10 things to watch out for in 2010

Harvey Jones thinks there is a fair chance that the UK economy will implode next year. Find out how to survive if it does

I'm usually the optimistic type, but lately I've found myself thinking about armageddon. Financial armageddon, that is.

Because there is a fair chance that the UK economy could implode in the near future.

The economy is shrinking faster than in 1931, the year of the Great Depression. We have the greatest debt mountain in peacetime, and the deficit will hit 78% of GDP by 2014.

Credit agencies are on red alert, ready to strip Britain of its triple-A credit rating, which would sink the pound and push up the cost of paying off that debt to unaffordable levels.

I don't know about you, but that looks a lot like financial armageddon to me.

Puppet horrorshow

Rock-bottom base rates, quantitative easing and fiscal stimulus programmes have only postponed the pain, as did Alistair Darling's pre-Budget report on Wednesday.

True, Gordon Brown's puppet Chancellor did raise National Insurance contributions for everybody earning above £20,000, froze the 40% tax threshold to drag more people into the higher tax bracket, and capped pay rises in the public sector, but this is nothing compared to the agonies to come.

VAT reverts to 17.5% from January, but the nation will start taking its medicine after the election in May, when whoever wins will splatter every one of us with tax hikes and savage spending cuts.

Some think-tanks have been talking of a million public sector job cuts. That's a million more people on the dole.

It is going to be bloody.

Armageddon out of here!

If our politicians don't take evasive action, things could be even worse. Financial armageddon might start with a credit downgrade, followed by an austerity budget like the one Ireland has endured this week, more job losses and gosh, even house prices might dip for a week or two.

We are also vulnerable to outside shocks, such as the China bubble bursting, or the oil price increasing again.

But what does this mean for you and me?

After running around with my arms in the air shouting "We're all doomed!" I've calmed down and produced an austerity plan to help you survive if Britain goes the way of Greece, Dubai, Ireland and Iceland. Because I really think we should be preparing for that possibility.

Work out your net worth.

In a financial emergency, money is your only cushion. How much have you got to fall back on? How much cash could you raise in a hurry? Tot up the value of everything you can get your hands on in an emergency, including your current account, savings and Isas, (although not your pensions, which you can't touch until age 55). Then add stuff you can sell for a bit of cash, like your car, or anything that might fetch a few quid at a car boot sale. Finally, how much could you raise by selling your home, and would it cover all your debts?

Save! Save! Save!

Since the credit crunch, many of you will have pruned your credit card bill, clipped a bit off the mortgage, and trimmed your more outrageous spending habits. Now is the time to impose a more rigorous package of cuts, at least until the future becomes a bit clearer. Thinking that cutting out your café lattes will help you survive the crisis is like Alistair Darling pretending a £500 million windfall tax on bankers can cover a £1.4 trillion public deficit. You may have money now, but things might be different next year, so don't squander it.

Take no risks.

If your job or income is in the firing line, this is no time to take on an extra responsibility, such as a property. Unless you are buying in a desirable part of London, house prices are unlikely to race out of reach. Don't commit to long-term contracts for non-essential items, such as digital TV or even your mobile phone, and don't take out long-term debt such as a personal loan (if you can get one). You may be kicking yourself or missing out on this year's stock market recovery, but it's too late to play catch-up, so keep your cash somewhere safe. Protect what you've got, rather than add to your financial responsibilities.

Find an escape route.

If your job is in the firing line, don't wait until the bullets are flying, look to get out now. Dust down and brush up your CV. Start networking. Make applications. Take an evening job, if only for a few months, to boost your emergency funds and give you something to fall back on if your day job blows up in your face. Consider fleeing to safer economic zones (although the Dubai bolthole has now been closed).

It's the economy, stupid

I have started doing a lot of this stuff myself. I've stopped investing in shares and I'm stockpiling cash instead (or I'm trying to). I've struck festive "no gift" deals with friends, so we don't squander time and money buying candles and bath salts to wrap and exchange. As a freelance, I'm being especially nice to my editors (Hi Donna!). And I decided against taking risks with my cash when My friend asked me to loan him £10,000, because I've no idea what will happen to my income next year (or his for that matter).

The odds are that we will avoid financial armageddon, but it will be frighteningly close and this is no time to take a flutter on your future. I'm preparing for the worst, just in case. And so should you.

Good luck!

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