Rumors that a recession is approaching have been circulating the nation, which would cause a number of problems for us all. But how should we best handle this situation if the unthinkable were to happen?

The RBA estimated that 100,000 jobs would be lost by next year, leaving unemployment to more than 5%. The worst affected area will be New South Wales due to its high "Service" populated sectors consisting of finance and retail services which are known for falling as a result of a recession. Queensland and the west are more likely to survive without too much damage due to heavy mining which will help them to stay financially stable.

Commsec economist Savanth Sebastian says: "The worst-affected will be Victoria and NSW, where there are big retail sectors. We recently saw the worst retail sales data in 12 years and it's the country's biggest employer, so it doesn't look good. The RBA's goal was to slow the economy gently, but with data looking so bleak, it looks like we could be heading for a hard landing -- particularly in retail which, with two quarters of negative growth behind it, is already technically in recession.''

People must be prepared that they could lose their jobs, so spending time looking at the redundancy packages available and which one best suits them is advised. For example it may be in the employees best interests to take a lump sum payment rather than an annual payment, based on age/current situations, enabling them to pay off mortgages or invest into high interest savings accounts.

Paul Bilson, from Woodwood Nhill Financial Planning, provided his advice on the subject: "See a planner, as the tax differences in the choices can be significant. The maximum tax-free portion of any redundancy payout is $7350, plus $3676 for each completed year of service. So, if you had 10 years of service, you'd be entitled to $44,110 tax-free. Anything above that would be taxable.''

Investing redundancy payouts into superannuation may suit some, but if you are under 55 you won't be able to access the funds, which is definitely not advised if you need the money at the time. There are several ways you can begin to prepare yourself for a recession. Some may sound obvious, but its surprising how effective they can be:

Make regular payments into a savings account: Open up a savings account and set up a direct debit each month, even a small amount of money each month will soon add up

Transfer debts that incur high interest to a low interest account: You may be paying well over the odds in interest on your credit card/loan. Compare the market for credit cards, there are usually credit cards with 0% interest on balance transfers for competitive periods, for example the St. George Vertigo credit cards offers 0% interest on balance transfers for 6 months, and 11.89% on anything else.

Protect yourself from inflation by keeping your funds in a high interest savings account: You may not think It's possible to lose money in a savings account, but the fact is you can. This is due to the interest rate paid on your savings being close to the rate of inflation. You are taxed on the interest you earn, so a 5% interest rate against the 4.5 % inflation rate will result in your money actually losing value. There are plenty of good savings accounts to choose from that pay well above the inflation rate so make sure you shop around to find the best deals!

Have your salary paid into an high interest instant access savings account: This may not be suitable for everyone; however it is a great way to earn high interest rates on your salary as soon as it is in your bank. You can then move funds to your current account as and when required.