The best time to fill the pantry or gather firewood when preparing to live in a cabin over the winter is well before the first snowfall. Similarly, the best time to
is before you see it coming. But the second best time could be right now.
As of April 30, real gross domestic product in the United States had decreased 0.3 per cent in the first quarter, marking the first quarterly contraction since 2022. Should this recur in the second quarter, it could potentially qualify as a U.S. recession.
Why are we talking about the U.S.? Well, the U.S. is a substantial influence on the global economy, and there are many uncertainties circulating around geopolitical tensions, tariffs and trade wars, so there is much talk about the potential for a global economic slowdown.
As individuals, doing anything to stave off this macroeconomic slowdown is largely out of our hands. However, we can still be
in what we do about it. To do so, here are the logical steps to take.
Understand your budget
It’s hard to recognize a forest from the trees unless you have a sufficiently high vantage point. This is what a budget is for your finances. Yet 61 per cent of Canadians do not have a financial plan in place and 70 per cent do not use budgeting tools, according to a 2025 Toronto-Dominion Bank survey.
Granted, a budget isn’t very sexy and may even feel repressive, but it’s arguably the most important tool for most households.
By
that tracks expenses, whether that’s a homemade spreadsheet or one of the many mobile apps, you will quickly understand yourself on a whole new level. Importantly, you can
(mortgage payments, groceries, gas, etc.) from your variable expenses (streaming services, dining out, entertainment, etc.).
A holistic budget should account for all annual expenses against expected annual income. A deficit is a clear warning to consider adjusting expenses downward or looking for ways to increase income. A surplus means you should consider whether the excess capital is being appropriately accounted for. Are you “paying yourself first” through automatic savings?
Have an emergency fund
Basic financial planning recommends having at least
three to six months’ worth of expenses saved
in an emergency fund as liquid, safe capital. If an unexpected expense befalls us (for example, a job loss, sudden car repair, etc.), the fund can help absorb the cost as long as the amount saved is sufficient for the duration of the disruption.
Having access to even more liquid capital could be a good thing when preparing for a recessionary environment.
Consider what your next line of defence would be if you exhausted your emergency fund. Could you tap your
(TFSA) without realizing a loss? Do you have a credit facility available with a reasonable interest rate? Would the tradeoffs of using these be reasonable? If not, there may be work you can do.
Find your “enough”
Here’s an obvious lesson that even entire countries can forget: it’s impossible to save if you spend more than you bring in.
Be realistic about what you can afford and be honest about what you need to feel content in life. There are plenty of very high-income earners who are more consumed by the stress of not knowing when they can retire than they are calmed by the luxury goods they consume; they allow their expenses to rise with their incomes without ever being able to find “enough” to satisfy themselves.
It’s probably no surprise that “my Porsche” doesn’t appear as a predictor for healthy aging in the
Harvard Study of Adult Development
, which provides eight decades of research about what people tend to value most.
Six factors that do? Physical activity, lack of alcohol abuse and smoking, a mature demeanour, healthy weight and stable relationships.
Keep your priorities straight when crafting your budget. You can potentially build a considerable cash bulwark if you discover how to have enough within your means.
Debt management
Not all debt is
. Minimize, or exclude when possible, any debt that doesn’t improve your long-term financial situation.
Mortgages and student loans? OK.
High-interest credit cards or payday loans? Please, no.
Furthermore, it’s helpful to consider how even
good debt fits into the overall plan
. Paying down a mortgage is a great financial strategy in most instances. However, forgoing TFSA savings to make extra mortgage payments, when you already have a low interest rate, could be setting you up for a future squeeze.
Invest wisely
You should fully understand your comfort with
, your growth objectives and your time horizon for requiring those investments.
Don’t invest to maximize growth with a 25-year time horizon if there’s the possibility that you’ll need those funds in a few months. What would you do if those funds had a 40 per cent decrease right before you needed them?
Strongly consider having a
. A variety of
ensures you minimize your downside risk in any one specific asset class and may help support steadier, sustainable growth over time.
Stress test and plan
How do you know when you’re fully protected? You enter The Matrix. Run simulations of your life under a range of circumstances. Model your financial plan against market downturns and temporary losses of income to see if your stockpiles really are sufficient.
For someone with capital, a recession could present opportunities to invest at more attractive valuations. Having free cash (“dry powder”) and a plan for how to use it could put you in a strong position to act decisively when markets present an opportunity.
Is there snowfall on the horizon? It’s hard to say. But if you want to stay cozy and well-fed, doing the prep work now isn’t too difficult. It’s certainly better to do so now than later.
Later might be too late.
Chris Warner, FCSI, CIM, CFP, PFP, is a wealth adviser and client relationship manager at Nicola Wealth Management Ltd., and Simran Arora, FCSI, CIM, CFP, CIWM, is a wealth adviser and portfolio manager there.
Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.
