How to keep your personal finances on track in a recession

We’ve all been on road trips that get detoured by unexpected weather or construction. A recession is almost like an unplanned detour for your financial journey, so buckle up, because economists are predicting a global recession is likely within the next 12 months.¹ If there is a recession, it’s important to know what to do—and what not do—to keep your personal finances on track.

What’s a recession? 

In a recession, there’s widespread and lasting contraction of economic activity. A recession could cause unemployment to rise, and it might be harder to take out a loan from the bank. 

One of the tricky things about recessions is that we don’t actually know we’re in a recession until it’s already started because a recession is technically defined as two consecutive quarters of shrinking GDP. But it’s something economists are watching for now.

Check your personal financial situation

Manulife’s stress, finances, and well-being survey found that economic conditions can have an impact on financial stress, and that more than 4 in 10 Canadian workers are currently unhappy with their financial situation. 

According to the survey data, more than half of workers worry a great deal about an aspect of their personal finances, including:

  1. Credit card debt
  2. Not having enough emergency savings
  3. Not having enough retirement savings
  4. Repaying student loans
  5. Current financial situation

Think about how a recession could affect your personal financial situation:

  • How much money do you need to cover your day-to-day living expenses? 
  • Are you currently worried about debt or not having enough savings? 

Have a dedicated emergency fund

Having an emergency fund can help you be prepared for a rainy day, especially to help cover unexpected events such as major household or car repairs, job losses, or major life changes. If you don’t have an emergency fund, you might have to use credit cards if you can’t get a loan from a bank in a recession. 

Having cash set aside for the specific purpose of paying for emergencies helps you avoid taking on new debt—and the stress of interest payments that comes with it—or borrowing from savings such as retirement. If you don’t have an emergency fund, you might be tempted to withdraw money from your Registered Retirement Savings Plan (RRSP), but taking money out early can come at a cost, both in the short term and in the future. 

Tackle high-interest debt

One of the most important things you can do in a recession is to review your debt, especially high-interest debt such as credit card debt. 

When budgets are tight, people often turn to credit cards to pay for their purchases. Sometimes keeping up with the payments might be a challenge.

Although you need to be sure you’re keeping up with all of your interest payments, see if you can make extra payments on your high-interest debt to pay it down sooner. 

Invest for the long term 

You might want to change your investments to avoid losing money when markets are rough. Unfortunately, there are no recession-proof asset classes. 

When you invest for the long term, stay focused on your long-term goals and try to tune out the noise in the short term. Here are two investment strategies that can help you do just that.

Dollar cost averaging

Dollar cost averaging is an investment strategy that comes with regular investing, such as automatically saving in an RRSP, and may help you optimize your investments over time.2 It can also help smooth out market fluctuations to help you build your savings. 

Automating your regular savings, which leads to dollar cost averaging, can also help you avoid making investment decisions based on emotion. If the financial markets experience a steep decline, such as during a recession, you might be tempted to stop saving or investing. But if you’re making regular contributions, you don’t have to worry about trying to time the market to get the best price. That’s why automating your regular savings and dollar cost averaging are some of the key benefits of participating in your employer’s group retirement plan.


Having too much of one type of investment isn’t a good thing. You need a good mix to balance your portfolio, which helps it stay strong even if returns on some of your investments are lower. By investing across various asset classes, geographic regions, and management styles, you can take part in up markets and avoid the whims of panic selling in down markets.

Get help from a financial advisor

Advisors know what to do when there are big market swings. If your living expenses, lifestyle, and financial goals haven’t changed, their advice may be do nothing and be patient. If you leave things as they are, it can give your investments the time they need to even out or grow over time. 

And if your life has changed, a financial advisor can help you look at your portfolio and adjust it. Keeping a watchful eye on your budget and having a well-diversified portfolio can be critical tools that can help you manage your finances through a recession. 

Stay focused on your financial goals

Remember that recessions come and go—just like road construction season in Canada—and they’re a normal part of the economic cycle. 

In a recession, try not to make short-sighted decisions about your savings and investments; historically, markets recover and move up. Stay focused on paying off debt and saving regularly. Saving money requires a long-term approach. Make the most of your plans and get expert help along the way from a financial advisor when you need it.

1 2 Dollar cost averaging does not guarantee a profit or protect against a loss. Systematic investing involves continuous investments in securities, regardless of price-level fluctuations. Participants should consider their resources to continue the strategy over the long term. There is no guarantee that any investment strategy will achieve its objectives.

The commentary in this publication is for general information only and should not be considered legal, financial, or tax advice to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.