Looking to survive a recession in Canada? In 2020 it happened very quickly. One minute the stock market was at all time highs and there was a palpable sense of exuberance and wealth, and the next minute you see the stock market crashing, net worths plunging over 30% very quickly, with new lows in the stock market every week.
Then we had a roaring 2021, but 2022 rolls around and there’s talk about a global recession again.
You wonder what you can do about it for your own situation.
What is a Recession?
According to Investopedia, a recession is a lowered economic performance that affects entire economy and the duration is usually for several months. Lowered economic performance can affect the tourism industry, the restaurant industry, the transportation industry… basically many or all industries.
Learning how to survive a recession in Canada is going to be very important.
What Causes a Recession?
Recessions can be caused by a variety of things but in this case, with high inflation costs (the cost of everything is up, including gas, food, mortgages, rent, clothing…everything) people are not going to be spending as much.
Consumer confidence falls.
How to Recession Proof Your Finances
Even though things may seem quite dire, there are some ways that you can try and recession-proof your finances and your financial situation.
Here are eight ways to make the most out of the current dismal situation and survive a recession in Canada.
Continue to Network
Although it is obviously quite difficult to net work at this time of physical distancing, Business Insider recommends not stopping your networking. When you’re looking for a new job, it helps to know contacts or people who can recommend you and give you a bit of a head start.
Professional connections are like gold during times like these. People who you know and have a good first impression of you who can vouch for you to join their company or a friend’s company. Thankfully our highly connected selves (who are attached to our smartphones every waking hour of the day) interact easily to net work even without face to face contact, through text messaging, Whatsapp, social media, etc.
Find Alternate Income Sources
Tthere are other ways to earn income, such as investing in income producing assets (provided that you have cash to invest at this time).
You can also earn passive income, here are nine ways that you can do so.
You could cash in your credit card points for statement credits or gift cards.
You might even consider switching chequing accounts to cash in on the $300 cash or free iPad bonus incentives.
Funnel that side hustle income (if you don’t need it) into an emergency fund if you don’t have one, and probably more importantly, into the stock market.
Lower Your Expenses
The biggest bang for your buck way to prepare or survive a recession in Canada is to lower your expenses.
When you have lower monthly expenses, you don’t need to worry about paying them off or making ends meet as much. There are some fixed expenses that are difficult to lower, such as shelter (especially if you have kids, moving them to a lower cost of living location will be difficult), transportation costs, food, electricity, utilities.
Here are your core expenses:
- Shelter (your mortgage, maintenance fees, or rent)– hopefully you didn’t over stretch yourself buying a home
- Food (bare bones groceries and meals)
- Utilities (I consider Internet a utility these days)
- Transportation (like gas for your car)
- Health (e.g. extended benefits if you pay for this in Canada)
Here’s how to lower your Internet bill. You can apply the same negotiation strategy with your cell phone bill, especially if you’re not currently locked into a contract.
Here’s how to save money on food in Canada. I’m starting to get a bit creative with my pantry and am making simple foods for my toddler and baby that don’t require fresh ingredients, or require ingredients that can keep in the fridge for a while.
Some examples are canned salmon onigiri, sweet potato and cheese quesadillas, naan pizza, and black bean salad (this one was not so much of a hit with the kids unfortunately).
If you are going to get take out or delivery, I wait for a Skip the Dishes deal (often there’s $10 or $15 promotions), or wait until Dominos pizza is 50% off their large pizza (which makes it about $10 a pizza).
Related: How to Save Money on Takeout and Delivery in Canada
It goes without saying that, non-essentials such as buying new clothes, or new shoes, or new anything can be paused if you want to save as much money on your expenses as possible.
Here are some ways to save money fast in Canada (like over $7200/year).
Tap Into Your Emergency Fund
I’m a fan of having 6 to 12 months of living expenses (bare bones) in an emergency fund, held in a high interest savings account. Although savings account interest has been hit lately (the highest available right now is just a bit over 2% interest), there is literally no other alternative than straight up cash.
Many people eschew the idea of having so much in cash saved up (and say you should be almost fully invested in the stock market if you can), but when the sh*t hits the fan and people lose their jobs, 6 to 12 months is reasonable to have so you can stay afloat and survive the recession.
It may take longer than 6 to 12 months to recover your income, but at least you’ll have some back up money while you try and earn alternative sources of income if you are unable to find a job.
Related: How Much Emergency Fund Do You Need?
Lower Your Cost of Debt
If there is minimal emergency fund available you are definitely not alone. If you can manage to lower the cost of your debt, then it will increase your ability to survive a recession in Canada.
If you have a variable mortgage, you will see that your variable mortgage has a lower ate. If you have a Home Equity Line of Credit, you will have access to lower cost borrowing too. Many banks have this option if you have over 20% equity in your home. This is since it is usually Prime + a certain percentage for a HELOC.
If you have a fixed mortgage, you could do the calculation to see if refinancing your mortgage would be advantageous in this situation. Here’s my mortgage renewal process that I undertook in 2018.
If you have consumer debt, it would be important to lower the cost of your debt if you cannot get rid of your consumer debt. If you have credit card debt, you could switch it to a credit card that has a lower interest rate. Moneysense has a list of Canada’s best low interest credit cards.
There are some that have a 0% balance transfer offer for 6 to 10 months. With a balance transfer credit card, you can move the amount owed from your current cards over to a new card with a lower interest rate (or zero interest rate in some cases) for a specified duration of time.
Keep Calm and Invest What You Can Afford
If you have money left over or saved up strictly for investing, you’re lucky (or disciplined).
Invest in regular tranches but don’t tap into the money reserved for your emergency fund. If you have this luxury of money to invest, remember to try and keep 6 months (to a year if you can) for expenses in your emergency fund.
Having cash is key to be able to survive a recession in Canada more unscathed.
Having cash on hand is not swimming naked.
“It’s only when the tide goes out that you discover who’s been swimming naked.”
— Warren Buffett
The key is to keep calm and don’t stop investing during a recession, as Joe, an early retiree, from Retire By 40 advocates.
Easier said than done right?
Well, this is how I’ve been doing it.
I can only speak to what I’ve been doing, and I’ve been putting in money into my investing accounts even though I see it disappear (paper losses) the next day. I’ve put in limit orders for some ETFs and individual stocks and have cash set aside in my brokerage account for when these orders get filled.
I try and ignore the almost six figure paper loss I see, and the sea of red numbers (except for Fortis, haha!) in my RRSP account, my TFSA account, and my non-registered account.
Instead of focusing on the decrease in my investment portfolios, I try and best, and instead focus on my dividend income and how that is steadily increasing. Even if there were dividend cuts (for example, to Canadian oil and gas companies), I would still have more dividend passive income than I had previously. I focus on continuing to add shares in some great Canadian dividend paying companies.
Invest In Recession Proof Companies
Another way to survive a recession in Canada is to invest in recession proof companies. I am no way an investment professional so take this as entertainment to distract you from what’s been going on in the world and in your city or community. I have shares in these companies myself. Please do your own research.
I don’t know about you, but my Internet usage has been through the roof during these times. I get embarrassed when my phone tells me my screen time has been up by 19% over the last week. Telecommunication companies like Telus (T.TO) will do well during a recession.
People would rather eat rice and beans for a few months than consider cutting off their Internet and cell phone usage.
People still need to eat and heat their homes and use utilities. Companies like natural gas provider Fortis (FTS.TO) has been paying dividends for over 46 years (with consistent dividend increases).
Canadian banks have been paying dividends for a long time. In fact, Bank of Montreal (BMO.TO) is the longest running dividend paying company in Canada.
Hopefully these tips help you survive this recession and prepare for the recession. It’s going to be a long road ahead, but humans are resilient and we will endure.
It may take more than a few years to see your investment portfolio recover, but it will happen, eventually.
Do you think there will be a recession in Canada?
GYM is a 30 something millennial interested in achieving financial freedom through disciplined saving, dividend and ETF investing, and living a minimalist lifestyle. Before you go, check out my recommendations page of financial tools I use to save and invest money. Don’t forget to subscribe for blog updates, a free dividend yield spreadsheet, and the free Young Money Bootcamp eCourse.
8 thoughts on “How to Prepare for a Recession in Canada”
Very solid advice, GYM. I will throw in to sharpen your pencil on your budget. Know where every dollar is going. Tom
@Tom- Great thought, Tom!
We filled up our car for the first time in about a week and a half today…we still had a little less than a quarter tank left and we paid like, $26 to fill it. Wild.
On emergency funds — I have long held to the belief that $1K is not enough for an emergency fund and this…is why. We don’t have six to 12 months yet (someday) but I feel a lot better with about $3.8k in the bank than I would if it was less. The moratorium on student loans is also good news for us — feels weird not making payments right now, but I’d rather have that cash on hand just in case. Hopefully it won’t be needed but I feel better knowing it’s there, you know?
Hope you guys are doing OK over on the west coast.
@Tara- Wow so cheap. Gas was less than $1/L here, it was shocking to see. Yes, cash flow on hand is so important right now, I would definitely be taking advantage of 0% interest for student loans if I had one. We are okay on the west coast, my toddler is getting a little loopy staying at home all the time thought. Stay safe!
Hi Genymoney – great article!
Fellow West Coast Canadian here.. Such a crazy time, but if you think outside the box, there are ways to help get through the difficult times. I’m thankful that we live in Canada, especially during times like these.
@Cassie- Yes, our economic package is definitely better than our friends to the south.
Thanks for this. Gotta love Fortis!
@jimmbboe- I don’t like my Fortis bills but at least I’m getting some cash back in the form of dividends, haha.