Smart tips to recession-proof  your finances and save more

Although recessions don't typically last long, they still predict market volatility, higher living costs and economic instability. While economic recessions are uncomfortable, it's important to remember that they are naturally occurring cycles within an expanding economy and are only temporary.

Canada has recovered remarkably well from the recession sparked by the COVID-19 pandemic, but the new tariff threats by the U.S. government have reignited recession fears. While we can’t control American trade policy, there are things we can do. Read on for tips on recession-proofing your finances. 

Economists define a recession as a decline in the gross domestic product (GDP) that lasts longer than two financial quarters, or six months¹.  

A recession is a normal part of the economic cycle, but it can trigger events that may cause significant issues for everyday Canadians. If severe enough, a recession can lead to an overall slowdown of the country's economy.

Recessions can have far-reaching consequences. Here are a few trends to be aware of:

• Rising unemployment
• Higher cost of living
• Increased cost of borrowing
• Devaluation of your investments

There is no single cause of economic recession. Low interest rates and a lack of regulatory oversight contributed to the Great Recession in 2008, while the COVID-19 pandemic was instrumental in the recession of 2020. These were very different events, but they each created the economic instability that led to recessions in Canada².

Here are some events that have contributed to economic instability in Canada in the last five years:

• A global pandemic. The COVID-19 pandemic caused a shock to the global economy and put stress on the supply chains.
• Rising inflation. Bottlenecks in supply chains, rising costs of commodities and increases in consumer demand have led to soaring inflation.
• Rising interest rates. To slow economic growth and reduce inflation, the Bank of Canada increased interest rates³. This made borrowing more expensive, leading to restrained spending by businesses and individuals.
• Fear and uncertainty. Rising interest rates and speculation of an impending recession flooded social media, causing people to become nervous and spend less money⁴.

Economically, Canada is still rebounding from the COVID-19 pandemic. In December 2024, inflation slowed to 1.8%, and Bank of Canada interest rates likewise decreased to regular levels⁵.

Most recently, the threat of wide-sweeping tariffs on Canadian products from the U.S. government has caused a lot of uncertainty. At the beginning of February 2025, the Trump administration put a “pause” on the 25% tariffs announced earlier in the year. However, just one week later, the administration announced a 25% tariff to be applied to steel and aluminum products.

Currently, it is unknown which tariffs will be applied, on which products, and for how long. Unfortunately, this adds to economic anxieties and unease.

Simply put, a tariff is a tax on goods imported into a country. The importers pay the tax, and in turn, they usually raise their prices to make up for the difference.

Although the price hikes would affect American consumers, they would also affect Canadian producers. A 25% tariff might make Canadian products difficult to sell.

As unwelcome as it may be, a recession is a normal part of the economic cycle. In fact, the average recession only lasts between three to nine months⁶, and there are plenty of things you can do to prepare. Below are some actionable tips on how to do just that. 

Staying on top of your budget is always a good strategy, but it is especially so during times of economic uncertainty. Build an up-to-date budget so you know exactly how much you have—and how much you need—to meet your obligations. Painting a realistic financial picture can take some time, so don’t hesitate to use practical tools to manage your money, like the Scotia Smart Money app by Advice+.*

If you don’t already have one, now is a good time to set up an emergency fund. Ideally, you should aim to put away enough to cover three to six months of living expenses. While this may not be possible for everyone, putting aside any amount into an emergency fund will be helpful when life takes an unexpected turn. 

Handling debt is an ongoing concern, but now’s the time to move it to the top of your priority list. If it’s on your personal finance to-do list, then there are a few debt repayment strategies to consider. The idea is to get as much debt as possible off your high-interest credit cards by paying it off, moving it, or consolidating it.

If you have any other loans, like car loans, personal lines of credit, credit cards and mortgages, now is the time to get reacquainted with the terms. Once you’re refreshed on your terms, you can make strategic money saving decisions. For example, if the interest rate on your personal line of credit is significantly lower than on your credit cards, you could look into a balance transfer from the credit card to your personal line of credit to reduce your interest payments.

Even if you’re in reasonably good financial shape, it's wise to divert your funds from non-essential purchases to savings and investments during times of economic uncertainty.

If you’ve been thinking about a more significant purchase, such as a car or a home, ensure the purchase fits well into your financial plan and budget and considers the current economic situation. The consequences of unpredictable interest rates and the increased cost of borrowing are amplified when applied to high-ticket items. 

You can maximize the power of your spending by using a credit card that offers any number of rewards. Rewards credit cards let you earn points, collect rewards or receive cash back on certain purchases. Since there are a variety of cards that offer different perks, it’s wise to familiarize yourself with the features of your current cards (or lack thereof) to see if there are better options out there.

The Scotia Momentum® Visa* Card, for example, earns cash back rewards so your cash back builds up each month as you spend, and you get a payout once a year. Other credit cards, like Scotiabank's cards that offer Scene+™ rewards, can help you collect points on all eligible everyday purchases. You can redeem Scene+™ rewards anytime to offset the cost of travel, entertainment, or groceries with gift cards for Safeway, Sobeys, Foodland, and more. If you’re curious about how much you could earn with rewards credit cards, take a look at Scotiabank's credit card rewards calculator.

Since layoffs and cutbacks can occur during a recession, having multiple income streams can offer peace of mind and additional cash flow. If you're able and willing, consider exploring a side hustle for extra security.

Whether you’re planning for a recession or not, diversification is important for your income— and your investment portfolio. Review your investments with an eye to diversification across industries, sectors, and assets. For more information, read about tested strategies to weather market volatility.

There are tools available and steps you can take to prepare. Equipped with current information and solid financial tips, you can make educated decisions that will help you survive the recession and work towards a strong economic future. And remember, your Scotiabank advisor is always available to help guide you through your financial strategy.