Thousands of people a day face the prospect of being made redundant, and for the vast majority this means being plunged into a financial crisis.

Thousands of people a day face the prospect of being made redundant, and for the vast majority this means being plunged into a financial crisis.

According to research, a staggering 73 per cent of the population couldn’t support their families if they suddenly lost their jobs. And with households already coming under increasing strain due to rising food and petrol costs, as well as increasing mortgage repayments, it is feared that a full-scale economic downturn may force more employers to cut their workforces.

So what can you do? How can you prepare for such a scenario and what financial products are available to help you sleep soundly at night? Save & Spend has consulted the experts to draw up a six-point guide to safeguarding your finances.

STEP 1: BUILD UP A SAVINGS BUFFER

This is the most important task. Having some emergency money set aside will ease the pressure should you end up losing your job because it buys you valuable breathing space in which to find alternative sources of income.

Financial adviser Geoff Penrice advises having the equivalent of three months salary to use in an emergency. This means that a short-term problem won’t become a long-term crisis.

"With increasing unemployment and redundancies likely, we all need to protect ourselves should the axe fall," he says. "With increasing prices, utility bills and mortgage rates, families are under a lot of pressure so a contingency fund is key."

STEP 2: SWITCH TO A MORE FLEXIBLE MORTGAGE

The biggest outgoing in the average family’s monthly budget will be the mortgage - but the good news is there are plenty of products available to help ease the financial burden.

If you think you are going to lose your job then you could switch from a repayment mortgage to one that’s interest only.. Most lenders will allow this to happen even though they may charge you a fee.

You could also consider extending the period of repayment - as long as your age and circumstances allow. For example, if your mortgage was due to end in 15 years you could stretch it to 20, which will reduce the monthly repayments.

Opting for a flexible mortgage that allows you to make overpayments when you’re flush and take payment holidays when money is tight may be a good idea, but just make sure the interest rate is competitive.

There are also offset mortgages enabling you to keep your savings in a pot alongside your mortgage to "offset" the loan while the money is in their account. For example, if you have a mortgage of €160,000 and savings of €30,000, you will only pay interest on €130,000. The flipside is that your savings don’t earn any interest.

Whatever your scenario it’s essential to be honest about your situation. If you do lose your job and are struggling with mortgage payments or any other bills, it is important that you tell your lender straight away. It’s in everybody’s interest for people to be able to ride the storm and lenders are keen to help people in trouble if they co-operate.

STEP 3: INSURE YOURSELF

You can insure yourself against virtually anything these days - and if it’s redundancy you’re worried about, you need to think about taking out an accident, sickness and unemployment policy.

If someone is concerned about losing their job they can take out unemployment cover. However, the policy will usually only run for 12 months and you must not have any prior information that redundancy is on the cards.

These policies will replace all or most of your salary if you’re unable to work due to redundancy, accident or illness. In most cases they kick in a month after your income dries up and continue for a set time. The idea is to provide short-term help in the case of unexpected changes in your circumstances rather than a long-term solution.

Alternatively, you could consider a more simple (and cheaper) policy such as payment protection insurance, which will cover your mortgage or loan repayments should you be unable to work. Beware, however, that many of these policies don’t start paying out until a year after you stop work, and it’s crucial to shop around, as some providers charge unnecessarily high rates for these simple products. If you’re in any doubt about which option is best for you, seek advice from a financial adviser or specialist.

STEP 4: MAKE EXISTING ASSETS WORK FOR YOU

As well as putting as much spare money away as possible in various accounts, you should also make sure your existing savings products are working hard.

"The best way of maximising your cash is reducing exposure to areas in which you are either paying over the odds or not receiving the best rates.

Reviewing your life and other insurance cover should also be a priority as premiums have actually fallen over the past five years, which means that you may be pleasantly surprised when you look for new cover.

In terms of areas such as utility bills and food shopping there are lots of useful internet sites that can save you cash. By far the market leader is moneysavingexpert.com.

STEP 5: GENERATE EXTRA CASH

Finding ways to generate cash is essential when times are tough so see if you can turn your hobby into a money-spinner. Everything from selling items via eBay to restoring clocks can bring in some extra money. If the venture takes off it may give you a lifeline if you find yourself unemployed.

STEP 6: START LOOKING FOR A NEW JOB

As soon as you hear rumours that your position could be under threat you need to see what’s available in the job market. Speak to friends and former colleagues in case they’ve heard of potential openings in your field.

It may also be worth learning a new skill/qualification in your free time so that you have something to fall back on should you need it. While the economic downturn isn’t going to be easy for any of us, on the plus side there may be an opportunity to diversify, broaden your skill set and seek out some new opportunities.

Courtesy of our Sister Site www.londoncareers.net