Canada is likely headed into a recession in the first half of 2023. As unsettling as that may sound, recessions are a normal part of the economic cycle and serve to ease factors such as high inflation and elevated housing prices and rents.

A recession is defined as a temporary decline in Gross Domestic Product (GDP). It’s generally accepted that a ‘temporary decline’ is two consecutive quarters or six months. GDP is the value of all goods and services produced in our economy.

What can you do to prepare?

Start by asking yourself how a recession could affect your income. If you conclude a recession is likely to impact your livelihood, it might be wise to start thinking about how you can earn extra income such as. freelancing, taking up a side hustle, joining the gig economy, tutoring, or even renting a spare room in your basement.

Manage your cashflow

Recessions typically last six to twelve months so keep that in mind when planning any large expenditures. You may need to delay these expenses or forgo them entirely so that you can keep appropriate cash on hand.

To ‘manage your cashflow’ means to schedule the timing of your expenses with cash inflows. You want to avoid a month where your expenses are so high that you need to dig into your savings or emergency fund to pay bills on time. If cash inflows such as employment income are at risk of being reduced or eliminated, it may make sense to build up a cash reserve.

Protect yourself

Some of the earliest signs of an impending recession can be hiring freezes and mass layoffs. Now might be a good time to strengthen your professional network and update your resume. Don’t wait until your hours are cut or you lose your job to prepare for the job search.

If have insurance tied to your employer such as medical and life insurance. If you lose your job, you’ll want to maintain this coverage as unexpected events can derail your financial strategy.

Review your asset allocation

If the news of an impending recession has you worried about your ability to reach your financial goals, it may be a good time to review your risk tolerance. There are two main components to determine your risk tolerance: 1) Your ability to take on risk and 2) your willingness to take on risk.

What to do if you find yourself unemployed

If you do lose your job, ensure you sign up for employment insurance (EI) right away if you are qualified. There is a waiting period before you start to receive this government benefit so it’s best not to delay if you’re relying on this income to meet daily expenses. You may also be eligible for termination pay, vacation pay, and/or severance pay. To supplement your income, you may need to dig into your emergency fund. Remember, that’s what it’s there for.

Recessions are a normal part of the economic cycle, and they can produce opportunities for individuals and businesses. Allowing the economy to heal itself in terms of reduced inflation (lower gas and food prices) will benefit us all in the long run.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor, Nicolle Lalonde.