The Recovery – Making The Most Of it
It was announced a few weeks ago that wages rose faster than inflation. This statement happened to also coincided with the news that house prices increased on average by 1.9 percent across the country and unemployment continued to fall.
The recovery is fantastic news but we must beware. In the decade 1998 to 2008, people were all too often encouraged to believe that the good times would never end and that the low prices that globalised manufacturing brought us, along with an artificial housing boom would continue to deliver good times forever.
Our sobering economic experiences, which have lasted longer than the Great Depression, have indicated otherwise, and there can be few who believe any more that the good times will last if we are careless. Here, then are some simple rules for a more sustainable future and to take advantage of the recovery.
Britain’s economy is largely based on housing, and the property market is one of the most powerful forces pulling us out of recession. If you have decided to move recently or are hoping to add value to your property through a remortgage, you have to think of your decision as a key aspect of your long term prosperity.
New mortgage regulations that were introduced last month will make it very hard for you to over extend yourself to the unsustainable levels of 2008, and if you want to borrow more ambitiously, you will need to prove that your finances have a clean bill of health.
This seems like a painful imposition, but in reality it is timely and necessary as the country gets ready to indulge in a frenzy of house buying and selling. Preventing a significant percentage of the home owners from defaulting the next time the economy runs into trouble, which undoubtedly it will, could be one of the real golden legacies that the government leaves for future generations.
In the last budget the government announced that it would be raising the upper limit on ISAs to £15,000 from July 2014, allowing you to save far more each year without HMRC taxing the interest. In addition to this, the entire amount saved could be cash, whereas previously half had to be in stocks and shares.
If we get into the habit of saving in a regular and sustainable way, squirreling away a little bit away each month (preferably somewhere that is tax efficient like an ISA), we can do wonders for our own financial stability. Not only could savings eventually go into sound investments like property in the future, but it is our insurance against tough times.
Now, this may sound rather obvious, doesn’t it? Well it is worth repeating, because so few people saved at all between 1998 and 2008, in fact quite the opposite occurred, and a relaxed credit environment led to a level of personal indebtedness of staggering proportions.
This one is simple. Pay it off as quickly as you possibly can. There is no one thing more damaging to financial health than borrowing, and if financial good times are about anything, they are about freeing yourself from this burden.
Credit cards, store cards, personal loans, and hire purchase agreements collectively represent the biggest threat to your future financial stability. In 2009, when the economy really took a nose dive, it was personal debt that was one of the first things that lenders called in.
There are some instances where borrowing can be prudent, such as a purchase of a house, an investment in a small business, or a career development loan, but in most other instances it is a luxury that perhaps we as a society can ill afford. As a culture, most of our ideas about borrowing were formed back in more stable times (i.e. the 1960’s).
Back then the lender was more prudent. They were someone you would meet in person and who would advise you on what you could afford to repay. In effect he acted as a brake on the system and offered advice on how much to borrow.
Since the 1980s, the lending arms of certain business have not acted as advisory services so much as they have become salesmen, operating from call centres and looking to sell you their products (in short, to increase your personal indebtedness to them as much as possible).
Also borrowing was always based upon the assumption that future personal financial stability was assured and that all of us would gradually become better off over time. Even though the recovery is underway and we are experiencing good times again now, there is no indication that these will last forever and it is vital that should there be another down turn, you can face it debt free.
It is true to say that we live in a very different financial world to the one we left in 2008, and most likely things will never be quite the same again in terms of our attitudes towards money, spending and saving.
This may be an unqualified good thing, as a lot of those attitudes and beliefs about money were long past their sell by date and resulted in a lot of financial pain. The past half decade has taught us some serious and challenging lessons about money and debt and now that the economy is starting to improve, we have to put those lessons into practice.
If this has got you thinking then why not pick up the phone and call us for more advice on how you may be able to make the most of the recovery and create a future that is a little bit more secure.