You can’t prevent an economic recession, but you can ensure you’re financially prepared to weather one

Modelling your financial plan against market downturns and temporary losses of income to see if your stockpiles really are sufficient is the best way to be prepared for whatever may come next, write Chris Warner and Simran Arora. Photo by AndreyPopov/Getty Images/Postmedia files

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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 prepare for a recession is before you see it coming. But the second best time could be right now.

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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.

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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.

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As individuals, doing anything to stave off this macroeconomic slowdown is largely out of our hands. However, we can still be masters of our own destinies in what we do about it. To do so, here are the logical steps to take.

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Understand your budget

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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.

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Granted, a budget isn’t very sexy and may even feel repressive, but it’s arguably the most important tool for most households.

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By creating a detailed budget 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 separate your core expenses (mortgage payments, groceries, gas, etc.) from your variable expenses (streaming services, dining out, entertainment, etc.).

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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?

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Have an emergency fund

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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.

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Having access to even more liquid capital could be a good thing when preparing for a recessionary environment.

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Consider what your next line of defence would be if you exhausted your emergency fund. Could you tap your tax-free savings account (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.