As recession rushes in towards Britain, family finances are in for a battering. It’s time to brace yourself for the hit.

The next year is likely to be the most financially unpleasant most will experience in their lives, so it’s crucial to change attitudes and actions to prepare.

Job losses, pay cuts and overtime freezes are likely to happen to some.

Yet even at the recession’s nadir, most people working now will still be in work. With some sensible planning, you can recession-proof yourself and hopefully get through it without too many problems.

However, it’s important to understand that things will be different. Take the pursuit of job mobility; it’s likely to be traded in for job stability, as moving up the ladder by jumping job to job is replaced with a need for security.

After all, when companies make redundancies, it tends to be ‘last in first out’, and anyone that hasn’t worked there for more than two years has no right to any statutory redundancy pay-off.

Pay off debts with savings The absolute priority in a recession is to have as little debt as you possibly can. Debt isn’t something you can cancel, so being lumbered with it if your own finances are plummeting is a nightmare.

Therefore, if you have got any credit cards or loans that you are allowed to pay off, you should be using any savings or spare cash to clear it.

Many people fight against this, but the logic is quite simple. An £1,000 debt on a typical high street credit card at 18% interest costs £180 a year.

Yet if you’ve £1,000 in savings in a top savings account, after tax it’s probably only earning, at best, 3% or £30 pounds a year. So pay your debts with your savings, and you’re £130 better off a year.

You might say, what about a cash emergency fund? Well, if we are talking about credit card debt, then remember this is about paying off the credit cards, not cancelling them.

If you were then hit by an emergency (and I mean a real emergency), you could then use the credit card to do the spending.

In the meantime, you would have saved money. After the emergency, you’d be no worse off than you would have been had you not paid the debts off.

Do a balance transfer

Of course, many won’t be able to repay debts that easily. In which case, the aim is to do a debt audit and ensure all your debts are as cheap as possible.

That’s a subject for another day, though for now, go to www.moneysavingexpert.com/balancetransfers

If your cards are repaid, the next priority is to build up a cash emergency fund to allow you to support yourself for about six months.

For many people that’s a big ask, but it’s a decent aim.

Pay off your mortgage

If that’s done, the next step is overpaying the mortgage, if you are allowed, or build up a savings lump to pay off some of the debt at remortgage time.

Even at low mortgage rates, repaying your mortgage tends to be a good deal for most. After all, if you have a 4% mortgage, and you pay off £1,000, it’s the equivalent of making yourself £40 a year.

If you save £1,000 at 4%, your income is taxed, and you’ll only get 5% back – about £30.

With house prices plummeting, many will struggle to get new cheap mortgages, as they’re borrowing too big a proportion of their home’s value; overpaying will help towards that.

You may ask, if it makes sense to overpay your mortgage, why build the cash emergency fund? The answer is simple: if you overpay your mortgage, but then lose your job, the fact that you’ve made an overpayment would not stop the lender from defaulting you on your mortgage, so you should always have money available to make payments.

Think with a recession head on.

It’s time to accept the old certainties have gone. Many were sucked into thinking that pay, investments and house prices could only ever go up. Now it’s time to start thinking more defensively.

  • If you are self-employed, then for every £100 you earn, remember that only £65 is yours. The remaining £35 goes to the tax man to pay your Income Tax and National Insurance.

So, as soon as you are paid, stash the cash somewhere where you can’t get at it easily, because if you get to the end of the year owing the tax man money you can’t pay, it’s a major problem.

Some used to borrow their way out of this; the credit crunch will stymie that solution for many.

  • Beware ‘income eaters’. These are things which take a lump out of your monthly earnings but lock you in for set periods and you can’t cancel then immediately if there’s a problem. Things like gym memberships and digital TV subscriptions. If redundancy is a possibility, only sign up for easy-to-get-out-of deals.
  • Brush up on your benefits. The benefits and tax credit net spreads much more widely than it used to. Some families earning over £60,000 a year are still entitled to tax credits.

It only takes five minutes to give yourself a quick check-up. The best way is to go to www.entitledto.com

  • Live like recession has started. If you know you are going to be made redundant or think it is very likely, start living as if you had already lost your job.

Cut back on everything, ensure you are paying the minimum bills on everything, and don’t spend unnecessarily.

Use spare cash to pay off debts or to help you live once you are made redundant.

It may mean living frugally for longer, but it should aid long term security.

Financial Self-Defence

This is all about ensuring you and your money are as safe as possible from the negative climate.

  • Get Payment Protection Insurance (PPI). You may be surprised to hear me say this, as I’ve run a major campaign against the mis-selling of PPI.

Yet it’s not the product: it’s the way it’s sold that I have a problem with. The idea is that if you fall ill, suffer an accident or are made redundant, then PPI will pay your mortgage, your loan repayments or your credit card for up to a year. Though if there’s already a direct ‘forseeability’ of redundancy, then it won’t pay out, so don’t bother.

The key is to check the terms of the policy and get an effective one as cheap as possible. That means never get a policy from your lender, as they can charge you up to ten times more.

Instead, go to a standalone insurer; these are usually much cheaper.

  • Section 75 protection. As I’ve mentioned here before, if you buy goods costing over a £100 on your credit card, and the retailer goes bust before you receive the goods, the credit card company is jointly liable.

This means you can get your money back. So do all your biggest spending on a credit card, but make sure you pay it off in full at the end of the month.

And remember, you get the full protection even if you only part pay on the card, a useful technique, see www.moneysavingexpert/section75.

  • Cut every bill. There’s a difference between cutting your bills and cutting back. Quite simply, it’s worth NOW going through every single thing you spend money on, to see whether there is a way you can do it cheaper and better.

Lots of people are wasting thousands of pounds a year, overpaying for things as diverse as their broadband supplier, contact lenses, train fares; the lifeblood of this column.

If you’ve got some time, take a day to sit down and go through your finances.

It could be your best paid day of the year. For help, there’s a step by step guide at www.moneysavingexpert/moneymakeover