IT SEEMS that the world is in debt and doesn't know how to get out of it. The problems of major institutions who are in financial trouble both in the UK and abroad may seem distant but their fortunes are inextricably linked with our own.
For many individuals, the repercussions of the problems experienced by banks will trickle down in the coming months.
All lenders have tightened their criteria for lending and the easy availability of credit is becoming history.
This means thos
e who have existed on transferring debts around and trying to live by paying minimum amounts to creditors will now be facing a tight squeeze on their financial position.
There is no doubt that the coming year will see many people face serious pressures from lenders as everyone tries to claw back money that they are due.
If you have debts, the options are pretty simple in this situation: earn more or spend less and reduce debt as quickly as possible.
Earning more may once have seemed like a viable option when the economy was booming and there seemed to be an abundance of extra employment opportunities.
It is clear that this situation is changing rapidly and as the economy tightens and more people are being made redundant, the opportunities for earning some extra cash, either through an existing employer or through an additional job, is becoming more remote.
The other option therefore is to spend less.
This is easier than it sounds but requires some initial analysis of where you spend and then finding out ways that you can reduce expenditure.
Keeping a diary of your spending may sound like a really boring way to spend your time but until you know how you are spending your money there is no way that you can know how to save it.
Most people spend money fairly freely and rarely consider cost when deciding on a lifestyle purchase. How many coffees a week do you buy on the way to work or to drink en route? Cutting out two a day at the lower price results in annual savings of £750.
If you also buy a snack or biscuit at 50p per time to go with the coffee you can reduce an extra £250 from your expenditure.
Taking sandwiches to work rather than buying lunch can usually save about £4 to £5 a day, resulting in annual saving of a further £1,000 a year.
So far we have only tackled the smaller items and already £2,000 can be saved from your annual expenditure, which goes a long way to clearing debts.
Look at your weekly grocery bill.
This can be reduced further by looking at daily offers in supermarkets or changing where you buy your groceries. It should be possible, with careful shopping and avoiding spontaneous buys, to reduce your weekly shopping bill by 20 per cent which, based on the estimated average weekly household shopping bill of £136, means an annual saving of £1,414.
You also need to look at your utility costs. These have risen enormously over the last year but if you shop around there are savings to be made.
On price comparison sites such as uSwitch.com there can be a difference of around 10 per cent between the top and bottom suppliers' prices, indicating that there are still savings to be made. For an average home this would mean savings of around £120 per year.
You also need to monitor home insurance, car insurance and life insurance all of which have reduced in price in recent years and could result in savings.
It is also important to remember that how you pay a bill can also produce savings. Regular payments by direct debit always produce a reduction. Let's say you could save yourself a further £250 a year by changing to cheaper providers and paying more efficiently. This makes an annual saving of £3,784 which is £72 per week toward debt reduction.
Taking control of your spending does not mean changing your lifestyle. It just means that you are more aware and cautious of the way in which you spend. Spending habits build up over years and can be hard to break but understanding what you are doing and how you spend your money gives you more control over your spending.
• Bryan Jackson is a corporate recovery partner with accountants and business advisers PKF
The full article contains 750 words and appears in The Scotsman newspaper.
