Prepare your finances for the next recession

This recession won't be the last. Malcolm Wheatley gives his top tips for recession-proofing our finances before the next downturn.

Are you having a good recession? No? I thought not. But rest assured, some people are.

With no debts, and a handy cushion of savings protecting them from the possibility of unemployment, they're sitting pretty and bagging bargains, to boot.

From houses to cars, and from furniture to index trackers, the past few months have seen some real deals on offer. And canny savers have been snapping them up.

Boom and bust

I've lived and worked through three recessions (1980-82, 1990-91, and 2001-2002), even losing my job in one of them. Recessions are sadly a fact of economic life -whatever politicians might say about banning boom-and-bust forever.

And the consequences for those who aren't prepared can be devastating. There was an item on the BBC this week, for example, profiling a family relying on food bank schemes and the contents of their children' piggy banks to try and stay afloat. They, like many others, appear to have been living one pay slip away from monetary meltdown. And when that pay slip stops arriving, the meltdown surely follows.

Simple rules

It doesn't have to be that way. The rules for financial survival are simple, and unchanging. If you -like many others -are worried about your finances, it's probably too late to do much about this particular recession. It's upon us, and hopefully the economy is improving although, be warned, job losses will continue to mount over the months ahead.

Here, then, is how to prepare your finances for the next recession. A recession which will one day inevitably arrive. So don't be a statistic: be a survivor -- and better still, someone who actually profits from a recession.

Recession-proofing

So, how do you recession-proof your finances?

1. Eliminate non-mortgage debt

In a recession, you don't want to be paying money to high street lenders and credit card companies. Worse, you don't want to be paying money to lenders who are simultaneously jacking-up their interest rates as bad debts from other consumers impact on their profits.

There's plenty of advice here on lovemoney.com about getting out of debt, with the result that you'll sleep more easily whatever is happening to the economy. And don't forget the big advantage of buying things only with money that you've already put aside: what you're buying effectively becomes cheaper, because you're just paying what's on the price ticket - and not any interest on top.

2. Build up an emergency cushion.

That nice big fat cushion between you and monetary meltdown won't arrive of its own accord. It has to be saved. And again, there's plenty of help available.

Start today: live a little more frugally, and put money aside in a savings account.  Better still, as it's long-term saving, use a cash ISA.  £50 a month for ten years, for instance, at an average interest rate of 4.5% (and rates may well go higher, of course) comes to a very handy £7,588. That's right: a decent-sized cushion for little more than a tenner a week. Double the amount saved each month, and your emergency cushion climbs to £15,176.

3. Build up a 'bargain fund'.

A few short months ago, index tracker prices were on the floor with the FTSE 100 at 3,500, and over-stocked retailers were discounting like there was no tomorrow - which for some of them, proved to be the case. House prices, too, fell to lows from which they've since seemingly recovered.

Did you buy a bargain? Well done if you did, but I'm betting that many of you didn't. A decent-sized slug of savings, perhaps in a stocks and shares ISA, serves a dual purpose: further cushioning the blow if unemployment beckons, but it's also helpfully on hand in case opportunities arise. Which, in a recession, they have a habit of doing.

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