How to Prep for a Recession in 2023 – Plan, Don't Panic
With constant whispers around a possible 2023 recession, the best thing you can do is plan rather than panic. In this blog post, we’ll walk you through everything from what a recession is, what to expect during an economic downturn, and the ways to plan ahead to be financially safe. Ready? Let’s prep together!
- Good preparation is the secret to overcoming times of economic uncertainties. Whether or not we’re currently experiencing a recession, Canadians can learn how to prepare their finances in case of economic turmoil.
- In this article, we’ll help you to identify the different types of economic activities and what you can expect to happen in case of a recession in 2023.
- We’ll also list 6 ways to weather your finances before entering a period of recession.
What is a recession?
The definition of a recession is an extended period of decline of a country’s economy. This will happen over 2 consecutive quarters at least or last for years. During that time, many people risk losing their jobs, retail sales will drop, manufacturers will start producing less to prepare for the drop in sales and overall the economy will struggle.
What causes a recession?
Recession is considered by many economists as a natural part of a country’s financial cycle and can be caused by various factors such as:
- Unpredicted events – like the pandemic Covid-19
- Inability to repay debt – high interest rate
- Unrealistic and sudden growth of assets – like the dot-com bubble
- Industrial or technological change – like the industrial revolution
- Sudden rise of prices – inflation
- Abrupt drop of prices – deflation
Is Canada in a recession right now?
Economists at Canada’s largest banks agree on the fact that Canada is heading towards a recession as early as the first quarter of 2023.Financial experts expect the economy to further slow down and technically enter a mild recession in the first half of 2023.
Recession vs. Depression: What’s the difference?
Recession and depression are 2 different types of economical activities affecting national economies in similar ways – both mean low prices, high unemployment rate and drop of consumer activities, but in a depression, it happens over a longer period of time. A depression can last decades just like the Great Depression, which lasted 10 years from 1929 until 1939.
Recession vs. Stagflation: What’s the difference?
As mentioned previously, a recession is when the economy goes into a decline phase for at least 2 consecutive quarters. Stagflation, on the other hand, happens when there is a recession combined with an inflation. Although these 2 are kind of contradictory, it may happen to an economy when there is a drastic change in commodity price and economic policy.
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What can you expect in Canada during a recession?
Some of the indicators to expect during a recession are a drop in consumer sales, which in turn will bring more job cuts, a loss of confidence in the economy, and a significant drop in investments in the country. During a recession, companies will start reducing workers’ hours as well as stopping new hires and laying off staff. People will stop spending and start using their savings (if they have any) to pay for essentials. As these prices continue to rise, the economy will slow down even further.
In the last 50 years alone, Canadians have experienced 6 recessions.
Recessions are challenging for everybody but there are ways to prepare for it. Let’s go over those ways now.
How to plan for a Canadian recession 2023
With a recession likely to happen in the next few months, here are some of the things you can do to protect your finances.
Reduce your spending
First, you want to reduce your spending. Hold back on any big purchases such an expensive car, an upcoming holiday, or any non-essential items. Also consider your smaller and everyday spending that adds up at the end of the month such as any subscriptions or memberships that you don’t use, cut on store-bought lunches or entertainment.
Reduce your debt
To start reducing your debt, you’ll want to look at all your bank statements, credit and store card statements, student loans and get a precise picture of your current debt. Then make a plan to repay them as soon as possible. The longer the recession will last the higher the interest rate will rise so you’ll want to start now.
Improve your credit score
This is something that you should strive for any time of the year. Make sure to repay the minimum payment on time and keep your card utilization low in order to improve your credit score.
Increase your emergency funds
Start creating an emergency fund as soon as possible as high unemployment is one of the direct effects of a recession. You’ll want to have saved enough money to cover your basic needs, housing and food in case you lose your job or your company reduces your working hours.
Strengthen your resume & broaden your skills
Become more hireable to potential employers in case you lose your current job. Learn new skills for your current job to become more valuable in your team or in case your current employer is looking at reducing the workforce. Make yourself desirable to companies with thought-after skills. Start connecting on professional platforms such as LinkedIn and add any new skills to your resume.
Stay invested & diversify
Keep your investment even if the market seems volatile. It is important to understand that if you have an existing investment, market volatility is normal and beyond your control. Furthermore, diversified portfolios are known to perform better in the long term and also perform better in uncertain times.
Frequently Asked Questions
In this section, we’ll answer some frequently asked questions relating to the recession.
Is it better to have cash or property in a recession?
The saying goes “Cash is king in a recession”. Keeping cash available in crisis time will allow you to leverage cash in order to improve your situation. Property can be helpful in the long-term, though, as it will likely appreciate when the recession clears.
Is a recession coming in 2023?
Most economists in Canada agree on the fact that a mild recession is coming in 2023, probably as early as the first half of 2023.
The silver lining in this kind of economic situation is that recession also brings opportunity, especially for those who are the most prepared.
We hope these tips help you prepare for a recession and keep more money in your pocket. For more information on the recession and your finances, be sure to check out our blog or contact us at 1-877-695-1408 today.
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