Analysis: Don't despair - six simple steps can cut your family's outgoings by a third

It is a sobering thought that so many people feel their personal finances are in such a perilous state. There are clearly many people who are in serious hardship.

In my experience, there are also a significant number of people who have the potential to cut their living expenses significantly - they just haven't taken cost reduction very seriously.

With a bit of time and careful planning, I would challenge most households to cut their non-core expenses by at least 30 per cent.

The first thing to do is to get a handle on exactly what your costs are.

A good starting point is your bank statement - review it in order to identify your biggest expenses.

Consult an adviser to see of big-ticket costs such as mortgage and insurance can be reduced.

Next comes the direct debits - it can be a big surprise how they all mount up.

It should be relatively easy to get rid of some expenses - for example, are you really getting value for money out of that monthly gym membership and do you really need the Sky TV subscription?

If you find your biggest bank item is "cash", you need to find out where that is going. Make a note of all your cash spending for a seven-day period - it would be unusual not to be able to shave off at least 30 per cent of those expenses.

Easy targets for cutting costs are things like eating out, coffees, after-work drinks and bus fares. Just deciding to walk rather than take the bus could save you 40 or 50 a month, while cutting out your daily latte could save another 50. Cutting down on these things could help improve both your health as well as your wealth.

The biggest expense for many people is servicing debt, either in the form of a mortgage or credit cards and loans. Now is a good time to review the cost of that debt. Mortgage rates are at an all-time low and it may be worth taking advantage of one of the deals currently available.

If you have let credit cards, store cards and/or personal loans mount up, you may benefit from consolidating these into your mortgage loan. You could save through much lower rates of interest, and therefore a much improved cash flow.

However, this should definitely be seen as a one-off event.

You need to beware of extending loans over long periods and therefore increasing the long-term costs.

Once loans are under control, take care not to let them build up again.

• Derek Smith is a financial adviser at Melville Hutchison Financial Management.