The best present to give this Christmas

It's 12 days until Christmas. Here are 12 steps to a richer future for you, your family and your friends.

Christmas can be tough if you're short of money. The solution is to be financially savvy throughout the year. So this Christmas, why not give a friend or relative the gift of financial knowledge and pass on lovemoney.com's 12 steps to financial stability? If your friends are shrewd about money throughout 2011, they could have a better Christmas next year.

So here are our 12 steps to financial stability and a better Christmas:

1. Pull together all your paperwork

If you're going to be financially wise, it's crucial you know what's happening with your money.

Find all your financial paperwork and put it in one place. Papers should include all your recent bills, your bank statements and your payslips. Yes, this is boring stuff, but it's the first step towards gaining power over your finances!

2. Keep a spending diary

Keep a record of all your spending for at least a week. Right down to a Mars bar or an apple. You can do this using the online banking tool at lovemoney.com. If you register your accounts, every time you make a purchase – no matter which bank account or credit card you use – the tool will record it for you, and then allow you to categorise all your transactions so you know exactly what you're spending your money on every month. Alternatively, just make a note of everything you spend on paper.

Once you've done this, you may be surprised and spot some simple opportunities to cut your spending.

If you spend less money on sandwiches in March, you'll have more money for Christmas presents in December.

Rachel Robson highlights five easy ways to master the art of budgeting.

3. Do a full 'statement of affairs'

With your paperwork and spending diary, you can see how much money you've got coming in each month and how much is going out. Now tot up your debts and any savings you may have. Don't include your mortgage in your debts.

Are your debts bigger than your savings? Or are you in the black with more savings than debt?

You've now completed your statement of affairs. Well done! You're well on the way to building financial stability in 2011.

4. Make sure you're not growing your debt

If you're spending more than you earn, that needs to change! Try and make cutbacks where you can - thanks to the budgeting tab on our online banking tool, you can now set a monthly budget for any specific category (such as petrol and fuel). This will allow you to track your progress through the month against the budget you set.

If you really can't cut your spending, then consider ways of boosting your income. Could you get some overtime at work? Or how about a second job? Sure, a second job can be tiring but think how much fun Christmas 2011 would be if your finances were under control.

5. Don't let debt become a disaster

If you've got more debt than savings, try and change that. Reduce your spending and increase your income. The money you save can go towards paying off debt.

If you're weighed down with a massive debt mountain, don't despair. You can great free help from one of three organisations: National Debtline, Consumer Credit Counselling Service, or Citizens Advice.

Any one of these groups can help you turn things around. You may be able to negotiate deals with your lenders where your monthly repayments are reduced and interest may be frozen. The crucial point is: don't delay! The earlier you take action, the less painful things will be.

6. Learn to love your bills

Make sure you read your bills every time. And if something doesn't look right, follow it up. Mistakes are often made and you may be able to claim a refund. That money can then go towards your Christmas spending.

Also regularly check that you're getting the best deal. Is your mobile phone tariff still the cheapest on the market? Could you get a better deal on your gas and electricity? The average UK household spends more than £1,000 a year on gas and electricity - you could knock £200 off that sum if you've never switched suppliers before.

7. How to borrow best

If you're borrowing money, it's really important that you go for the lowest interest rate you can possibly get.

The cheapest way to borrow is a 0% balance transfer credit card. Transfer your debt to one of these cards and you won't pay any interest on the debt for up to 16 months. That means all your repayments go towards your debt and you're not wasting your money on sky-high interest rates, (although you will have to pay a balance transfer fee - often around 3%). Switch a £2,000 debt from an average card to a 0% deal, and you could save as much as £600 over a year.

Trouble is, the credit card companies won't issue 0% cards to everyone. They'll look at your borrowing history and if they think you're too risky, you won't get a card.

The next best options are a low APR credit card or a personal loan. If you have debt on a normal credit card, you could be paying interest of 18% or more. If you can get a market-leading personal loan, you'll be paying less than 8%.

8. Shop smart

If you want to cut your spending, shop smart! If you're buying food, use a site such as mysupermarket.co.uk to compare prices at the different supermarkets. Then go to the cheapest store. Or buy your groceries from the cheapest store online!

When you want non-food items, use shopbots like Pricerunner.co.uk or Kelkoo.co.uk to find the best price. Then if you're buying online, you could get a promotional voucher code that will get you more money off. Check out sites like wantacode.com, myvouchercodes.co.uk and piggy-code.co.uk.

Cashback websites are another way to make things cheaper. Find a cashback website that is affiliated to the retailer you want to buy from. Then you can get cashback on all your transactions with the retailer. The best known sites are quidco.com, topcashback.co.uk and GreasyPalm.co.uk.

Rachel Robson highlights four ways to save money as you shop!

By shopping smart, you can save a bit of cash you could use at Christmas next year.

9. Get help from others

Sorting out your finances can be a lonely and thankless task. Wouldn't it be great to chat to other people about money? Then you could swap experiences and pick up tips.

Well, that's where lovemoney.com comes in! If you've got a burning financial query that you just can't answer, visit our Q and A tool. It's really simple. Just ask a question and some of your fellow lovemoney.com users will probably reply with some great advice. lovemoney.com's in-house experts also answer queries sometimes.

10. Saving for next Christmas

So we've looked at how budgeting and using the right financial tools can help you find extra cash. You can then spend some of that cash at Christmas 2011. But what do you do with the cash before you spend it?

Well, many people have traditionally put spare cash into Christmas savings clubs. But we don't recommend that. For starters, one club went bust four years ago and savers lost most of their money. What's more, most clubs don't pay any interest.

You're much better off putting money into a normal savings account. Right now, the best instant access accounts are paying around 3% interest. That may not seem like much, but it's still extra cash and you'd be nuts to turn it down!

You can get an even better return on your savings if you shelter them from tax. You can do this in a cash isa. This tax-year, you can put away £5,100 in a cash isa. Next year, everyone can shelter £5,340. And you won't have pay any tax on the interest!

11. Buy Christmas stuff in January

Another way to have more fun at Christmas 2011 is to buy Christmas stuff in the January sales. You could pick up some great decorations and presents on the cheap and then pull them out to use eleven months later.

12. Have fun for free!

A great way to save money is to take the free approach to life. Try to pay for as little as you can.

Hot UK Deals is a great site with a section dedicated to free stuff. You could find out about free film screenings, free music, even free software! Freebielist.com is another great site packed with free booty. Other good sites include British Freebies and Bob's Free Stuff Forum.

If you're looking for things to do, visit free-events.co.uk. Whatever the time of year, there are free events going on which can entertain you and your family - festivals, parades, fireworks and more. Even if you're not spending much money, you can still have fun!

Hopefully these tips will help you build a financial platform for a great Christmas in 2011.

This is a classic article that has been updated for 2010.

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