A quick scan of the news shows that inflation and rising rates continue to be concerns for Canadians. The Bank of Canada is raising interest rates to bring down inflation, but the strategy comes with a risk of the R word: Recession. There are mixed forecasts among economists about the odds of recession in BC and across the country, but it’s a good time to think about proactively protecting your finances.

What is a recession?

It’s important to remember that recessions are a natural part of the economic cycle. One definition is that a recession is declared after two consecutive quarters of negative Gross National Product growth rates, but there are also other factors at play such as the unemployment rate. A recession has not yet been declared in Canada, although some sectors are experiencing a slowdown in economic activity. When you add in the sticker shock we’re still experiencing at the grocery store, for example, it’s no wonder Canadians are worried.

What can you do to prepare?

Keep in mind that conditions are evolving, and BC’s economy may experience a soft landing, not a hard one. However, there will be some headwinds, so here are some tips on how to plan ahead.

1. Review your finances so you can make a realistic budget. It’s more important than ever to trim your expenses in case your income is reduced. And you may be able to find some funds to put toward paying down debt, especially high-interest debt. This will help you save money that would otherwise go toward interest payments.
2. Use your budget to find ways to build up your emergency fund. Having three to six months of expenses to tide you over a rough patch will help you sleep at night.
3. Check your credit score and take steps to improve it if it’s not where you’d like it to be. Lending rules tend to get stricter during tough economic times.
4. Check out this article if you have questions about your variable rate mortgage. You may be able to offset a risk of not being able to pay your monthly payments.
5. Limit major spending where appropriate especially when purchasing on credit. As interest rates are on the rise cost of purchasing on credit increases.
6. Talk to your local financial consultant to discuss how the current economic situation may affect your investment portfolio and your goals. Depending on your timeframe it may be beneficial to move to more conservative investments.