How to Survive Financially During an Economic Recession

surviving financially by planning what to do during economic recession

The health of the economy is unpredictable and economic recessions are all too frequent. During these times, many Canadians find it challenging to make ends meet, especially as salaries may remain stagnant while prices continue to rise.

Fortunately, there are several strategies that can help you manage your finances during a recession. In this blog, we’ll share several of those strategies with you and discuss practical ways to make it through a recession.

What is an Economic Recession?

A recession happens when economic activity drops rather than rises over two quarters (six months). Higher unemployment rates and lower consumer spending traditionally accompany recessions. Currently, the global economy is in danger, and a recession appears on the horizon for Canada and many other countries.

While current conditions are unique, this situation is not entirely exceptional. It’s critical to maintain a long-term perspective when considering how a recession might affect you.

a man wondering about what is economic recession

What Causes a Recession?

Nations experience recessions as part of their regular economic cycles.

Here are some of the things that cause recessions:

  • Unexpected economic events: Wars and natural disasters can cause a recession, as well as political instability.
  • Debt bubbles: When businesses or individuals take on too much debt, the economy can suffer.
  • Reduced consumer spending: Businesses start to lose money when consumers stop buying goods and services.
  • Asset bubbles: Asset bubbles, such as the housing bubble in 2007-08, can cause a recession when they burst.
  • Technological changes: New technology can cause recessions by making certain jobs obsolete.
  • Inflation: When inflation becomes too high, countries raise interest rates to prevent economic growth from becoming unmanageable.
  • Deflation: Though inflation can be detrimental, deflationduring which prices drop, wages decrease, and spending declines – can also jeopardize the economy.

he is worried that he doesn't have money because of the economic recession

How does an Economic Recession Affect Your Finances?

A recession can drastically affect your finances.

Here are a few possible outcomes:

1. Job loss

A job loss will immediately impact on your finances. However, there are ways to reduce the long-term damage. If you carefully manage your spending and savings, you can limit the financial consequences of losing your job.

2. The policy interest rate

The Central Bank of Canada can prevent or ease a recession by altering its policy interest rate. Consequently, this changes the interest rates for loans and investments. The objective of raising interest rates is to decrease spending to control inflation.

3. Value of your investments

With constantly changing markets, investors often wonder if they are choosing suitable investments. Despite market changes, remain focused on your long-term goals to ensure their eventual success. Trust that, in the long run, the market will trend up.

4. Credit risk

Higher policy rates affect the interest charged on most debt products such as mortgages, lines of credit, credit cards, and so on. Small increases in the interest rate can result in material increases in the interest charged on outstanding debt, both short- and long-term.

A mortgage is a perfect example of what can happen if you choose a variable rate mortgage rather than a fixed-rate mortgage. However, there may also be consequences if you have a fixed-rate mortgage coming up for renewal. You can pay hundreds of dollars more each month for the same home with the same loan just because interest rates are rising.

being unemployed as one of the consequences of economic recession

The Economic Consequences of a Recession

The consequences of economic recessions are far-reaching and often devastating to businesses and consumers alike. It can lead to low production of goods, reduced trade opportunities, fewer available jobs, reduced personal and business income, falling stock markets, and reduced consumer spending.

Furthermore, a recession can reduce foreign investment and purchasing foreign goods which will affect Canadian exports.

Over time, this can:

  • Prevent Canadian businesses from expanding and growing.
  • Affect local employment rates and wages.
  • Send Canada’s economy and consumer confidence with a downward trend.

The Federal Government will take steps to gradually reverse these trends by lowering interest rates, easing the process for businesses and people to borrow and spend money. It will also stimulate economic development through fiscal measures such as infrastructure investment. This increase in government spending helps the economy recover.

Secure Your Finances Despite a Looming Recession

It is possible to remain afloat during a recession, but it requires discipline and financial awareness.

Here are some practical tips and tricks for how to survive a recession:

1. Understand Your Budget and Your Spending

If you want to feel more secure about your finances, the best thing you can do is get to know your monthly budget inside and out. In an emergency, it’s essential to make your money last. Knowing how much money you’re spending and where it’s going can help you plan for emergencies.

there is a man saving money on his piggy bank

2. Save as Much as You Can

Even during a recession, saving money is essential to staying financially secure. A savings account gives you a financial cushion in case of an emergency.

Make sure you’re saving as you can and that your savings are adequately protected. Keeping money in a high-interest savings account can help you stay ahead of the game.

3. Consolidate Your Debt

Debt can be a considerable burden during a recession. Consolidating your debt can help you avoid fees and save money in the long run.

Avoid taking out any new loans unless absolutely necessary. The last thing you need during a recession is to pile on unnecessary debt.

4. Go to Yard Sales and Used-Goods Businesses

You can save money by purchasing used items instead of new ones whenever possible. Shopping at yard sales, flea markets, and secondhand stores can help you stretch your dollar further.

5. Negotiable Your Monthly Bills

Many companies are willing to negotiate your monthly bills, especially during an economic recession. Don’t hesitate to reach out and ask if any special discounts or packages are available. You can save money by leveraging on your negotiating power, which helps make your financial situation more secure during a recession.

she is changing her grocery list for the better

6. Change Up Your Grocery List

If you’re struggling to make ends meet, consider re-evaluating your grocery list. With grocery prices increasing, buying generic or store brands can help save money without sacrificing quality. Consider meal prepping and using coupons to help you get the best deals.

7. Research Government’s Aid Initiatives

The government may have initiatives to help people during an economic recession. These can range from tax credits to grants and loans. So, take advantage of all these available benefits and don’t miss out on any potential financial assistance.

8. Seek Out Community Support

Your community can provide helpful resources during a recession. Seek out local organizations to assist with debt relief and financial planning services. They will help you get back on track and secure your finances.

Talking to a financial advisor or money coach can also help you discover the best ways to manage your money.

9. Care for Your Mental Health

Financial problems are stressful and overwhelming. Self-care is crucial during these trying times, especially for your mental well-being. Find ways to manage stress and anxiety, such as talking to a therapist or joining a support group. Ensure you are getting adequate rest and taking time for yourself.

having a financial freedom

Bottom Line

The key to remaining financially secure during an economic recession is being mindful of your budget and making smart choices. You can protect yourself during a recession with the proper knowledge and tools on your side.

At LendToday, you have access to reliable financial advice and support you can trust. Our team of experienced professionals can help guide you through the tumultuous times of an economic recession.

We Can Help with Your Financial Issues

Contact us today if you’re looking for help with navigating your finances during a recession. We’re ready to provide you with the support and resources needed to make informed decisions and maintain your financial security in good and tough times. Together, we can get through this challenging period. There’s no time to lose, call us now!

David Cumberbatch