Can I Recession proof my life?
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By Bromwich+Smith Staff | 1003 words | Reading Time:5 minutes | Date: 2022/08/16
Recently Stats Canada announced job losses in the Canadian economy for yet another month. While the most recent net loss of 31,000 was relatively small, some commentators are talking about “the bounce back from the pandemic is over, and we are heading toward recession”. For many a recession can be terrifying, it often comes with job loss and for those with job security it may mean reduced hours, smaller paycheques or elimination of bonus pay.
What are some things that you can do today to prepare for a recession?
Pay into your Emergency fund
Consider putting additional money into an emergency savings account. This will help your cash flow if you have unexpected expenses, or if you lose your job. The average fund should have enough to cover 3-6 months of expenses. Keep in mind that if you are currently paying off debt it may be more difficult to find additional money to put aside. Even if you are paying off other debt, we do suggest starting a small emergency fund which will save you money later. Many will find themselves in an emergency (car broke down, water tank flooded, unexpected medical expenses etc), and without an emergency savings they will need to look at alternatives. This can include putting things on credit cards, seeking a payday loan which typically has higher interest, or pulling money out of investments which may have tax implications.
Pay off current debt
If you are currently struggling with your debt load, be advised that this will not be easier during a recession. Now is the time to really explore your financial situation and evaluate if you can manage your debt. If you can not manage your current debt or worry that you will not be able to handle any additional changes it may be time to reach out to a debt relief specialist and discover your options. Contact Bromwich+Smith to find out more.
Look at your monthly expenses and see if there are things you can cut out now before you are in a financial crunch. If you can’t forego your morning coffee run, set a monthly budget, and don’t allow yourself to go over it. Love Shopping? Consider window shopping and put the money you would have spent into an emergency account. Are you really using your Disney, Netflix, Prime, and Apple TV accounts? See if there is one you can cut out of your monthly budget. By reducing what you spend now you will be able to add a financial buffer to your bank account during a recession.
While it may seem easier said than done, look at your current income and evaluate if there is a potential to grow. The job market has been gaining traction, but many companies will likely experience hiring freezes during a recession. This may be the time for you to update your resume and check out the market. If you are content in your position, consider a side hustle or part time job. Do you have a skillset that you are able to sell? Many people have found success with side hustles, crafting, sewing, handy jobs, doing errands etc. Make sure you check into the tax requirements when considering a second income. You may consider selling items you do not use, online Marketplaces are great places to start to sell that extra bookshelf, or children’s items you may no longer need.
What should I avoid during a recession?
We know there are things that we can do to prepare for a recession, but what are the things to avoid?
Assuming new debt
Going into a recession may not be the time to purchase a new home, or recreational vehicle. While you may make enough money to cover your payments now, but often in a recession there are job or business loses and you may not be able to cover the additional expense. Avoid complicating your financial situation by holding off on extra payments unless you can pay cash for the item. Avoiding new debt also means that it is not a great time to co-sign a loan for anyone. While your family member may tell you they can pay the loan themselves, you don’t want to be in a situation where you are required to make those monthly payments.
Adjustable Mortgage Rates
We know saying do not buying a new home during a recession may be easier said than done. For many it is not an option, and mortgage renewal times are not always flexible. Do your research as interest rates will usually fall during the initial stages of a recession. These rates will increase as the economy recovers. Stay on top of the current rates, and do not trust that your mortgage provider will advise you when to lock in.
To invest or not invest
When it comes to investing- regardless of the economic situation it is always a wise decision to talk to an expert. Do your research to find the right financial advisor, as not everyone fits into the same financial mould. What is right for someone making $100k, with two properties, no debt and a recreational vehicle may not be the right choice for their neighbour, making $80k with $40k in credit card debt, a large mortgage and paying for 4 kid’s sports activities. A recession is not the time to take on risky investments, but to decide on what is risky you need to understand what you can afford to lose.
When it comes to a financial downturn there is no need to panic. Every economy has booms and busts, and every recession will end. Take the time to pay attention to where your money is being spent and set yourself up for healthy financial habits to last you a lifetime- recession or boom.
Bromwich+Smith has a number of debt relief strategies to help you regain control of your finances and get your life back on track. Reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at 1.855.884.9243, or request a call back at contact us page. We want to see you flourish!