SCOTTISH FAMILIES are feeling the financial squeeze as prices rise and the economy falters. The Consumer Prices Index (CPI), the government's preferred measure of inflation, jumped to 3.8% last month, surprising economists who had predicted a rise to 3.6%.

Inflation was pushed so high by the spiralling cost of food - up 9.5% - and soaring fuel prices didn't help either. The average price of petrol rose by 5.3 pence a litre during the month. Some economists now expect inflation to top 5% by the end of the year, although a more conservative figure is closer to 4%.

The spike in inflation made it impossible for the Bank of England's monetary policy committee (MPC) to cut interest rates at its meeting earlier this month, so the base rate is stuck at 5%.

Higher rates and prices put the squeeze on household budgets, so people spend less. And the consumer slowdown is taking its toll on the economy, with talk even turning to a recession.

All the bad news has caused a slump in the stock market. The FTSE 100 index of Britain's biggest companies officially entered "bear market" territory in the middle of the month as it dropped by 2.7% to 5261.6 - almost 22% below the peak in October. The FTSE 250, which is arguably a better reflection of the UK economy, has been a bear market for several months. It has fallen more than 20% this year and is about 30% below last summer's record high.

So can ordinary families survive the slowdown? Matthew Cox of Skipton Financial Services says: "It is never too late to take steps to recession-proof your finances. While we understand many people will be nervous about the impact of any possible recession, the fact is, with some basic planning, you can mitigate the effect on you and your family. People will spend 10 times longer planning a holiday than planning their finances yet only the latter will give their family long-term security and peace of mind. Now is not the time to be an ostrich and put your head in the sand - now is the time to adopt a battle-like mentality and do everything you can to protect yourself for anything the coming months might throw at you."

To help you avoid financial meltdown, the Sunday Herald has compiled an essential guide to surviving a recession:

HOUSEHOLD BILLS
The soaring cost of oil has pushed up energy bills. The typical energy bill in Scotland has gone up by about 12% over the past six months, according to figures from Moneysupermarket. But you can potentially save about £200 if you switch your supplier.

It's generally cheaper to opt for a dual fuel tariff, where you get both your gas and electricity from the same supplier. Online rates are also usually lower than standard deals. And pay your bill by monthly direct debit, otherwise you could be denied the best tariffs.

The easiest way to find the best energy deal is to visit a comparison website such as moneysupermarket.com, uswitch.com or switchwithwhich.co.uk.

Check your phone, mobile and internet tariffs, too. Again, a comparison website can help. Now is also a good time to cut out any financial waste. Do you really need all those extra TV channels or that expensive gym membership? Monthly subscriptions can take a chunk out of your budget and might not always be value for money.

If you want to trim your petrol or shopping bills, check out the websites www.petrolprices.com and www.mysupermarket.co.uk to find the cheapest prices in your area.

SAVINGS
You might not have much spare cash to put aside in these difficult times, so you should make sure your savings are working really hard.

If you can commit to saving each month, you can earn 7.49% in Barclays Bank Monthly Savings. Or you can get just over 7% in a fixed deal, but you have to be able to lock your money away for the term. West Bromwich Building Society is offering an EBond14 that pays 7.12% for two years. Or you can get the same rate for one year with Saga's Internet Fixed Rate Savings. If you want a more flexible account with easy access, try Bradford & Bingley's Internet Save Issue 3, which pays 6.51%.

Some savers are concerned about the safety of our big banks and building societies after the problems at Northern Rock. The government guarantees the first £35,000 in a deposit account, although there are proposals to raise the limit to £50,000. So, if you are worried about a banking collapse, don't put more than the current limit in any one institution.

Savers who are keen to beat inflation,should consider Index-Linked Savings Certificates from National Savings and Investments. The returns are linked to the Retail Prices Index (RPI) and are also tax-free. Leeds Building Society also offers an Inflation Buster Isa, which guarantees to beat RPI.

CURRENT ACCOUNTS
Banks were last week slammed by the Office of Fair Trading (OFT) for the complexity and lack of transparency of current accounts, which are not "working well for consumers".

Interest rates and charges that are difficult to understand allow the banks to rake in more than £8 billion from current accounts, or £152 for each account, according to the OFT.

They also inhibit customers from switching - only 6% of customers have switched current accounts in the past 12 months.

So don't become a statistic. It is relatively straightforward to switch current accounts and you can probably get a much better deal. Alliance & Leicester's Premier Direct Current account is a consistently good option, but you must pay in at least £500 a month and internet banking is compulsory.

The credit interest rate is 8.5% for one year on balances up to £2500. There is also a 0% overdraft for the first 12 months.

After 12 months, the 0% overdraft continues but a usage fee of 50p a day (up to £5 a month) applies if you use the arranged overdraft. The maximum overdraft limit is £2500.

MORTGAGES
It's not been easy for borrowers over the past six months as lenders have pulled a variety of mortgage offers and increased rates. But there are signs that the gloom is beginning to lift.

Nationwide last week cut the rates on some of its fixed and tracker home loans by up to 0.46 percentage points. Abbey, Woolwich and Northern Rock have also recently trimmed their rates. Some experts hope that others will follow and that the market will once again become more competitive.

If you can't afford to bide your time in the hope that rates will fall further, L&C Mortgages recommends a two-year fix from Newcastle at 5.95% with a £1598 fee, as long as you have a minimum deposit of 25%. If you prefer a tracker, Nationwide's two-year tracker rate is 5.68% with a £1499 fee. Again, the minimum deposit is 25%.

Borrowers with a 25% deposit who want to fix their rate for five years could opt for Newcastle's five-year deal at 5.95%. The fee is £1498. Or there's a lifetime tracker from HSBC that is available for remortgage customers with a deposit of at least 10%. The rate is pegged at 0.79 points above the base rate for the life of the loan, and the fee is £999.

SHARES
When the stock market starts to plummet, it's tempting to sell up and run. But now could be about the worst time to cash in your shares or equity funds. Instead, experts recommend that you hang on - close your eyes if necessary, but hang on.

Kate Warne, market strategist at Edward Jones, a financial adviser, says: "When share prices begin falling dramatically, it can appear that your only option is to sell in order to limit losses. We disagree. We suggest you ignore predictions of gloom and doom. Historically, markets have rebounded."

Some people even see the current market lows as a good opportunity to pick up some cheap shares. Henk Potts, equity strategist at Barclays Stockbrokers, says: "The credit crisis, decade-high inflation rates and record-breaking oil prices have generated an almost perfect storm of uncertainty over the past months. However, history tells us that storms pass and those who can look through the dark clouds to see the cheap valuation horizon may well turn the current misery into money over the next few years.

PENSIONS
If you have a pension, you are almost certainly exposed to the ups and downs of the stock market. But again, experts recommend that you ride out the current storm.

You might, however, want to find out if your fund offers a so-called lifestyle option, which gradually shifts your pension into safer investments as you approach retirement.

You could even get money for nothing by paying into a pension. If you are a higher-rate taxpayer aged 50 or over you could pay, say, £8000 into a pension and the contribution would be boosted automatically to £10,000 by basic-rate tax relief. You could then take £2500 (25%) immediately as tax-free cash and you would get a further £2000 of higher-rate tax relief when you filed your tax return. So, you would make an initial payment of £8000 but get back £2500 - and still be left with a pension fund of £7500.

CREDIT CARDS AND LOANS
Many people are relying on their credit cards to keep afloat, so it makes sense to pick wisely. Analysts at Moneyfacts have detected an increase in the number of card firms that have put up interest rates or charges over the past three months, but you can still find a good deal.

If you want to transfer a debt from an existing card, you will pay 0% on balance transfers for 15 months with the Virgin Money credit card. There is, however, a balance transfer fee of 2.98%. Or there's the Barclaycard OnePulse that charges 0% on balance transfers for 14 months with a fee of 2.9%.

The best deals for purchases include Capital One Bank's Platinum card at 0% until the beginning of October 2009. The Halifax All in One charges 0% on purchases for 10 months.

With all the cards, make sure you clear any debt before the 0% deal runs out, otherwise you will start to rack up interest charges.

Credit cards only really work for short-term borrowing. If you need a bigger loan over a longer time period, be prepared to pay more than you would have two years ago. In the summer of 2006, you could take out a personal loan with an interest rate of about 5.5%. Now the best deal is closer to 7.5%.

Michelle Slade, an analyst at Moneyfacts, says: "The demand for personal loans is likely to be increasing as more households look to consolidate existing debts. Lenders are tightening criteria and those who can get a loan are finding they have to pay a much higher price."