For years, fans of the TV series Game of Thrones have lived with the dark foreshadowing that “Winter is coming”. Now Canadian economists are using the phrase, and they’re not talking about the Starks or the White Walkers.
Although this year will have its own set of challenges, including rising interest rates and a stagnant housing market, economic forecasts are predicting that income and employment levels in Canada will remain stable through 2019. But as we enter 2020, this period of economic growth is expected to slow, and that usually indicates the likelihood of a recession.
Here’s the good news: although the experts seem to agree that an economic winter is coming in 2020, there are steps you can take now to protect yourself from a financial chill.
1 – Know your situation
If your mortgage is coming up for renewal in the next year, you need to know what higher interest rates will do to your payments. Use an online calculator like this one to estimate your payments and talk to your banker or a mortgage broker about your options.
If you’re a long-term client, your bank may be more willing to help you, especially if you let them know you’ll be shopping around for a better rate. For example, you may be eligible for a blended mortgage, which involves combining the mortgage rate from your existing mortgage with the rate from a new mortgage and blending them into a new rate that’s somewhere between the two. And don’t be afraid to ask for the lowest rate—if you don’t ask, you’ll never know!
2 – Ease into a hardline budget
Make 2019 the year you track and analyze every dollar you spend. Can you buy groceries at a less expensive store? Are you keeping a strict eye on your entertainment spending? Can you cut back on cable TV or get by with one car rather than two? With ride share options, do you need even need to own a vehicle?
Make the tough decisions, and then make a budget. Can you reduce your expenses today to accommodate an increase in your mortgage payments tomorrow?
3 – Minimize your debt
Economists have different theories about paying off debt. Some advise you to pay off the debt with the highest interest rate first. Others say pay off the smallest debts first, so you feel a sense of accomplishment and stay focused and motivated. You might also save by consolidating your debts.
The bottom line is that you want to eliminate as much of your debt as possible this year. If you don’t know the best way to proceed, or you’re concerned about the amount of debt you have, seek the help of debt restructuring professionals, like the team of experts at Faber.
4 – Build that emergency fund
If you’re already struggling to meet the minimum payments on your credit cards, you may think that building an emergency fund can wait. That’s dangerous thinking.
A poll conducted by Ipsos a few years ago found that nearly half of Canadians were just $200 away from not meeting their payments and would be financially devastated if they lost their job. What would you do if you or your partner suddenly became unemployed?
Economists suggest having a reserve fund that will handle your living expenses and other financial obligations for three to six months. Dedicate as much money to this fund as possible. Watch for opportunities to save and opportunities to make extra money so you can pay off existing debt more quickly and build your emergency fund. Explore creative options—for example, are you zoned to turn your basement into a rental suite? If not, could you still take in a boarder or an international student to help generate extra income?
As you watch your reserve fund grow, you’ll be inspired to put more into it, and you’ll appreciate the security that it provides you.
Know that there are options
Being aware of your financial situation is the first step to avoid being hit hard by a tough economy. Stay informed. Keep your ears and eyes on the news and financial trends so you’re prepared as the markets change.
The second step is to put that awareness into action. These four tips will help you ride out a recession, but if you require additional assistance, the experts at Faber are here to help.
If you’re currently struggling to meet you financial obligations and finding that your debt is accumulating, rather than decreasing, you don’t need to wait for a recession to hit to talk to a professional about your situation.
The fact is that debt-restructuring strategies such as Consumer Proposals and Personal Bankruptcies are just tools that allow for a fresh financial start. As Licensed Insolvency Trustees, the team at Faber can provide you with immediate protection from creditors and a plan for regaining control of your financial future.
Our 16 offices across Alberta offer consultations at no charge. They are totally confidential and judgment free. Contact us today to book your appointment.