by Simon Wright

Created on: July 05, 2010

For many of us, who have been brought up during a period of relative economic stability, this is our first proper recession and it has been a real shock to the system. Even amongst those who are a bit longer in the tooth, this is the deepest and darkest recession in living memory and has already impacted depressingly upon the lives of countless thousands of households.

The most devastating impact of the recession, of course, has been the job losses that it has provoked as companies have either gone out of business or have been forced to shed jobs in a desperate effort to cut costs and survive. However, redundancies are only part of the pain that the recession has caused. Other major impacts include rises in the price of petrol and food, falling share prices, and a huge increase in people defaulting on their mortgage or getting into trouble with their credit card debt.

Survival of the financially fittest:

Whilst the recession has been indiscriminate in whom it has affected, the brunt of the impact has been felt where individuals or households have been ill prepared to deal with any financial shocks to the system. In contrast, those people whose finances have been in good order prior to the recession have been much better prepared to ride out the storm.

It’s not too late for others to take actions to recession-proof their finances so let’s look now at the major financial planning elements that need to be addressed to achieve this goal:

Always have a savings buffer that can be instantly accessed:

There’s an understandable temptation for many to spend all the spare money that they generate. However, this will leave your finances very susceptible to the slightest financial tremor. Even outside of recessionary periods, you might suddenly find that an unexpected cost crops up, such as the need to repair your roof or buy a new car. Having a readily accessible savings fund will ensure that you are able to deal with such eventualities, without the need to seek a loan.

The importance of a buffer savings fund increases substantially during a recession. This is partly because the threat of unexpected events increases, such as the threat of being made redundant. However, its importance is also accentuated by the fact that credit usually becomes a lot harder to obtain during a recession.

Financial planners normally recommend that individuals hold back at least three months’ worth of income in an instant access savings account. However, during a recession,

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