> Weather the Storm
kindly supplied by
Financial Journalist and Property Investor
Coalition Government has made it clear that Britain
is entering a new era of austerity which is likely
to affect the spending and saving behaviour of millions
of people. However, a little ingenuity can go a long
way towards protecting you from the worst of it. In
his June budget, the Chancellor, George Osborne, announced
a package of spending cuts and tax rises designed
to trim public borrowing by £40 billion a year
with tax payers are being asked to make sacrifices
worth £8bn a year. Economists are unsure if
this medicine will work and believe that while the
worst is past as the corner has finally been turned,
the road ahead is rocky. Although there are risks
that activity will turn down again, the likelihood
of a double dip recession has reduced. However, the
fragility of the upturn implies that there may be
some more unemployment to come, that many businesses
will still be operating in a hostile environment and
that profits will continue to be squeezed. It is likely
that households will have to cope with high debt,
rising taxes, slow earnings growth and above average
price rises in essential items such as food.
Of course the UK is not alone in its
troubles. Many other Countries are in a similar plight
to ours and the recent past provides some interesting
comparisons. In the 1990s, Canada was on the brink of
going bust due to crippling national debt. The Canadian
Government imposed harsh public spending cuts in a short
time from, similar to Osborne’s in his 2010 budget.
Attempted remedies to the economic crises have not yet
had enough time to be announced a success or a failure.
The Greek Government for example, is trying to reconcile
the conflicting demands of the International Monetary
Fund, the European Union and its own people to stave
off bankruptcy and restore stability and so has suffered
strikes and protests over unprecedented budget cuts
and reforms. Against the global backdrop it is clear
that the UK's approach is unavoidably fraught with risks
and uncertainties. The budget was well received but
there is no guarantee of success.
what can we all do to come through this period
of austerity in good shape? In times of economic
uncertainty, there can be a conflict between
what we as individuals should do to protect
ourselves and what we should do to support
an economic recovery. While every pound we
spend helps generate jobs, the cloudy outlook
suggests that a belt tightening exercise is
more what is needed. Save more, borrow less
and spend less!
Personal Action Plan
is never a good idea to be driven entirely by tax, do
not ignore the June budgets increase in Capital Gains
Tax/. If you are selling investments, try to do sp gradually
so that you annual gains stay below the tax free threshold
of £10,100 for 20105-12. If you are married then
consider transferring assets to your spouse so you can
both use the annual allowance to your advantage. Gains
on wine, art, antiques, jewellery and collectors items
have a £6000 CTG allowance, while gains make on
cars and exchanging foreign currency are exempt.
at all your outgoings to see if they can be cut
or eliminated. How much do you spend on cappuccinos?
Are you using your gym membership? Are you getting
the best deal on your energy and communications?
you are paying the lowest interest rates on any
loans and credit cards
savings and investments to check that you are earning
the best returns consistent with the level of risk
that you are comfortable with. If you feeling less
adventurous, you could consider selling speculative
investments and replacing them with more cautions
you have the basics in place, bank deposits, low
risk bonds or long notice savings and ISA's then
consider equities and other investments. ISA allowances
went up in April 2010 so why not use your allowance
if you can.
natural haven in troubled times could be found in
shares paying high dividends from Companies supplying
essentials such as food and energy. If you are unsure
what to invest in, Equity Income funds can select
these for you. Look also at investments outside
the stock markets that are likely to maintain value
of the next ten years or so, art and wine for example.
Each requires careful selection with the help of
is a classic hedge at times like this. While god
price is near record levels it may still be worth
considering for up to 5% of a widely spread portfolio
investments carry risk although diversifying should
help minimise risk. All investments carry an opportunity
for growth over the long term but there is no guarantee
of success as their value can go down as well as up.
Also remember that the effectiveness of these measures
will depend on your circumstances.