Well, it's official, or at least technically official: we're in a recession.
Tuesday morning, Statistics Canada released its latest GDP numbers showing that the Canadian economy shrank for a second consecutive quarter, meaning Canada has slipped into a recession for the first half of 2015.
What this means for the greater economy will be debated by economists, analysts, and politicians. But what this means for the average Canadian is pretty clear -- things aren't as secure as they used to be. While the job market has remained relatively stable over the first half of 2015, that picture may change when we learn the new employment figures on Friday.
Even if you feel reasonably confident that your job is safe, and you believe the analysts when they say this will be a "mild" recession, it might be a good time to treat this like the real deal and plan accordingly.
The best defence against job market uncertainty is to have a healthy emergency fund. Experts often recommend an emergency fund that will support three to six months of living expenses, but I realize that may be unrealistic for many people. A recent survey by Pollara Strategic Insights found that 44 per cent of Canadians say they are "just getting by, with no savings." A further eight per cent say they are falling behind on their bills.
If you're one of those Canadians who are barely squeaking by, the idea of saving up three to six months' worth of living expenses might seem absolutely insurmountable. Very few people can cobble together that much money in the short-term, but if you put a focused effort on your savings, you will get there over time. Sometimes we need to be shocked to be motivated, and with the economic horizon now darkened by a recession, there's no time like the present to start building that war chest.
An unemployment dress rehearsal
If you managed to avoid a layoff or a reduction in income, try to imagine that the opposite has happened. Switch your spending to survival mode -- cut out your discretionary spending (leisure, eating out, travel expenses) and apply a strict test of "wants vs needs" to all of your purchases. Every time you opt out of discretionary spending, set that money aside in a savings account. If unemployment hasn't forced your hand, it's a good practice to pretend that it did.
Identify bad financial habits
This is also a good time to assess your spending and discover where you are making mistakes. Habitual spending, like that morning latte or Friday happy hour, can add up without you noticing. Use a budgeting app and track every dollar and cent that you spend. Once you add everything up, I am certain you will find the results intriguing. Try diverting money away from your guilty pleasures and towards your emergency fund.
Remove the human element
Once you start finding some breathing room in your budget, contact your bank and set up automatic transfers to your savings account on every pay day. Automating will mean paying yourself first, and if you start small, you probably won't miss it. Gradually increase the payments as you grow more comfortable with your adjusted budget.
Hope for a win-win
If you do happen to face a job loss, your emergency fund will help bridge the gap while you look for work. Even if you do not hit the three-to-six-month target, know that every dollar you save is one less dollar that you will have to borrow. If the recession does indeed turn out to be a mild one and you keep your job, you will have built up a healthy emergency fund and you should continue to do so until you hit your savings goal.
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