Unless you've been living in a cave for the last few months you can't really have failed to notice that things don't look great for the British economy. You've probably even heard the dreaded word "recession" bandied about. Indeed, the nation is bracing itself for its first recession in a decade.
You cannot have escaped the current focus on the emergency rescue of US investment bank Bear Stearns and the problems the US is encountering in its fight with recession.

Ever since the Northern Rock crisis and the signs of a troubled economy, a quarter of all UK consumers have become more concerned about their finances and, understandably, their confidence has been shaken. But this latest development is an opportunity.  The trick is to harness this heightened awareness and to do something positive, like overhauling your finances, budgeting effectively, and investing your money in a way that makes it work smarter for your needs.

Credit has been so easy to come by in recent years that we are now submerged in a huge 'debt culture'. This has led many of us to 'buy now, pay later' while often disregarding how affordable whatever we want is. In an attempt to avoid debt, consumers need to  change towards the “save now, buy later” mentality. You need to understand your financial position before you can improve it. A good place to start is your credit report. This is the personal history of the credit you have, such as credit cards, loans and mortgages, plus your repayment record, including any court judgments against you.

Check all your statements from bank and building society accounts, credit cards and loans so you can see where your money is going - and where you can use it better. File them carefully and make sure every month that there are no double or missed payments.

Did you know that the incidence of hidden charges has gone up? Banks count on people not to check their credit card and bank account statements every month for a reason. The chances are that you have been charged for using an ATM that you thought was free or for using your credit card to buy foreign currency. There are 101 other hidden charges that can be levied against you as well. With lower profits in recent months, banks will look to hidden charges to re-boost their profits and hidden charges are perfect for that purpose when you’re faced with a credit crunch.

Taking these few simple steps will raise awareness about your spending habits and allow consumers to take control of their own financial futures by assessing  their current financial health and, crucially, not take on additional credit they cannot afford.
 
Research shows that many people who owe money on their credit cards are also saving for a rainy day. It makes little sense to have a stash of money earning interest at six per cent a year when a pile of debt is burning a hole in our finances at 15 per cent annually. If you have savings, use them to pay off your credit card debt.  However, don't use more than 50% of your savings as you need to keep some in reserve for the unexpected emergency.

If you don’t have savings but do have credit card debt, switch to a ‘life of balance’ deal where all the debt moved stays at the cheap rate until it’s repaid. Pay off as much as you can each month and don’t use this card for spending.

Hundreds of thousands of indebted Britons are at risk of losing their homes
if they fall behind on their credit card and personal loan repayments after
moves by the high street banks to protect their weakening balance sheets.

Save as much as you can afford to give yourself a cushion against any future difficulties - hope for the best, plan for the worst, As we're faced with the prospect of an economic downturn, the best thing you can do is to build up an emergency fund as a recession tends to go hand-in-hand with job losses. By boosting your savings you'll be prepared to weather whatever storm a recession may bring. Savings deals are getting more attractive, though it would be wise not to put more than the £30,000 covered by the Financial Services Compensation Scheme in any one bank. Almost certainly, longer-term rates will continue to fall for the rest of the year and probably into 2009. So if you have cash you can lock away for a year or two, act now to secure a decent interest rate.

Many banks are now promoting very short-term fixed-rate bonds with terms of just a few months. But you gain little benefit from using one of these fixed-rate accounts instead of an instant-access savings account. If interest rates falls and your bond matures in August, what rate will you get then? Almost certainly a lot less than you get today.

If interest rates are set to go falling - and all the evidence is that they are- then you will do better to lock in an attractive rate for two or three years.
Bank online! An ICM poll from Abbey found that nearly 40 per cent of those who bank online found they were saving more money. They were better able to determine when to tighten their belts and when to tuck away any extra in savings.

Energy bills have risen 60 per cent in the last five years. There are around 230 gas and 160 electricity tariffs on the market, yet almost half of us never shop round for a more competitive deal. ‘Switching to the best deal for your energy consumption could save you as much as £320 each year,’ says Michelle Slade from Moneyfacts.co.uk.

So grab the consumption figures off your last bill, find out what tariff you’re on and see how much you could save. Run your details through at least two comparison sites to get a fuller picture. Start with these basic money-saving measures and steer your finances away from stormy waters.

It’s  time to batten down the hatches because alarm bells are ringing as house prices have started to fall after several years of robust growth , so it's understandable that negative equity is a big concern if you have just bought your house.  Negative equity  -  where you owe your mortgage lender more than your home is worth - is no joke in a falling market. This has led many new homeowners to fear they could be faced with a bleak choice between being stuck where they are, on one hand, or selling up at a loss, on the other.

Whilst the market is a bit tricky, you’re not likely to re-mortgage unless you have to. If your existing fixed rate, capped or discounted deal is coming to an end in 2008 or you are on your lender’s standard variable rate - that means you! Talk to your existing lender first -it could result in a better deal for minimum effort.

With stricter lending criteria and increasing application fees, switching is unlikely to be cheap this year. For impartial information, use the Financial Services Authority’s own comparison site (Money Made Clear) to compare deals. Also seek advice from an independent mortgage broker. Remember to weigh up the cost of any exit, valuation and legal fees against the potential savings.

Don’t forget, if you have a flexible mortgage that allows you to make overpayments when rates are dropping, you should be able to take a payment holiday if things get tough.

Helen says: Treat your money like your shopping - always look around for good deals, and most importantly make financial cutbacks and minimise debt, This is the only way to guarantee you don't waste your money needlessly. As your finances go down the pan, it gets harder and harder to budget. However, when you pair that up with a credit crunch it becomes near on impossible. As the cost of living rises, you’ll find that your budget has to increase in proportion but if you don’t have the spare cash then it can put a real strain on your finances.