KEY POINTS:
The big bad "R" word is upon us. Many investors don't need advice on how to survive the recession. They just will.
But others just can't see it coming or how it may affect them. Unemployment in the June quarter was 3.9 per cent. The Bank of New Zealand's head of research, Stephen Toplis, is predicting that will rise to 5 per cent by the middle of next year, meaning a loss of 20,000 jobs.
Few people believe they could ever get the chop from their job. But if the economists are right, many will and unless those individuals have insurance or an emergency fund, financial disaster could ensue.
As Jeff Matthews, senior financial adviser at Spicers Wealth Management, points out, since the 1990s recession when the unemployment rate was 10 per cent, a generation of people has entered the workforce that has never really experienced a downturn and is not prepared for tougher times.
Catastrophic financial disaster does hit Kiwi families. And when it does, it's often totally unexpected - at least for them. The classic example in today's market was the people who did little more than sign papers to mortgage their house, sometimes for hundreds of thousands of dollars in the Blue Chip case, to buy property that was either never built, or leaked.
Those at most risk are a percentage of property investors who are too highly geared to survive a downturn in prices, and small business owners who have the family home as security. Budgeting services and financial planners are already seeing people in these circumstances and as the banks step in and call up more loans, it will get worse.
There are, however, ways to prepare to survive a recession:
Protect your job
Losing your job is the beginning of a slippery slope. To protect your job become visibly busy and try to find ways for your company to make or save money. It's a good idea to become as indispensable as possible by taking on extra responsibility.
Don't join the water cooler whinger crowd. If you do notice signs that the industry isn't doing well, get acquainted with those people who do the hiring so that your next job shouldn't be too many calls away.
Get insurance
While the life insurance industry rarely offers cover for redundancy, some insurance companies offer policies which can cover a percentage of your salary for a period of months.
It's also possible to take out policies through banks or via mortgage brokers to cover your mortgage payments during a period of unemployment.
Pay off debts
If you have extra money now or can make savings it may be worth getting ahead with any debt repayments, including your mortgage. If a portion of your mortgage is on a floating rate it can be possible to pay in, reducing the overall interest you pay and giving you a safety net should you need to stop paying for a period of time.
Review your portfolio
Are your investments forward- or backward-facing? Look at the investments that do well when the economy is in the doldrums and consider what future trends may be.
They include consumer necessities, healthcare, utilities and energy stocks. Make sure your risk is spread and you're diversified as well as being patient, not bailing on investments just because they lose value.
Think smart
If you are hit in the wallet by the recession, be it through losing your job or having to pay more for your mortgage, then sticking your head in the sand isn't going to work.
Take the time to consider how you would survive on 60 per cent of your current salary or even with nothing for three months. It's important to remember that recession is a normal part of the economic cycle. If you can't pay your car lease, ditch the Merc for an old banger.
Spend less
Too many people have become used to a lifestyle they weren't actually earning because they were borrowing against increased equity in their homes, says Matthews.
It's not quite as cut and dried as it appears. The brain is able to fool the best of us into thinking that certain consumer goods are necessities. What's more, people's priorities are different.
When Matthews suggested in the pages of this newspaper that people give up luxuries such as the gym membership, he received hate mail - albeit from a gym owner.
"You have quite incorrectly categorised gym membership as a luxury item. Where have you been for the past 20 years." But before you rush out to join the local gym, walking or running combined with press ups and sit ups costs significantly less than the $4 a day a gym membership does.
Kiwis are spending less in shops. The areas we've cut back most on are food, (excluding supermarket and fresh meat, fruit and veges), takeaways, recreation goods, furniture and hardware, says the BNZ.
Compare prices
Insurance companies and utilities providers are expert at slipping in an annual increase each year. In the case of insurance, your sum insured may be increased without you realising, pushing up premiums. Shop around every year.
Cut your calling costs
It wasn't that long ago $20 covered telephone bills for the month. Now we think no differently about calling the other end of the country as next door, and we have mobile and broadband bills as well, amounting in many cases to hundreds of dollars a month for a family.
It may be good to talk, but not if it means failing to pay your mortgage or going into debt.
Some smaller providers, and even Vodafone, offer a variety of packages that can save on the market leader's prices. Whatever you do, think twice before picking that phone up.
Send an email instead or text if you have an all-in-one package. If you don't, send texts through Skype. It's cheaper.
Make sacrificial savings
Sacrifice something that you've fooled yourself into thinking is essential. Quit the daily trip to the coffee shop, or your takeaways. Give your children an allowance and don't save them if they overspend.
Eating out can easily chew through $100 for two. While you're cutting back, limit the alcohol spend to one bottle of wine or a similar amount of other alcoholic beverage a week.