How to Prepare for a Recession in 2023: Top 8 Tips

According to Oxford Economics, Canada is headed for a year of recession. High inflation combined with lower household spending and a decline in housing prices is expected to cause a GDP drop to 2.3% peak-to-trough from the last quarter of 2022 to the third quarter of 2023. 

Canada’s six biggest banks have already started preparing for recession, putting aside a combined total of $2.4bn to cover possible loan defaults. 

What can you do to get through these difficult times?

First, don’t panic. Recessions are an unavoidable part of any country’s economy. The best way to get through these tough times and still maintain the lifestyle you are accustomed to is to plan ahead and start getting ready for the future as early as possible.

With that in mind, here are a few essential tips on how to prepare for a recession in Canada. But first, let’s cover some basics. 

What Is a Recession?

A recession is defined as a period of economic decline that typically occurs when the country’s GDP falls in two consecutive quarters

As mentioned above, recessions are a natural part of any economy and can be caused by unexpected events (such as the Covid-19 pandemic, war or natural disasters), high inflation, rising interest rates and an unrealistic growth of assets (including inflated stock or real estate markets), among other factors. 

What happens during a recession?

Recessions can last from a few months to a couple of years, during which unemployment rates rise as companies struggle to cut costs, whereas consumer spending and retail sales decline significantly. This in turn leads to industries producing less to meet the drop in sales, causing the entire economy to slow down. 

People also tend to delay big purchases such as buying a house or car during a recession, which means fewer consumers apply for loans and credit, affecting the financial sector as well. At the same time, stocks and other investment products lose value since most investors will start selling off assets to protect their portfolios. 

While these are some of the most common consequences of a recession, each downturn is unique and affects various sectors differently. Some sectors, such as healthcare, food and utilities are deemed recession-proof and will continue to stay afloat, while others, such as travel and luxury spending industries, are usually hit the hardest during periods of economic downturn. 

How to Get Ready for a Recession in 2023?

A recession doesn’t have to be as scary as it sounds, especially if you start saving up ahead of time. Here are 8 tips Canadians can use to prepare for a recession. 

1. Sort out your finances 

The first step is to analyze your budget and spending habits to get a clear idea of where your money is going every month. 

Take a look at how much you are earning, how much you are spending on essentials and non-essentials and how high your debt is. Also consider whether or not you have any big life events coming up, such as a baby, a wedding or a retirement.  This will help you anticipate your needs over the next few months. 

As a general rule of thumb, you should have enough savings to cover 3 to 6 months of basic living expenses. For those who already have enough in savings, a recession (even a job loss) won’t hit as hard. 

If you don’t have enough saved up, start now. 

Extra tip: Try an expense tracker app to help you calculate your monthly expenses and income

2. Cut costs

Once you have an idea of what you’re spending on, it’s easier to separate essential from non-essential expenses. 

Determine what is the minimum you can spend on essentials, such as rent, utilities, groceries, childcare costs, healthcare, home and car maintenance, insurance and debt payments. Are you able to pay for insurance annually instead of monthly? Can you take advantage of coupons, loyalty points and offers when grocery shopping? Is there any way your landlord will lower rent for a certain period of time? 

If you or your spouse lose your jobs, prioritize essential expenses and focus on covering those each month. For instance, postpone a non-essential home renovation project or temporarily stop contributing to your retirement fund—you will still need to pay for these expenses, but pushing them to later rather than sooner will free up enough of your budget for fundamental living costs. 

On the same note, try to cut down (or completely eliminate) non-essential expenditures, such as luxury vacations, monthly entertainment expenses and clothes shopping. Giving up a $5.99 Netflix subscription may not seem like huge savings, but all these small costs can easily add up and eat away at your monthly budget. 

Extra tip: It is highly likely that your budget will need to be adjusted, but once you know where the problem areas are, such as where are you overspending and in which areas you can spend even less, you’re off to a good start. 

Read more tips on how to stretch dollars

3. Pay off debt

If possible try to pay off your debt as soon as you are able. 

Credit cards usually have higher interest than other types of loans, so these should be your first priority—rates go up drastically during a recession, so managing debt will become much harder. On the other hand, being debt-free will give you financial freedom and lessen the impact of the rising cost of living. 

If you are not able to settle the debt entirely, try to make minimum payments on your credit card—a lower balance is much easier to handle in difficult times.

If you are experiencing severe hardship and are unable to make even minimum debt payments, talk to your creditors. They might work a payment plan, allow you to pay off the interest only for a few months, put your payments into forbearance or even write off your debt altogether. 

You could also take a look at debt consolidation options—if you have different types of loans, combining them into one debt may be easier to manage.  

Consider all available options. You cannot know what kind of payment plan your creditor might offer unless you ask.

Extra tip: Try and avoid taking on new liabilities if possible—taking out a new personal or payday loan will just increase your expenses down the road.

4. Build your emergency fund 

With reduced or no income being a likely possibility during a recession, it is crucial to set up an emergency fund (if you don’t have one already) and put as much cash as possible into it. Make sure that every dollar you save is allocated to the fund, so you have a Plan B to fall back on in case of financial difficulties. 

Put the money in a high-interest savings account rather than the stock market or bonds. The former is more easily accessible and less likely to decline in value during a recession. 

Extra tip: Do not tap into your emergency fund unless you really need to. Only if you’ve exhausted every other option such as talking to creditors, budgeting or cutting down costs, should you consider using the money in your emergency fund. 

5. Pay bills on time

Paying bills late may result in monetary fines which can cause a huge dent in your budget. To avoid such charges plan your budget so that your bills are always paid on time, or even before the due date. 

This is not always possible, though, so determine which are the most important monthly bills for your household. Paying rent and making mortgage repayments are usually the top priorities—you don’t want to face eviction or foreclosure—as are car-related expenses, especially if you use your vehicle for work. 

On the other hand, medical debts can be paid off later since your health insurance will continue to cover most of the expenses even if your medical bills increase. 

6. Be ready to look for work 

Layoffs and fewer open job positions on the market are one of the most common consequences of a recession. 

Losing your job is a real possibility, so get your resume in order, refresh connections in your professional network, and practise your cover letter writing skills.

If you are working in an industry that is likely to be hit by a recession, consider taking on some extra work to boost your income. From ride-sharing to freelancing, there are a lot of side gigs you can do to add a bit more to your bank account every month. 

It’s also a good idea to invest in your professional skills and expertise. Try taking an online course that will upgrade your knowledge in a particular area or equip you with new skills. The labour market is very competitive during economic downturns, which means you need to stand out from the crowd by making yourself more hireable. 

7. Don’t sell off your investments

If you have invested in the stock market, don’t panic and liquidate your investments just because the market is down. It’s better to weather the storm by leaving your investments intact—the market will pick up again and put you in a much better position financially than before the recession started. 

What’s more, demand is low during a recession so you may have to sell your investments for less than their value.

Another possible scenario: you could sell off your assets but a recession may never come. This way you are losing money on the sale, missing out on thousands of dollars in potential gains and paying more to repurchase the assets later.

Don’t let fear guide you—if you are forced to sell off some of your investments to maintain a healthy cash flow, pick the assets rationally rather than letting emotions and panic make the decision for you. 

You may also be tempted to invest in stocks or real estate during an economic downturn. Investors are usually selling assets at low prices during recessions, giving you the chance to potentially get high returns with a lower initial investment. If you are considering this option, buy stocks or other assets only if you have enough to cover basic living expenses for the next few months. You don’t want to spend a sizable chunk of your budget on investments that are not likely to pay out soon.

Extra tip: If you have not done so by now, try and diversify your portfolio by investing in various asset classes and industries—this is a much safer bet than putting all your eggs in one basket.  

8. Hold onto your insurance 

A recession is not the time to fall behind on insurance payments or cancel your policy. In case of an emergency, your insurance is here to cover damages and stop you from dipping into your emergency fund

Extra tip: You might even want to consider taking out your own policy if you have coverage through your employer—this way you will still be covered for unexpected events even if you lose your job. 

Bottom Line

Recessions can be scary. In fact, the very idea that you could lose your job amid the rising cost of living is enough to make anyone panic. 

That doesn’t mean you should give in to fear and anxiety.

Remember that a recession is a natural part of any economy and although difficult, it will pass. Actually, Canada has seen about 12 recessions since 1929—you yourself have probably even lived through two of them.

Still, it never hurts to be prepared. With that in mind, get your finances in order, prioritize your expenses and make sure you add every dollar you can spare to your emergency fund. Being ready for a recession will not only help you weather the storm but give you peace of mind during difficult times as well. 


Is it better to have cash or property in a recession?

Cash is important during a recession—an emergency fund you can fall back on is very useful, especially if you are laid off or experience a salary cut. Having access to cash also means that you can let your other investments ride out the storm and capitalise on long-term growth rather than disposing of your assets.

How long does a recession last?

Typically recessions in Canada last less than a year. The country has been through five recessions since 1970 the most recent of which (the 2008/09 recession) lasted for about seven months.