With parts of the country experiencing a full-blown recession (a new report from TD shows that oil-rich Alberta is in the throes of the worst recession on record), there are some tense times ahead when it comes to money management. And in no small measure, when you are faced with the financial upheaval associated with a recession, an ounce of prevention today could mean the difference between sink or swim for you in the months and years to come.
What happens in a recession?
Technically speaking, a recession is marked by a decline in economic growth for two quarters in row. Practically speaking, there are a number of impacts on your household. Your job security is often threatened. You may see your income reduced or removed through job loss; if you own a home, you may see the value of your home decrease as well. In short, a recession can really flip your finances on its ear.
“Whether you are already experiencing the impact of the recession, or if you are worried about what might be about to unfold in the next few months, there is no time like the present to rein in your finances,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
“The best way to mitigate the potential blow to your household finances is to take control with a solid plan. The same rules apply to help survive a recession or any other kind of financial emergency. As a cornerstone of responsible money management, hope for the best but prepare for the worst,” says Schwartz.
Here are some helpful tips on how you can help your personal finances survive a recession or any other kind of financial emergency.
You may already have a budget, but is it accurate, detailed and up-to-date? The time is now to get a fully itemized idea of where each dollar goes.
When faced with financial turmoil, you’ll need to cut back or re-arrange your budget and time will be of the essence. When a storm is coming, you pack a kit with emergency supplies, right? Think of this budget with your spending already tracked as the base for your financial emergency kit.
Grow the gap
The wider the gap between what you own and what you owe, the smaller the impact on your finances if you experience income interruption.
Start by switching to cash only, avoiding accumulating more debt. Save as much money as you can for emergency savings and focus what extra money you can on paying down existing debt.
Plan your cash flow
Now is the time to seriously cut back your spending. Not only will it help you adjust mentally to a possible change, it will help your current cash flow.
Consider alternative means of income, like turning a hobby into a business part-time, which might be able to give you a little more cash flow.
Become a coupon clipper and a price match professional to keep your food costs down.
If you are a homeowner, explore what options your lender offers in terms of missing payments without penalty (some lenders let you miss one or two a year as part of your mortgage features, but you need to make arrangements ahead of time).
Have you lost your job or been forced to turn to credit to make ends meet? Are you struggling to find work while the bills continue to pour in? You can take control and turn that debt cycle in the other direction. Contact one of our trained credit counsellors at 1-888-294-3130 or visit our free online debt analysis.