In principle, interest rates and inflation can be viewed as being the two opposite ends of a see-saw. If interest rates go up, the cost of finance rises and savers get more for their money, if people have less inclination to spend, then there is an incentive for sellers to lower prices and hence lower inflation. The reverse is also true. That is, of course, a very simplistic explanation in that, in the real world, there can be many other factors at play, for example if demand for an item is high and supply limited, then raising interest rates may actually cause prices to increase as supply-side costs go up and demand stays high. The ideal level of inflation Inflation actually serves a useful purpose in that it acts as a call to action. Basically people know that if they put off making a purchase, there is a good chance that the price will increase. At the same time, however, if prices increase too quickly, then all kinds of problems can ensue. The Weimar Republic in 1920s Germany was characterised by high inflation, which meant that money became worthless almost as soon as it was printed. The opposite of inflation is deflation, which is when prices fall. Deflation has a similar effect to raising interest rates and was one factor in the Great Depression of the 1930s in the U.S.A. Basically although the headline cost of a purchase was reduced, the cost of paying for any finance needed to buy it effectively increased (by much more than the official rate of interest), making it significantly more expensive. At current time, the UK government aims for a continuous inflation rate of 2% and the Monetary Policy Committee of the Bank of England is tasked with managing this. How does the Bank of England manage inflation? The Monetary Policy Committee meets 8 times a year and decides what action to take, if any, to keep inflation at the government’s 2% target. They have two tools at their disposal, interest rates and quantitative easing. Interest rates can be used to influence inflation regardless of whether it is rising or falling. Quantitative easing only comes into play where low inflation/deflation is a concern. Essentially quantitative easing is when the BoE literally increases the supply of money and uses this “new money” to buy assets, typically government bonds. Increasing the supply of money reduces its value and therefore has a similar effect to lowering interest rates. Both the UK and US administrations have made use of QE in recent years, most notably after the financial collapse of 2008. What is likely to come in the near future? At this point, there is very little scope to lower interest rates any further (unless the BoE shows itself willing to go down the path of zero or negative interest rates). That being so, if inflation shows signs of dropping below the 2% target, the UK could see another round of QE. By contrast, if inflation increases, then the BoE, in theory, has plenty of scope to raise interest rates. The challenge to them is the fact that doing so would impact mortgage holders rather than simply reining in consumer spending. This could place the BoE between a rock and a hard place, but since its target is to keep inflation at 2%, it would have very little choice but to raise rates, unless the government agreed to waive the target. One factor which could suggest a rate rise might be on the cards sooner rather than later is that a weak pound increases the cost of importing goods and sellers may seek to pass this increase onto the customer (as the makers of Marmite tried to do). If they did, this would push inflation upwards and increase the likelihood of interest rates being raised.

Saving money probably ranks right up there with joining a gym in people’s lists of New Year’s Resolutions, hopefully though now we’re in February, that determination hasn’t faded. The good news is that there are lots of ways to go about saving money which are much less effort than sweating it out in a gym. Here are 7 of them. Write down your savings goals and put them somewhere very visible Admittedly this isn’t a money-saving technique per se, but it can help to keep you on track. It can be a whole lot easier to take action to save money when you can see how it helps to move you towards a goal. You could even create tickboxes and/or a graph to track your progress. Downsize your mobile Think hard about how you really use your mobile and what you actually need before buying a new phone at all and if you do decide you need an upgrade, look carefully at how to get the best value for your purchase. You may very well find that buying a mobile yourself and going for a SIM-only deal, or even PAYG, works out cheaper (and more flexible) than taking out a new (2 year) contract. Buy a water filter (and a SodaStream) This one depends on where you live but if you’re one of the many people in the UK who lives in a hard-water area and you are currently buying bottled water because you find it more pleasant to drink, then ditching shop-bought water for home-filtered water will be good for both your wallet and the environment. Regardless of where you live, if you like bubbles in your water then a SodaStream will add them at home, saving you money and cutting down on plastic. Rationalise your coffee If you really want to save money then ditching coffee-shop coffee for home-brew is the best way to go. If, however, that’s one step too far for you, then at least ditch the takeaway cups (which, generally speaking, are neither recycled nor recyclable, in spite of what may people think) and take your own to a shop which offers a discount to customers who bring their own mug. Take advantages of libraries (going digital) Again this will depend on your habits and where you live, but if you like reading then save space and money by only buying your favourite books to keep at home and picking up casual reading from your library. Some libraries are now also offering the opportunity to borrow ebooks and digital audiobooks (as opposed to the ones on CD). Many libraries also offer a selection of audiobooks on CD, music CDs and DVDs. Why buy them when you can borrow them for free? Ditch the gym membership (and buy a bicycle and/or some workout DVDs) If you really are going to the gym regularly and it’s the only practical way for you to practice your favourite form(s) of exercise and/or you really enjoy the social scene, then fair enough. If, however, you’re paying a monthly subscription for facilities you hardly ever use then it’s time to stop kidding yourself and ditch it. Instead of spending money on a gym subscription, you could buy yourself a bicycle, which could also provide some handy transport and/or some workout DVDs. Do more cooking Take a look at the price of a basic sandwich such as cheese or egg mayonnaise. Then think about how much the ingredients costs (even at retail prices, before volume discounts). Yes, there will have been a cost for labour, but making a standard sandwich is hardly a highly-skilled job and yes you’ll have to add on a bit for packaging and transport, but even so, it’s hard to avoid the impression that shop-bought sandwiches are usually extremely expensive for what they offer. Similar comments apply to ready-meals and other convenience foods.

There’s a lot of plus points about being in paid employment and there’s a lot of plus points about self employment. It would be nice to say that which one you choose should be a matter of preference, but these days job-market forces mean that it can be a wise move to be at least prepared for the prospect of having to earn a living on a self-employed basis, even if it’s not something you would want to do over the long term. So what does this mean in practice? Less debt equals more options This is arguably very true in any and all areas of life, but is a crucial point for the self employed and, in particular, for those who have only recently become self employed. Not to put too fine a point on the matter, lenders prefer people who have reliable incomes over people who may or may not have any income at all from one month to the next, which is a risk of self-employment. Therefore, if you are currently in a job, paying down debt as quickly as possible, particularly high-interest debt such as credit-card debt, should probably be a priority in any case and all the more so if there is any possibility of you going self-employed. The mortgage question If you bought a home recently then you will probably already have experienced the stringent checks carried out by lenders, which are intended to ensure that you can make your repayments over the long term, regardless of lifestyle changes. Those with mortgages should think particularly seriously about making the jump to self-employment and should ideally have a substantial cash cushion. Those who’ve had their current mortgage for some time may wish to look and see if they can get a better deal now, while they are still in employment and potentially go for a fixed-rate deal so that they can budget consistently or look at options such as “offset mortgages” which allow for greater payment flexibility. Renters might want to think long and hard about buying a property at the same time as going self-employed, but if you are absolutely sure this is the right route for you, then it is usually best to secure your mortgage while still in employment. Pensions As a self-employed individual, you will not get access to a workplace pension at all, let alone one into which your employer makes extra contributions. If you are transitioning into self-employment from work then you may want to make the most of your workplace pension scheme while you still can and also, potentially, start making some form of retirement provision outside of work. Once you are self-employed, there are various ways you could approach retirement planning, of which a private pension is just one. Because of this and because of the importance of making the right decision for you and your personal situation, it could be a very good idea to get some professional advice here. Insurance There are basically two aspects to insurance for self-employed individuals. One is insuring yourself, so that you and your loved ones can manage in the event that your ability to work is impaired for any reason. The other is double-checking that your possessions are adequately insured given your new circumstances and the fact that, particularly in the early years, you are likely to find it more of a challenge to take out credit. The first point includes looking at options such as medical and dental insurance, income-protection insurance and critical-illness cover. The second includes points like double-checking that your current home insurer is fine with you working from home (if this is your plan) and considering taking out pet insurance (if you haven’t already) to ensure that a vet’s bill can be paid even if you’re in a lean period. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Predictions are a tricky business, but at this time of year, they’re pretty much obligatory. So with that in mind, let’s take a look at what could be in store for the housing market over the year ahead. London switches to rentals? At this point in time, Article 50 has yet to be triggered. When (if) it is triggered, then the UK should have up to two years to negotiate an exit deal, although in principle this period could be extended if all parties are in agreement. Only once this is agreed can the UK begin the actual practicalities of exiting the EU and discovering what life is like outside it. In other words, it’s probably safe to say that there is going to be a lot of uncertainty in the UK over the next few years and in spite of the phrase “safe as houses”, uncertainty and the commitment of a mortgage could be an uncomfortable combination. While this applies throughout the UK, the high prices in London (and its commuter belt) combined with the possible impact to the financial-services sector could feasibly motivate people to postpone plans to buy or even to move from a property they own into rental property to become mortgage-free and to give themselves maximum flexibility in a post-Brexit situation. Buy-to-let becomes consolidated? After the Mortgage Market Review of 2014, the Prudential Regulation Authority has now brought in a stress-test for landlords which mandates that lenders must ensure that Buy To Let (BTL) landlords must be able to afford their mortgages if interest rates reach 5.5% unless they have a fixed-rate which lasts for at least 5 years. Lenders must have this on place by 1st January 2017. This comes on top of recent changes to stamp duty and mortgage tax relief. It’s still early days, but one potential result of these changes is that small-scale BTL landlords exit the BTL market, possibly to invest in property through some other vehicle, such as commercial property or investing in property developers. This could then create a buying opportunity for larger investors, particularly those operating through limited companies. Investors with cash go bargain hunting? The Bank of England (BoE) is tasked with keeping inflation at precisely 2%. If inflation drops below target then, in theory at least, the BoE could drop interest rates even further (it is possible to have negative interest rates) or they could use quantitative easing to try to encourage growth. If, however, inflation rises, then the BoE only has the tool of interest rates to try to bring it back under control. This means that either the government would have to raise the inflation target to allow interest rates to be kept low or the BoE would be forced to raise interest rates to put a brake on inflation, even though this could lead to disruption in the housing market. Higher interest rates make mortgages more expensive. This means that even if home prices remain static, property overall becomes less affordable to buyers who need a mortgage. It also means that home owners with an outstanding mortgage need to allocate more of their total income to servicing their mortgage, leaving them with less money for other purchases. People who are already stretched may therefore look to sell their current home and look for somewhere cheaper, such as a smaller property or a property in a more affordable location. This could create a buying opportunity for investors with cash to spare. International investors could be in an even stronger position if the pound is weak in the currency markets, since this would make property even cheaper relative to their home currency. Your home may be repossessed if you do not keep up repayments on your mortgage

As another January rolls around, it’s time for the New Year’s resolutions list. This is therefore generally the time when there are articles full of helpful suggestions for resolutions you could make. In the real world, however, we generally know what resolutions we should make. In fact we often make them. The problem, however, tends to relate to keeping them. So, let’s look at ways you can give yourself the best chance of sticking with your resolutions throughout the year. Make resolutions meaningful in the real world Let’s take a fairly common financial resolution – save money. The first question is: “Why do you want to save money?”. There are lots of potential answers to this from retirement, to a home deposit, to the holiday of a lifetime. Once you have stated your savings goal, you can get a realistic idea of the amount you need to save, which then leads into creating a feasible savings plan over a realistic time frame. This turns an abstract idea into a way to finance something you really want and that has meaning. Pay yourself first (and automatically) If you’ve set a realistic budget then treat savings and investments in the same way as you probably treat paying your bills. Prioritise them and automate them. Set up direct debits so that the income you’ve allocated to saving and investing goes straight where it is supposed to go. Make sure that you have an instant-access savings account so that if you do make a mistake, or if a genuine emergency arises, you can bump up the level of your current account. Set yourself milestones Another advantage of connecting your resolutions to your goals is that it gives you the opportunity to recognise and celebrate progress. This could be when you make a purchase using money you’ve saved rather than taking on debt, or when you’ve achieved a percentage of your savings target. Recognise your achievement in some way, even if it’s just ticking off a box on a savings chart. Make your resolutions public Making your nearest and dearest aware of your resolutions has two advantages. Firstly it helps to keep you on track. You’ve published your goals and there’s a good chance your family and friends are going to take an interest in them and ask you about them, which will help to keep you on track. Secondly, it will help them to understand any changes in your habits. For example, if one of your resolutions is to save money, then you may well need to make changes to your current lifestyle. Making those close to you aware of this can help to smooth that process. Keep tracking your progress and be prepared to make changes

Everyone knows that New Year is a time for resolutions and hence it’s a time when the internet becomes filled with articles suggesting what resolutions you should make. In the spirit of being a little different, however, we thought we’d suggest a few resolutions to avoid – and why. Cut up the credit cards We’re glad you’ve realised that credit cards can be damaging to your financial health, but cutting them up and swearing never to use them again is actually throwing out the baby with the bathwater. First of all, credit cards can be a lifeline in an emergency. Yes, it’s better if you have enough savings for an emergency but if you don’t credit cards been other options, like payday loans, by a long margin. Secondly having a credit card means you can avoid putting your debit card details on the net. Having a credit card compromised is an unpleasant experience, but having to change your entire bank account is probably a whole lot worse. Thirdly, even without any added perks, credit card purchases of over £100 are subject to extra protection under section 75 of the Consumer Credit Act. This is in addition to the chargeback schemes run by card companies themselves. Finally, for better or for worse, credit scores matter. In addition to helping determine if you get accepted for credit at all, let alone at what rate, they can also be checked by landlords and employers. Pay down debt Now this may seem like a bit of a strange comment, so let us explain. Rather than just deciding you need to pay down your debts, you need to take a long, hard, look at your current financial situation and determine: • What debts you have • What kind of debts you have • How you acquired these debts • What savings you have in place If you have no savings at all, then counterintuitive as it may seem, it may actually be in your best interests to work on building a cash cushion first, before you really start to tackle your debts. That way, you’ll be in a much better position to deal with life’s slings and arrows without resorting to more credit – assuming you’re in a position to get it. Once you have this in place, you need to look at what debts you have an how much they are costing you. Then look at what kinds of debts they are and why you acquired them. For example, racking up credit card debt due to an expensive holiday is very different from having a mortgage to pay off. At that point and only at that point, can you start to tackle high-interest consumer debts such as credit card debts. Start with the highest-interest debt first. For lower-interest debt, such as mortgages, a bit more judgement is called for. If you’re confident of your ability to pay off your mortgage over the long term, then you may wish to look at investing your disposable income for better returns over the long run, for example, by paying extra into a pension scheme. If, however, you are less confident about this, then it may be better to pay as much as you can into your mortgage so that you are in a better position if your circumstances change and if you are really unsure about your ability to manage your mortgage over the long term, you should, perhaps, look at renting. Save for a rainy day The UK has lots of rainy days, how much money will you need to cover them? Having cash savings does have a lot of benefits and it’s generally a good idea to have some. Just shoving your money into a savings account, however, could see you miss out on better investment opportunities. Think hard about how much money you feel you need, in your situation, as a cash cushion for foreseeable expenses and emergencies. Once this is in place, however, ask yourself seriously whether cash savings are still your best option. If necessary, get some professional advice on this.

As the old saying goes, “If something seems too good to be true, chances are it probably is.”. Anyone tempted to try using creative financial transactions to reduce a tax bill should write out this sentence in big, capital letters using a thick, colourful pen and pin it somewhere clearly visible. There are plenty of legally-acceptable ways of reducing the amount of tax you pay, ISAs are one obvious example of this. The Inland Revenue, however, understandably takes a dim view of people taking advantage of what could be called grey areas in tax law. It tends to pursue these rather vigorously and it does so on taxpayers' money, while those it pursues generally have to fund their own legal bills. Hence, in very blunt terms, there is no real penalty on HMRC if it loses a case, whereas a taxpayer who loses a case faces a hefty legal bill in addition to the original tax bill. As well as this, when there is a dispute between HMRC and a taxpayer (be it a company or a private individual), the Inland Revenue can insist that any money it claims is owed be paid to it upfront on the understanding that it will be returned if the individual in question wins their case. In fact, under certain circumstances, HMRC can actually take money directly out of people's bank accounts. In very simple terms, therefore, HMRC have a lot of power and have had a lot of practice in using it. Hence, buy-to let-landlords (and indeed anybody else), should think very careful about engaging in any sort of activity, which could feasibly incur their displeasure. Buy-to-let landlords should also be aware of the fact that buy-to-let is a controversial topic from a political perspective. This could potentially mean that HMRC would be encouraged to pursue buy-to-let landlords for political reasons, even if, economically, there were far more compelling targets. Taking all this into consideration suggests that buy-to-let landlords would be well advised to proceed with caution when it comes to the new “buy-to-let loophole” being publicised in the mainstream media. In this scheme, landlords set up a limited company to own their property. Instead of claiming mortgage tax relief, now at 20% for all buy-to-let landlords, including higher-rate tax payers, landlords pay corporation tax at 20% instead. In addition, they can offset reasonable running costs (including mortgage payments) against tax. There is, however, a price to be paid for all of this, which is that buy-to-let landlords have to go through the expense and hassle of setting up the company in the first place. Buy-to-let landlords may also find that it actually increases some of their expenses, particularly mortgage expenses since lenders will assess companies differently from private individuals. Some lenders may not even offer mortgages to companies. There is, however, an even more sophisticated version of this scheme in which landlords create a “beneficial interest company trust”. The trust holds the beneficial interest in the property on behalf of the company. All income from the property goes into the trust and hence is treated as corporate income (20% tax), but the landlord continues to own the title to the property. Hence there is no need to re-mortgage. There is, however, a great need to remember that it is illegal for individuals to transfer personal assets into a company solely for the purpose of avoiding tax. In case of dispute the onus would be on the taxpayer to show that there was a commercial basis for their action (other than its tax benefits) rather than on HMRC to show that the taxpayer had deliberately acted to reduce their tax bill. YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

The chancellor has spoken and we now know where we stand, at least for the next 6 months (until the full budget). Possibly the most surprising news from this Autumn statement is that it was the last of its kind and next year’s Spring statement will likewise be the last ever. From now on the UK will have annual Autumn budgets and make Spring statements. The least surprising announcement was that the proposed rise to fuel duty has been scrapped. Given that this is the 7th consecutive year the government has frozen fuel duty, this was probably widely expected, but will still probably be welcome news to many people, particularly those who travel frequently. The rest of the budget was arguably a mixed bag. Here is a summary of the three most important areas. The Economy It’s understandable that debate on the economy was overshadowed by Brexit, particularly since, at this point in time, there now seems to be a question mark over whether it will actually happen at all, let alone when and how and what effect it will have. Philip Hammond, however, is essentially obliged to work on the basis that it will and is therefore proceeding with caution. The government has ended its commitment to return to a budget surplus by the 2019-2020 financial year. Instead debt will rise and is forecast to peak in 2017-2018. Personal Finances Pensioners may have raised their eyebrows at the chancellor’s commitment to maintain the triple lock system for this parliament. The triple lock system refers to the practice of increasing the state pension in line with average earnings, the consumer price index or 2.5%, whichever is highest. While it is undoubtedly reassuring to pensioners, it is also expensive and was recently criticised by the Work and Pensions Committee as being both unsustainable and unfair. The fact that Philip Hammond set a deadline on this commitment may be a hint that the government will look to drop it in the next parliament. Interestingly Philip Hammond also suggested a new bond for savers of all ages, paying 2.2% interest. No further details of this were given, but at first glance it sounds like a similar idea to the “pensioner bonds” of 2015 and may be intended to cushion the blow of removing the triple-lock guarantee. For working adults, the chancellor raised the National Living Wage (formerly known as the minimum wage) to £7.50 (from April 2017). He raised the income tax threshold to £11,500 (also effective next April) and committed to raise the higher rate threshold to £50,000 by the end of this parliament. At the same time, he removed the tax benefits on salary sacrifice/benefits in kind schemes, but notably exempted schemes relating to childcare and pension saving along with schemes linked to ultra-low emission cars and the cycle-to-work scheme. Infrastructure The headline-grabbing announcement that the taxpayer would fund repairs to Buckingham Palace was made before the budget and Philip Hammond was also notably silent on the matter of repairing the Palace of Westminster (otherwise known as the Houses of Parliament). He did, however, manage to find a relatively modest £7.6 million to fund repairs to Wentworth Woodhouse, known to Jane Austen fans as the probable inspiration for Mr Darcy’s home of Pemberley. He also committed £2.3B to provide 100,000 new homes in areas of high demand as well as £1.4B for 40,000 affordable homes. The chancellor also promised almost £1.5B to fund various transport projects. The vast majority of this went to improving local transport networks in England with £220M to combat traffic pinch points and £110M for East West Rail. The digital economy was not forgotten with a commitment of £1B to improve broadband access. This is in addition to 100% business rate relief for spending on new fibre infrastructure.

Payment cards have been around for decades now and have transitioned from being read on manual imprinters and validated by signature to being read from a microchip and validated (generally) by PIN. They have now moved into the next stage of their development and can now support contactless payments in which customers literally just tap and go. At the same time, mobile operators and handset makers have caught on to the fact that smartphones are an essential part of everyday life and are attempting to use them to get into the payment market. Apple has launched ApplePay and its Android counterpart is known as Android Pay (although Android giant Samsung has its own version of it called Samsung Pay). The basic idea behind them is the same as for contactless payments, consumers just tap and go. While this is indisputably convenient, questions have been asked about whether or not it offers the same sort of level of security as chip-and-PIN (or signature) transactions. Contactless and mobile payments cannot be as secure as chip-and-PIN payments In the most basic of terms, the short answer is no. There is simply no way a form of payment, which removes the need to verify the identity of the cardholder can be as secure as one which does. A more relevant question, however, is whether or not contactless and mobile payments offer enough security for their intended purpose. Contactless and mobile payments are intended for low-value transactions Contactless and mobile payments are being promoted as a way to speed up high-volume/low-value transactions at places such as fast-food outlets, coffee shops and such like. Basically they are being presented as being a win for both merchants and cardholders neither of whom are likely to enjoy dealing with queues. At current time, the limit for contactless transactions is £30 per transaction and card-issuing banks are able to set their own limits regarding, for example, how many contactless transactions are permitted before the card has to make a chip-and-PIN transaction to confirm that it is being used by the legitimate cardholder. Mobile payments work along similar lines and can offer an additional level of security through the fact that access to the relevant service requires access to the mobile handset, which can be secured through various means, for example Apple now has a level of biometric authentication with fingerprint recognition. Dealing with accidental payments and deliberate fraud Whether or not you class accidental payments on contactless cards as a security issue is a matter of opinion but it is a matter of fact that they can happen. Contactless cards and mobile payments essentially broadcast the relevant card details over a very short distance. This means that, in principle, if you happen to have one or more cards in the vicinity of a card reader, their details could be picked up and you could be charged. In this case, it might be possible to have the merchant cancel the transactions or use a chargeback scheme. There are also some wallets available which claim to be able to block the signal between the card and the reader, meaning that users have to take their cards out physically in order for them to work. As yet, it remains to be conclusively proven how efficient these are. This then leaves the issue of deliberate fraud. The consumer association Which? carried out a study, which indicated that it was technically possible to skim data from contactless cards and use them to make online transactions. These kinds of transactions would, in theory at least, probably be a matter for a chargeback scheme.

Budgeting is the skill of making sure that your pay lasts the whole month, ideally with a little left over. Nobody ever said it was necessarily going to be easy, let alone fun, but it’s essential for peace of mind. Here are five signs that you may need to work on your budgeting and why they matter. You frequently need to “borrow” money (or get other help) from family and friends Life happens and sometimes getting help from your nearest and dearest is the only option, sometimes it’s just a far more attractive option than getting a commercial loan. If, however, you find yourself regularly needing financial (or other) help from those close to you, then it’s time to look closely at your budgeting to see how you can put a stop to this, even if you are managing to pay the money back (eventually). If you’re becoming dependent on financial gifts, or not paying back loans, then you owe it to those you love and to yourself, to sort yourself out. Even if the people concerned can afford it, they need to take care of their own future and living to a ripe and happy old age can be expensive. You’re only making the minimum payment on your credit card(s) The minimum payment is a limit rather than a target. The longer you carry a balance on a credit card, the more likely it becomes that you could wind up paying more in interest than you actually borrowed in the first place. Even if it doesn’t get that far, the simple fact of the matter is that credit cards (and other forms of high-interest credit) are a really expensive way of borrowing money and should generally be paid off as quickly as possible. If you’re only making the minimum payment each month, then you need to take a hard look at your budget to see how you can increase the repayment. You continually find yourself relying on your overdraft Overdrafts can have their uses, particularly for those whose income varies from one month to the next, but ideally they should be used as safety nets for occasional emergencies rather than being used month after month. Another danger of relying on overdrafts is that an unforeseen expense or a bill you’ve forgotten could tip you into unauthorised overdraft, which often carries penalty fees and interest charges. A few of these can add up to become uncomfortably expensive. You have nothing left over at the end of the month Even if you don’t actually have any debt, even if, in fact, you do actually have some savings, running down to zero by the end of the month is generally best avoided if at all possible. There are many reasons for this. One of them is that if you have any sort of unexpected expense, then you’ll have to dip into your savings to pay for it and then how will you replace those savings? You’d be hard-pressed to say where your money is actually going The main purpose of budgeting is to make sure that you’re managing your money appropriately. Its usefulness is probably most obvious to those with little money who need to make sure that they cover all their essential expenses and see if they can possibly squeeze out a little extra to put aside for emergencies. It is, however, still useful for those on higher incomes for whom getting from one pay packet to the next is less of a concern. Basically you can only know whether or not you’re making best use of your money if you actually know where your money is going in the first place.

Whatever criticisms can reasonably be made about annuities, they do have one great benefit. They are simple. You make a one-time purchase in return for which you get an income for life. Unfortunately that income may not be anything close to what you hoped it would be. In recognition of this, the government brought in pensions freedoms, which essentially give today’s generation of retirees the ability to keep their pension funds invested and draw an income from them instead of having to buy an annuity. While this idea sounds attractive in principle, it’s worth thinking about whether or not it could feasibly work for you in practice. The background to pensions freedoms While none of the main political parties has yet to make any serious move to abolish the state pension, the fact of the matter is that it is a significant drain on government funds, particularly in view of longer life expectancy. With that in mind, there has been general agreement across the main parties, that people should be encouraged to save for their later years. The problem was that recent decades have seen a perfect storm in the pension market. Defined benefits (final salary) schemes have been largely eradicated from the private sector. Their place has been taken by defined contributions schemes in which the eventual pay-out is based on investment returns rather than pegged to an employee’s salary. The Equitable Life and Mirror pensions scandals shook confidence in private-sector and employer-based schemes respectively. To crown it all, the restrictive nature of annuities was a source of frustration for modern retirees, who wanted more flexibility than the product was designed to offer. In an attempt to push forward the principle and practice of individuals saving for retirement, the government offered new pensions freedoms designed to address the needs of today’s generation of pensioners. One of these freedoms was the ability to use a pension fund in essentially the same way as any other form of investment capital, with all the potential for risk and reward this entails. Having a right does not mean that it is a good idea to make use of that right With freedom comes responsibility. In this case, the responsibility for ensuring that a pension pot lasts a lifetime is shifted from the annuity provider to the private individual. Unless the person in question has a guaranteed income from another source, they are in essentially much the same position as a professional gambler. Their income is entirely dependent on the performance of their investments. Now, there are people who make a lot of money as professional gamblers but it is unarguably a risky profession and one which requires commitment in terms of time, energy and mental strength. Some older people may enjoy this slightly edgier lifestyle, while others may have alternative incomes (such as buy-to-let or income from part-time businesses), which mitigates the risk, but for everyone else the potential rewards on offer thanks to pensions freedoms has to be weighed up carefully against the potential risks. Older people also need to be aware of and realistic about their chances of succumbing to age-related conditions such as dementia and Alzheimer’s disease. What options are available? Arguably anyone with any sort of financial responsibility should have measures in place to ensure that their financial business can be managed easily in the event of their becoming incapacitated and wound up easily in the event of their death. Those entering the later stages of life should certainly take care of this while they are still able. They should also think clearly about the different stages of aging and be realistic about how they are going to cope with them. One approach might be to ease into retirement and to keep working to some extent in order to minimise the need for pension income, while keeping the pension pot invested and, hopefully, growing. They can then buy an annuity at a later date, when its simplicity becomes more appealing and the rate on offer is likely to have increased as the individual will be older at the time of its purchase. The value of investments and any income from them can fall as well as rise. You may not get back the amount originally invested.

The Markit/CIPS purchasing managers’ index (PMI) is a monthly survey which is eagerly watched by those with an interest in the financial health of UK PLC. This month, the August data for the crucial service sector showed healthy growth. A trampoline or a dead-cat bounce? As Harold Wilson is said to have remarked, a week is a long time in politics. It is now two months and counting since the historic Brexit vote and while the jury is still out on what that vote actually means in reality, in the real world of the high street and online, the dust appears to be at least starting to settle. The July data for the PMI showed a decline, hence at least part of the increase this month is simply regaining the lost ground, but it is still growth rather than decline. It should also be noted that August is an unusual month in that it contains extended school holidays as well as a bank holiday (in much of the UK). It is therefore a time when the leisure, entertainment and hospitality industries would be expected to be pretty much in full swing. Economists are therefore likely to be watching eagerly to see if this strong performance continues over the run-up to Christmas and beyond. Financial services in a fragile state? While the service sector has many components, it’s hard to dispute the importance of the financial services sector and there are still jitters in this area, some of which may be connected with Brexit. It was only shortly after the Brexit vote that Lloyds announced job losses in the UK. It is, however, unclear just how much, if any of these announced cuts, was actually due to Brexit itself. While the UK could, in principle, lose its right to act as a clearinghouse for Euro transactions, the jobs which are currently being lost have nothing to do with this area. They relate to branch closures and the harsh reality is that as customers have moved to online banking, the need for physical branches has been reduced, hence their vulnerability to cost-cutting measures. This has nothing to do with Brexit; it is a reflection of changing consumer habits. Lloyds has also admitted to being under investigation by the Financial Conduct Authority due to its behaviour towards customers who were having difficulty paying their mortgages and could feasibly have more potentially costly skeletons rattling in its cupboards. It also has to consider how an extended period of ultra-low interest rates could affect its profitability (and indeed business model). Other banks will have their own strengths and weaknesses and while none may be overjoyed by Brexit, it remains to be seen in what way and to what extent it will affect them. Will manufacturing benefit from Brexit? While the service sector plays a crucial role in the UK economy, it’s worth remembering that the manufacturing sector also contributes. As with so much to do with Brexit, it’s still very early days, but a weak pound could be great news for UK manufacturing. Even though it will mean that the import of raw materials becomes more expensive in real terms, it can help to make UK exports more affordable on the international market. It can also help to reduce the cost of employing workers in the UK as compared to those in lower-wage economies. The outlook for UK manufacturing may also depend on global oil prices since manufactured goods need to be physically transported from the factory to the retailers. Low oil prices benefit companies which want to transport goods over long distances, such as between Asia and Europe. If oil prices increase, then transport costs can become more of an issue, which makes it more attractive to manufacture goods closer to their intended destination.