Is a recession coming? Be prepared

Hey there, time traveller!
This article was published 21/02/2024 (740 days ago), so information in it may no longer be current.

Dear Money Lady Readers,

Due to persistent inflation that exceeds the central bank’s targets here in Canada and south of the border, it is unlikely this year will see the interest rate cuts many people are waiting for. Those of you in variable mortgages, or those with mortgages up for renewal this year, may already feel like we’re in a recession. So, what should we do?

Preparation is the key, and if you can, start now so you can be ahead of everyone else. The further we get into a recession, the harder it will be to pursue strategies to weather it. Remember that a recession will not last forever, and it really it is a necessary part of every healthy economic business cycle (which usually occurs one to two times every decade).

Here are the five basic tips to plan ahead for 2024.

• Reduce spending, especially spending on non-essentials. Tightening up your budget is a necessity so you can save an emergency fund. Aim to save the equivalent of three months take-home income so that you have a buffer if you need to switch jobs.

• Pay off credit card debts and any other consumer loans. Do not carry balances month over month. You want to ensure you have access to credit if needed and the best way to make the banks believe you are a good lending risk is to eliminate any and all revolving debt. Never live off your bank overdraft limit – and if you are using it and find it hard to stop, close it down. Supplementing your income with credit must stop, not just in recessionary times, but in order to learn to live within your income.

• Be prepared to lose your job. Always keep an up-to-date resume and consider updating your skills regularly. If you can, consider a recession-proof job. These include jobs in municipal, provincial or federal government, jobs in health care, or jobs in education.

• Stay invested in the market. Resist the urge to sell your stock portfolio or rebalance your positions. During economic downturns people tend to liquidate underperforming stock. This always tends to be the worst mistake to make, since you lock in losses by selling during a market downturn. nstead, look at this time as a “sale in the market” and continue following your investment strategy by buying more stock at lower prices. Remember, the losses aren’t real until you sell.

• Stay optimistic. Your good habits are responsible for your success, but your bad habits are to blame for your problems and frustrations. Let go of thoughts that hold you back and wake up every day with a positive attitude towards your job, your family, and your life. People often need to go through difficult moments to realize their full potential.

I honestly believe that even during the most challenging situations, there has to be some good that comes from it. Rather than succumbing to a pessimistic outlook, try to find the good that can be gained. Difficult times are temporary. Learning from them makes us stronger. If we’re facing a recession this year, then so be it. Remember that after every recession comes an eexpansion phase, when the economy starts growing again, governments pull back restrictions and we are in for a ride through another bull market. Recessions happen on a regular basis, and this one is no different from the last. It is all part of our capitalistic cycle, so sit back and ride it out with everyone else, it won’t take too long until it’s over.