How to prepare financially for a recession

Canada Life - Apr 18, 2023
A recession impacts all aspects of the economy, including savings and investments. It can also lead to higher rates of unemployment, which could affect your daily finances. A financial plan can help you through times of uncertainty
Woman sitting at a computer preparing a budget.

What is a recession?

A recession refers to a period of economic decline.

During this time, the country’s gross domestic product (GDP), which measures the value of goods and services being produced, drops. Stocks and other investments can drop in value as cautious investors sell or divest to protect their portfolio against losses.

There are several factors that contribute to a recession, including sudden shocks to the economy (such as natural disaster, war or a terrorist attack), inflation, rising interest rates and an overall lack of consumer confidence.

Recessions are an unavoidable part of every economic cycle, but there are some things you can do to help protect your savings and investments.

How to prepare financially for a recession

Have an emergency fund

During a recession, your hours may be cut, or you may even lose your job. That’s why it’s a good idea to have savings set aside to cover three to six months of basic living expenses.

If you don’t have an emergency fund already, you may want to reassess your budget to see if you can save more money each month.

Reassess your budget often

If a recession happens and cutbacks become necessary, you’ll need to know what’s essential and what you can scale back on or eliminate from your budget altogether. Having a budget and knowing what your monthly payments are will help you choose what can stay and what goes.

If you haven’t done so recently, go through your bank and credit card statements to look at expenses like your mortgage or rent, food, insurance premiums, debt repayment, transportation and child-care costs to get a clear picture of your day-to-day finances.

Don’t fall behind on debt

If it’s time to tighten your belt, you should make your debt repayments your top priority. Things like your mortgage payments should be at the top of your list  so you don’t fall behind.

Even if you can only make minimum payments on everything else, you should continue to pay outstanding credit cards, line of credit, utilities, student loans and other bills to prevent service interruptions and protect your credit score.

Review your investments

If you have investments, you may be worried about how a recession will impact your portfolio. Even when markets are experiencing volatility, it’s a wise idea to stay invested and focus on the long-term -- history has shown that markets recover over time.

Try not to react emotionally. Instead, contact me so we can discuss your options. If you need to increase your cash flow to handle everyday bills, you could reduce the amount you’re investing to free up extra money.

Create a back-up plan

Recessions often come with lay-offs and hiring freezes, and so many people experience unemployment. If you’re laid off during a recession, what would the short- and long-term look like for you and your family? Think about things you could do in the immediate aftermath to cope.

How will you earn income? Are there things you can sell to generate cash flow? Are you able to defer any payments or consolidate any debt? Can you cut back on any unnecessary expenses like eating out or entertainment subscriptions? Are you eligible to claim any benefits like Employment Income (EI) that could help you financially through job loss?

Don’t forget to talk to your loved ones and take care of your mental health during this period, too.

Reconsider your career path

A job loss may be an opportunity to re-evaluate your career and perhaps make a life change. This could be your chance to pursue a passion project or side hustle that you could develop into a small business or freelancing opportunity.

You could consider consulting, going back to school, or switching to gig-work or something completely different from your current career. Keep your resume up-to-date and leverage your social networks to help you explore opportunities that may turn an unexpected job loss into a welcome change.

Work with your financial advisor

I can help you during good times and when things get tough. Wondering if you’re ready for a potential recession? Let’s talk.



Ask an advisor: Market volatility – Canada Life

Learn about market volatility, how it impacts your investments, and how you can manage it.


View video script


Description: This animated video introduces a character named Tim and his advisor with illustrated graphics to show how market volatility can impact your imvestments and how to manage it.

Text: Ask an advisor” appears. The camera zooms out as the text lands in an outlined square. “How does market volatility affect my investments?” fades in below. An illustration of a bar graph draws on the right side of the frame.

Tim: There seems to be lots of ups and downs in the markets these days. What’s that mean for my investments?

Description: Tim and his advisor stand on a bridge in front of a body of water and hold coffee cups. The illustration zooms in on Tim, then on the advisor.

Advisor: Some market volatility is the sign of a normal, healthy market.

Description: A graphic titled Historical Returns appears on screen and draws the S&P/TSX composite total return index between 2004 and 2008.

Advisor: I know big declines in the market can make you question your investment plan.

Description: The graph expands to a falling market around 2009, then an improvement in the market until 2014.

Advisor: But, history has shown that when the market does fall, it eventually comes back even stronger.

Description: The graph flips over a smaller graph titled Retirement. It shows growth between 1% and 3% over a period of time.

Advisor: And that can be good for your investments in the long run.

Description: Screen transitions to a shot of Tim talking.

Tim: Are there things I can do to prepare for volatility?

Description: Screen transitions to a shot of the advisor talking and showing Tim the screen of her phone.

Advisor: There are – some you’re already doing.

Description: The rectangles appear on screen one on top of the other with the text, Investment plan, Long-term goals and Investment risk.

Advisor: Like having an investment plan. Staying focused on your long-term goals. And understanding your tolerance for investment risk.

Description: Screen returns to Tim and the Advisor standing on the bridge.

Advisor: Let’s talk about other strategies to help you manage market volatility.

Text “Let’s talk. Contact me today.” appears onscreen with the Canada Life logo and legal line: “Canada Life and design are trademarks of The Canada Life Assurance Company. 1-888-252-1847.”


The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.

Canada Life and design are trademarks of The Canada Life Assurance Company.