We are frequently told that banks and other financial companies try to help their customers avoid financial problems and we are also told they charge customers on the basis of how the company views the financial risk that the customer presents. The logic of that seems clear but it puzzles me that the banks seem so eager to push their customers into a far riskier financial situation as soon as they have any financial difficulty.

It should be obvious to any normal person that if someone has had difficulty in any one month they need even more money the following month to get back on track. Most people have a regular and fairly stable income and most of us would have regular expenses that we balance with our income.

The majority of people do everything they can to avoid these debt problems but the reaction of banks to this difficult situation for their customer is invariably to reduce their available cash by imposing charges which are then taken from the account without any opportunity for the account holder to manage the situation and avoid further financial difficulties.

The situation is then that, invariably, the customer has even less money available the following month to cover their expenses, to pay bills and make a payment to catch up for the previous missed payment. It is hard to see how the banks could see this as helping their customer overcome their difficulties.

This slippery slope is one many of us will have experienced with the result that as each month goes by more and more charges are applied and it gets ever harder to balance the budget and get the account back in credit.

With every additional charge it becomes more and more difficult and it can feel like you will never get straight again.You pump whatever money you can find into the account to get straight but charges just swallow it all up and still you owe more. It doesn’t take too many months like this to find yourself in a financial hole that feels like you can never climb out of.

We all live a fine line between comfortably affording our lifestyle and financial disaster. For many people, it wouldn’t take much to push them over the edge and the Bank’s way of  ‘helping’ their customers who hit a difficult patch seems to be just about the worst possible help you could have. The phrase that comes to mind is, ‘”With friends like that, who needs enemies”.

Everything may seem rosy today but none of us know what is around the corner. Financial circumstances can change and it doesn’t always have to be a big change to have a large impact on your financial situation. If you do not have significant savings to give you a comfort zone and your expenses are broadly in-line with your income, you could be at risk of financial problems if anything changes.

Many of us buy a lottery ticket with the hope that maybe this time we might be lucky and gain from a big win. The reality is that it is far more likely that something will happen which leads you towards financial disaster than it is that you will be one of the big winners on the lottery.

We need to prepare for the worst and by doing so we may avoid it ever happening. Take some simple steps to get your monthly budget in reasonable shape.

1. Build up a readily available cash reserve for any financial emergencies.
2. Avoid using credit cards for long term debt.
3. Make sure there is always enough money in your account to cover any payments and if there is not then at least cancel the direct debits which will lead to charges if the payment fails to clear. Find another way to make the payments.
4. Carry out an analysis of your financial situation which looks at income and expenditure to see just how well off you really are.
5. Prepare a budget that covers all your outgoings and expenses and has at least a little surplus in reserve. If your budget doesn’t balance do what you can to reduce your spending and get your budget back under control.

Remember that you need the money far more than your bank does but if you lose control they will take advantage of your situation and rip you off left, right and centre. They do not care about you. All you are is a cash cow to them and they will make your financial situation far worse. They will increase your financial riskiness and you will find your interest rates on debts rising as the financial industry does everything they can to, apparently,  try to bankrupt you.

Don’t let it happen to you.

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

The news that Baroness Scotland had employed a housekeeper who was working illegally in the UK came as something of a surprise. When you consider that she was working in government when the law was introduced, which required every employer to check the credentials of a prospective employee, and she advises government on matters of law you would expect that she of all people would not fall foul of the law
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She may well have believed she had complied with the law by checking documents before employing this person but the fact that someone as knowledgeable about the law can make an error such as this shows how complicated modern life has become. We are all expected to follow the rule of law but these days there are so many laws and most of us have only the vaguest idea of what their requirements are.

Many people would not consider consulting a solicitor for fear of huge charges but the free community legal advice service offers a telephone helpline offering free legal advice on 0845 345 4345 for anyone on benefits or living on a low income. They offer advice on a range of legal issues but also offer a variety of leaflets and factsheets that might benefit many people who do not fall within the scope of the free legal advice service.

The website offers a lot of useful information and the leaflets cover a range of issues from debt to divorce, renting property to wills and probate and a lot of other areas as well. Well worth a look and a useful website to bookmark for the future. You can see a list of the online documents available here… CommunityLegalAdvice.org.uk

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

The news of a rise in bankruptcies is disappointing but hardly surprising given the current financial climate. It must be devastating for those involved but individuals and businesses are struggling for various reasons right now. In some cases that may be that we have two conflicting ideas about the value of money.

Most of us feel we work hard for our money and we don’t want to waste it. So, when we are spending real money using real notes and real coins we are reasonably careful with our cash. Somehow spending the same amount on a credit card is a very different experience and it is so much easier to be careless and carefree and not worry at all about the debt.

There is something about using a credit card that is almost unreal. We agree to a purchase, hand over the card and the deal is done. No stress, no worries and no doubts. No money changed hands and it almost feels like we are getting the goods or service for free.

This seems to be a similar sensation to the one experienced with money that comes more easily. Gambling is a good example whereby a person might play roulette and lose nearly all of their money and then their luck seems to change and they have a small winning streak. They may even be showing a small profit. Do they stop and walk away thinking they were fortunate to survive with their money intact? Do they heck. Apparently very few are able to do that and most will now start gambling in a reckless manner because they have just won all this ‘free’ money so it doesn’t have the same value as if they have had to work for it.

We all share this weakness when we get a windfall of extra cash. In most cases if we get a bonus, a lottery win or an inheritance we see the value of money differently than we would with our normal income and we might enjoy spending it. We may treat ourselves to a holiday, a new car or on home improvements.

What we should probably do might be to clear some debts or invest it for the future in some way but invariably we treat it as free money and feel we should enjoy it. There is certainly nothing wrong with enjoying life but it might well be that you would enjoy it a lot longer if you had less debt or the reassurance of savings to protect you in old age.

This is not entirely dissimilar to the position a lot of people found themselves in when they were encouraged to take out credit cards. They suddenly found themselves with easy access to credit and were able to buy things they previously considered unaffordable. There was no pain and it felt like they were using free money. At, least, it did until the bills started to become unmanageable.

They say there is no such thing as a free lunch and that is generally true. If there is one thing we can all gain from our experiences with the credit crunch it must surely be that there is a price to pay for borrowing money. If you take on too much debt, or if your circumstances change, the price of that money can be very high indeed.

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