliency might be a temporary 鈥渋llusion.鈥�

In an interview with 麻豆传媒 Channel on Aug. 15, Concordia University economics professor Moshe Lander said Canada is likely "entering a recession, if we're not already inside one.鈥� Lander predicted that by September, Canada will start to see its GDP slow down, part of which would be the result of consistent interest rate hikes.

The jury is still out, though, as economic recessions can be difficult to predict. It鈥檚 also possible for Canada to dodge a recession altogether.

HOW TO PREPARE FOR AN ECONOMIC DOWNTURN

In either case, it鈥檚 always best to prepare for the worst. Even if the country avoids an economic downturn, the following tips will still put you in a better financial position so you can hit the ground running as we move into the new year.

1. Build an emergency savings fund

I firmly believe that every Canadian should have an emergency savings fund. Whether you鈥檙e a teenager working a part-time job, an adult with a full-time career, or you鈥檙e heading into retirement, an emergency fund can protect you from unexpected and unplanned events, such as:

  • Your vehicle breaking down
  • Sudden job loss or layoff
  • Illness or injury that puts you out of work for several weeks
  • Unexpected home repairs

While can often act as a safety net for those who have been laid off, these benefits don鈥檛 last forever and may only cover a fraction of your living expenses.

Ideally, your emergency savings fund should be enough to cover at least three months' worth of living expenses.

If you鈥檙e not there yet, don鈥檛 panic. You can start by looking at your budget and identifying areas where it鈥檚 possible to adjust your spending, allowing you to divert more cash towards an emergency savings fund.

2. Focus on job stability

It鈥檚 easy to get tempted by a shiny new job offer. But before accepting, it鈥檚 worth considering the industry you鈥檒l be working in.

During an economic downturn, certain 鈥渞ecession-proof jobs鈥� and industries can provide better job security than others. Examples include:

  • Education
  • Government services
  • Health care
  • Utility services
  • Tax and accounting services

Additionally, you should also consider the relationship you have with your current employer. When companies downsize, newer employees are often the first to go. A shows newer employees that have been working at a company for approximately one year or less tend to get laid off first. Meanwhile, those who鈥檝e built a solid reputation within the company may have greater job security.

If you happen to be a new hire or you鈥檙e filling an entry-level position, consider some ways to provide more value or take on more responsibilities to become a critical team member.

3. Hold off on unnecessary purchases

Perhaps you had a great summer, were able to build your savings, and took home some sizable bonuses and commissions. Like many hard-working Canadians, you may want to reward yourself with a nice vacation, a new recreational vehicle, or a luxury item.

With a potential downturn looming in the future, though, it may be best to hold off on unnecessary purchases for now. Instead, consider putting the extra money into your emergency savings fund.

4. Refinance or pay down high-interest debt

High-interest debt from credit cards, payment plans, or short-term loans can really drag you down during times of economic hardship. If you have high-interest debt, I encourage you to pay it down as quickly as possible.

With a higher rate of interest, this type of debt can end up costing you more over time. By paying it off as quickly as possible, this will likely save you a lot of money in the long run.

If you鈥檙e unable to significantly reduce this debt, consider refinancing your loan with your service provider. You can also look into obtaining a debt consolidation loan, which involves combining multiple loans into one new loan, usually with a lower interest rate. This can help reduce your monthly interest payments.

5. Diversify your investment portfolio

In the event of a serious economic downturn, you don鈥檛 want to have all of your eggs in one basket. If the main industry you鈥檝e invested in crashes, it could put your entire portfolio in the red.

Instead, invest in companies and industries that have proven to be resilient through economic downturns. According to a , these types of companies include those producing consumer staples, as well as those in health care and utilities.

You may also consider putting some money in cash equivalents such as guaranteed investment certificates (GICs) or high-interest savings accounts.

6. Review your household budget and expenses

Lastly, take some time to review your budget and living expenses. Look at your recent spending habits and see how closely you鈥檝e followed your budget. Make sure to ask yourself key questions, such as:

  • Am I spending more than I should in a certain category?
  • Am I earning more income now than when I last updated my budget?
  • Have I met my savings goals?

As you answer these questions, adjust your budget and consider setting new goals or spending limits for yourself. This will allow you to save more money and should put you in a better position to weather tough economic conditions.

THE BOTTOM LINE 鈥� PREPARATION IS KEY

Economic downturns aren鈥檛 always as devastating as what people experienced during the Great Depression or the 2008 housing crisis. As long as you鈥檙e prepared, you could float right through a minor recession without experiencing any significant changes to your finances.

While you shouldn鈥檛 panic about the possibility of a recession, it鈥檚 important to be prepared for a potential economic downturn by taking consistent actions to better your financial health.