Debt problems are everywhere. The excesses of recent years and the low interest rates have encouraged people to spend with little worry about the future and how to pay for it all. The consumer boom has been the driving force behind the growth in many western countries in recent years but now all the signs are that it has come to an end. The carefree spending train is finally hitting the buffers.
Most of us will have been affected by this to some degree or another. Credit cards have become such an essential ingredient of modern life that few of us are immune to their charms. We have been carelessly or ignorantly been building up debt without too much concern for the future. It is now time to face the music and deal with that debt.
If your job is secure you can make long term plans to pay down your debts. Set yourself a target of three to five years with the aim of significantly reducing your debt or even paying it all off.
The very first step will always be to analyse your spending. There is little point in reducing your debts if you will just go out and get more loans or credit. Controlling spending is essential to overcoming debt. There is no other way.
Get a notebook and keep track of your spending. Write down everthing that you have to pay for. A newspaper, a sandwich, a taxi fare & your electricity bill. You need to know where all your money is being spent every month.
Track your spending for at least a month and as you go keep updating the total for the various categories of spending.
You will be surprised. Few of us realise just how much we spend on insignificant purchases and you may discover that a significant percentage of your income is spend, day by day, on crisps or chocolate bars and other non-essentials. Newspapers don’t seem very expensive but every day for a month means that over a month they can amount to a lot of money. That money might be better spent paying off your credit card bill.
As you become more aware of your spending by writing everything down you will automatically become more aware as you buy things. You will automatically pay more attention everytime you get your wallet or purse out to make a purchase and as you do this you will probably find yourself questioning whether that purchase is either wise or necessary.Over time you may well find you just don’t spend so much on the non-essentials.
Getting control of your debts is not just about making your repayments each month. It is a whole approach to financial management and controlling your spending is a vital part of that and should be your first step towards financial comfort.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

So the Bank of England feels that a rate cut is not required just yet. They announced today that rates are to remain the same for another month. It may well be we need to see the dust settle for a little while to see the impact of various forces on prices and spending but a further cut is now widely expected at their next meeting in February.

Unlike yesterdays news on M&S last quarter sales Sainsburys has reported better trading over the xmas period with sales up over 3%. It would seem logical that since food prices have increased their turnover should increase. Food price increases is one of the inflationary pressures the Bank of England is concerned about. Most consumers would cut back on buying new handbags, clothes and tvs if money is tight but food is likely to remain a priority for most people. We have got used to eating well and that isn’t something we will change easily.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

The news that Marks & Spencer has had reduced turnover this last quarter should come as little surprise to most financial watchers. There can be little doubt that consumers are at last starting to think that maybe the party is over and it’s time to grab their coats and head for home.

We have all had a great time. The party atmosphere has been most enjoyable and we all danced the nght away. Now it’s nearly dawn and we are starting to feel a little the worse for wear. ‘Never again’, we cry, knowing full well that it could so easily happen again. It may, however, be some time before we next go to the consumering party.

The period of Spend, Spend, Spend, has almost certainly come to an end now. It has had a good run but since it has been fueled by borrowed money there always was going to be an uncomfortable end to it all. You can only borrow so much before you get to the point where it just has to stop. If it did not stop then we might all have run ourselves into bankruptcy. For some it may well be too late already and they face great hardship in trying to come to terms with their repayments.

Many people have been borrowing against the growth in the value of their homes wanting to spend now and pay later. Some have remortgaged many times as they they felt the extra borrowing was money safely gained from their homes increase in value and they will be stuck with fairly high repayments now.

Interest rates have come down a little and there is every likelyhood they will fall further as the Bank Of England has little need to worry about consumer inflation now. Prices of fuel and other raw materiels have risen considerably which creates pressure on manufacturing businesses but the consumers are now staying at home and hiding their credit cards away.

So what can we expect in 2008? It’s all about people’s confidence in the future and borrowing ability. My view is that house prices will continue to slowly drop back for a few months. Maybe have a couple of months where they drop a few percent at once. My guess is that house prices will be at least 10% down at the end of the year and maybe they will stabalise and stagnate there for a year or so but I could so easily be wrong in either direction. The truth is that nobody really knows.

There are bound to be job losses across most sectors, some more than others. With less financial business going on the finance industry will surely cut back on employees, retail and manufacturing will suffer too. It is a pretty gloomy outlook for most of us. The good news is that oil prices may come down a bit as manufacturing demand reduces

We are in new territory here. It has never been quite like this before because the period of easy credit is still relatively new. 30 or 40 years ago credit was difficult to come by and interest rates were high. People just didn’t borrow money like they have recently. It may be that if we all tighten our belts a little then we will mostly struggle through but the debts we have built up will last for a good while yet, for most of us.

Retails stores are bound to struggle in this new era of cutback consumerism. They have had a great run but it is very hard to see how they will all continue to survive in the current climate and it may well be that the high streets will be displaying a lot of ‘Shop For Sale’ boards in the future. I will be happy to be proved wrong about all of this but I cannot see how it can be prevented and if the powers that be do manage to prevent it then it can surely only be for a short while. Maybe long enough to get the government through the next election?

Sooner or later the piper must be paid and that time may well be now. Welcome to 2008 and welcome to reality.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)