Canadians are currently facing a multitude of challenges regarding their personal finances, mainly driven by the soaring cost of living, fluctuating mortgage rates, and the repercussions of the global trade war. Many individuals are left wondering how they can better manage their finances and potentially recession-proof their financial situation.
Experts agree that while there is no quick fix, several strategies can help individuals position themselves to withstand economic downturns. Natasha Macmillan, an everyday banking expert from Ratehub.ca, emphasizes that many people are uncertain about how to handle their finances in the current climate, which is prompting them to seek advice on saving and protecting their assets.
A substantial number of households are grappling with rising expenses and higher renewal rates on mortgages. In addition, the trade tariffs introduced during the tenure of U.S. President Donald Trump continue to create instability in the economy, adversely affecting consumer confidence.
As per Statistics Canada’s April inflation data, the annual rate slowed sharply to 1.7% from 2.3% in March. However, there are signs of stronger price increases in various sectors. For example, grocery store inflation has outpaced the overall consumer price index for three consecutive months, highlighting ongoing concerns over living costs.
Elke Rubach, president of Rubach Wealth: Holistic Family Advisors, states that the approach to recession-proofing finances revolves around preparation rather than attempting to time the market. She suggests that individuals should undertake a thorough review of their financial trajectory.
“You can’t control the markets. You can control your spending,” Rubach advises, emphasizing the importance of honesty when analyzing one’s cash flow. Macmillan echoes this sentiment by encouraging clients to revert to fundamental practices, such as reviewing budgets and reducing debt.
Macmillan highlights that setting a realistic budget, without being excessively restrictive, can lead to increased savings. She also recommends reviewing debts to find opportunities for saving on interest, which may involve transferring balances from high-interest credit cards to those with lower rates or negotiating better terms with lenders.
Another essential aspect of recession-proofing finances is building an emergency fund. Macmillan suggests aiming to save at least three to six months' worth of essential living expenses in an accessible account. She recommends placing these emergency funds in a high-interest savings account to earn interest while retaining accessibility.
“Any extra dollar that you can put away to savings, whether it’s cutting from your budget or paying less interest, will set you up for success in the long run,” Macmillan states, asserting that every dollar counts in uncertain times.
Macmillan has noted a shift in her financial advice toward stability and resilience, indicating a trend toward low-risk investment strategies that prioritize short-term stability over long-term growth.
Furthermore, Rubach advises individuals to assess their investment holdings. She poses crucial questions about one's risk tolerance and the duration they can handle potential market volatility. If there’s a sense of unease, she suggests rebalancing investment portfolios.
Rubach also points out that permanent life insurance could serve as an additional layer of security in enhancing one's financial stability. “While insurance isn’t a solution for everything, for the right individual, a permanent insurance policy can act as a good piggy bank, accumulating equity over time,” she notes.
In conclusion, Rubach emphasizes the importance of having a well-structured financial plan that can act as a safety net in challenging situations. “Winging it is not a plan,” she advises. Detailed organization regarding insurance, retirement plans, and succession will ultimately safeguard financial health.
Macmillan reminds individuals to consider the current economic landscape when making monetary decisions. “We’re unsure of our market positioning, but building that emergency fund is crucial should any uncertainties arise in the next few months or quarters,” she concludes.
