We’ve been busy lately at Cashzilla Towers! We’ve been talking to some of the best finance writers online, and this week we’re delighted to host their ideas and opinions about how to manage our personal finances and private banking in 2012. Today’s guest writer is Ash from Sterling Effort.

Image via Sterling Effort

Save, save, save. Building a financial safety net is important at the best of times but right now it’s absolutely essential. The doomsayers would have us believe the sky will fall in 2012, so it’s prudent to have a roof above your head just in case they’re right!
Some suggest you should save enough cash to cover three months worth of living expenses, others say six months or longer. The important questions to ask yourself are “What would happen if I lost my job tomorrow?” and “Am I confident that I could find a new job by the time my cash runs out?”
No one can tell you exactly how much you should be saving, but we should all spend some time thinking about the answers to these questions, especially if we have other people depending on us for security.

This is basic money management, but for a nation of debtors, summoning up the determination to save can be difficult. After four years of these horrible economic conditions, I look around and I still see an army of people who would be financially destroyed should they be unfortunate enough to lose their only source of income. Don’t let that happen to you. Do what it takes to build your cash safety buffer. Spend less and try to think about ways to make some extra money on the side.

You don’t need to have a huge income. You just need to make some sacrifices and remain committed to ensuring your financial security. It doesn’t sound too sexy but it’s truly liberating. Bad times may be coming and being free to not worry about that is a wonderful thing.

Sterling Effort was created to stuff some financial knowledge into those of us who grew up without being taught how money really works; how to make it, save it and grow it. This site breaks down the task of understanding personal finance and private banking into simple and easy to swallow steps, giving you clear and concise information and hopefully providing some entertainment along the way.

Ever dreamed of buying a house? Well you’re a crazy fool and you should lower your ambitions. Houses are for people with huge sums of cash in reserve. If you don’t own a house now then you probably never will so just deal with it.

Image via alexliivet

It turns out the banks, those lovely awesome banks – whom, sustained by taxes and are very possibly the reason everyone is experiencing really high inflation at the moment and are therefore unable to save – are rationing mortgages even further.

The Bank of England’s study shows that fewer people are meeting lenders criteria for borrowing. It’s all down to falling house prices, the economic climate and fear the fact that the future is even less secure. Banks are just so pessimistic. Whatever happened to that starry-eyed optimism that make them think the boom bubble would never burst?

In reality it may be bad news for those looking to get one, but it’s probably a reasonable position given that handing-out mortgages to people who had little or no means to pay them back in the first place was one of the big reasons the world got into this mess in the first place.

Even those paying mortgages at the moment are struggling to repay them and are living month-to-month, relying on their credit cards as well as those fantastic pay day loans. You know those companies that give you a short term loan with huge rates of interest. Now there’s a healthy way to run your finances.

So, saying the banks should be giving out mortgages to anyone who wants them is of course ludicrous and even hypocritical. However it’s not fair. Nothing about any of this is fair. It’s perhaps a peculiarly British dream but those earning a decent wage should be able to afford there own home.

Anyone trying to sell their house will also be suffering as there will be fewer buyers on the market and the value of their property will more than likely have decreased. It all amounts to a market stagnation.

It seems though, that most will be forced to rent for their own lives while others will take advantage of their parent’s property for longer than is reasonably expected.

So who knows some nice places to rent?

Are you struggling to get a mortgage? Tell us about it in the comments section below.

In a move which will no doubt delight consumers, the Government has revealed plans to stop companies charging excessive credit and debit card surcharges. The new regulations will also force those charging card fees to reveal the cost before consumers have clicked through a multitude of webpages.

Image by James Meikle

The new regulations follow a lengthy campaign by not-for-profit consumer group Which?. Many Which? members were unhappy about being stuck with significant extra charges right at the end of the ticket buying process. Budget airlines, rail operators and events organisers were often cited as the main culprits of this type of surprise price inflation.

Overinflated fees

In recent years it has become common place for consumers to find themselves paying as much as £12 in card surcharges on a return budget flight. As part of their research Which? set out to ascertain how much it actually costs the companies to process the card payments. They reckon that when a customer pays by credit card it costs the company between 1 and 2 per cent of the price. However, if a customer pays by debit card the cost is believed to be around 10p to 20p; meaning that a company charging £12 for a card transaction would pocket at least £11.80 of the fee.

The Which? campaign climaxed in a super-complaint being submitted to the Office of Fair Trading (OFT). The complaint was supported by 43,000 Which? members with at least 10,000 consumers also lobbying MPs to do something about the charges.

The OFT launched an investigation into the charges and recommended that the government ban debit card charges and make credit card charges more transparent. However, the government has surprised many in the industry by going beyond the OFT recommendations and announcing plans to end all profiteering on card payments by 2013. They’ve also stated that sellers will have to show the final price, including all fees, much earlier in the sales process.

War on politics or profiteering?

This move by the pro-business Conservative Government is not so surprising when you take into account the fact that the European Union was already planning to ban profiteering on all types of payments from 2014. All you cynics out there could see this is a ploy to curry favour with the public by introducing regulations which were already due to be brought in anyway. It’s even more interesting when you consider that the Government has just stolen the thunder from the EU at a time when there has been considerable tension between the UK and the EU.

Aside from travel and event tickets, where else have you seen vastly inflated card fees? How do you think the budget airlines will respond? Do you think the Government would have introduced these regulations if the EU hadn’t already made similar plans? Share your thoughts in the comments box bellow.

Image by: Images_of_money

The UK economy is going to suffer a more severe economic downturn in 2012 than previously predicted.

Experts had predicted growth of 0.6% in the coming year but now econmomists at Standard Chartered bank say that the economy will in fact contract by 1.3%.

However, other institutions say that Standard Chartered’s prediction is at the extreme end of the scale. The Office of Budget Responsibility has in fact predicted a 0.9% growth for 2012, whereas a recent survey by the Treasury has suggested growth of between -0.4% and 2.3% – which does seem like a fairly wide (and safe) prediction.

Standard Chartered revised an earlier (less severe prediction) in response to the financial crisis in the Eurozone where a 1.5% contraction is predicted. Despite a contraction across Europe, the world economy is expected to grow by 2.2%.

The OECD (The Organisation for Economic Co-operation and Development) has predicted a slow-down for every major world economy economy, including Asia where growth will slow from 7.3% in 2011 to 6.5% in 2012, which is still enough to keep world economic growth in positive figures for the rest of the year.

Which prediction do you believe? Tell us in the comments section below.

Image Via ChicagoTribune.com

This week, Canada has introduced plastic notes into their system. There has been a rise in counterfeit notes in circulation in Canada and this seems like a logical way to stop it. Starting with $100 dollar notes, these plastic notes will soon phase out all Canadian notes over the next few years.

The notes are made from a thin sheet of polymer which makes them almost impossible to rip. The plastic notes have a transparent section, which makes it incredibly difficult to copy. The holograms change colour when held over a light; another feature which makes it hard to forge. They will also save money in the long run as they are more durable than normal notes.

Although I’ve never heard of plastic notes, apparently other countries have already adopted this system. Roughly 30 countries followed in Australia’s footsteps where in 1988 they introduced the first of its kind. By 1996, the whole country was using these polymer notes.

It does seem like an interesting way to deal with fake notes. But with the emergence of NFC technology and some commentators suggesting a cashless society is on the horizon, would plastic notes be a good idea for the UK or just a waste of time and money? Perhaps together, they could eradicate counterfeit notes as both are tipped to be more secure.

Could you see this being introduced to the UK? Tell us in the comments section below.

Image by Images_of_Money

Figures out today reveal that British GDP has grown 0.5% in the last three months. But what does that figure mean exactly?

Well, it’s better than what was expected – economists were estimating a 0.4% growth so people are quite excited about that extra 0.1%. It also blows the previous three months’ growth of 0.1% out of the water.

So that’s good news, right? Err, well, maybe. Some cynical economists are claiming that the boosted figure is simply making up losses from the extra bank holiday for the royal wedding and the Japanese tsunami.

And while these figures are good, it doesn’t dampen our chances of falling back into a recession over the next few months.

While 0.5% is a fairly healthy level of growth even compared to better times, ideally we want to be growing at a faster rate to make up for all the output lost during the recession.  However, there is a raging debate as to whether the British economy will ever catch up to pre-2008 levels. So probably best to keep that champagne sealed for the time being.

Still, some growth is better than no growth, right?

Do you think we’re out of the woods yet? Let us know what you think in the comments section below!

Say cheerio to the Euro, Source: Will Spaetzel via flickr

It was announced on the BBC news website today that whoever comes up with the best management plan for the euro opt out will win a £250,000 prize, the second biggest award to an academic next to the Nobel. Wow!

The award is going to be sponsored by Lord Wolfson, the chief executive of Next – how kind. He strongly believes that the euro is indeed close to collapse, so every effort needs to be put in place to prevent complete chaos and ensure that it can be ‘restructured into more stable currencies’.

Economists are being asked to consider various key points such as:

• How to ensure that any new currencies would be stable?
• What areas should the new currencies cover?
• What currency would government debt be paid back in?
• What happens to individuals’ debts?

This is potentially one of the biggest risks that European countries will be taking due to the fact the Euro is one of the most important currencies in the world. Thus, the future of the world’s economy will play heavily on what happens in Europe over the next few years – no pressure Europe!

Word has it though that anyone can submit an idea, so time to get your thinking caps on guys – just think of what you could be spending them hard-earned ‘dolla’s’ on!

Do you have any unconventional ideas on how this could be done? Give us your thoughts in the comments.

Image by Images of Money

It has just been revealed by the Bank of England that inflation has risen to 5.2% – its highest level in three years. The figure is up from 4.5% in August, and rising energy costs seem to be the main culprit to blame for the hike.

These figures are bad news for the British public, who will have to tighten their purse strings even further to deal with the rising cost of living. Last week it was revealed that earnings only grew by 1.8% last year, so wages are struggling to keep up with the rapid rise in prices.

In addition to spiralling commodity prices, the weak pound and higher VAT rate of 20% has led to the high inflation figure. However, the Bank of England are hoping that this is as bad as it will get, and that inflation rates will begin to fall in the new year.

Still, it isn’t all that bad. Even though we are at our highest level of inflation in three years, there have been other times where we have been much worse off. For example, in 1800 inflation rose to 36% to help the government pay for an on-going conflict with France. Inflation came close to that rate again in the 1970s, when prices rose by 25%.

However, those figures pale in comparison to other countries around the world. In 1923, Germany had an inflation rate of 85,000,000,000%. Wallets were replaced with wheelbarrows as people had to carry around large piles of paper cash.

In more recent history, Zimbabwe made the news with an inflation rate of 66,212% in 2007. The situation got so bad that the Zimbabwean dollar was suspended, and the country now uses a mix of South African rand, Botswana Pula, American dollars, British pounds and Euros to make cash transactions.

Hmm… 5.2% doesn’t seem so bad now, does it?

Are you starting to feel the increased cost of living? Tell us about it in the comments section below.

Image via Wikicommons

However, back in the 1960s a mathematician, Benoit Mandelbrot, was watching the fluctuation of cotton prices.  In time Mandelbrot came to the conclusion that markets were much more complex and chaotic than economists were accounting for.

He was ridiculed at the time, and the economy trundled along quite peacefully for over 4 decades; under an over-confident and incompetent gaze.  Only Mandelbrot and few of his disciples knew the truth; that we were on a runaway train, with no brakes, where a broken bridge could be lurking around every corner.

Mandelbrot is most famous for his fractal geometry and his Mandelbrot Set, and although you may never have heard of his Mandelbrot Set, you will have undoubtedly seen it when computed, drawn on a complex plane and suitably tinted.  It has been seen on millions of posters, t-shirts and postcards around the world.

But what has this all got to do with financial meltdowns?  Quite a lot it turns out.  First off, though, a little history is required.

The traditional understanding of financial markets is based on the work of French mathematician Bachelier, considered by many as a pioneer in the study of financial mathematics.  His PhD thesis The Theory of Speculation, (published 1900) was to become the main basis of our economic understanding and reached great prominence in the 1960’s after the use of computers became wide spread in analysing data.

In a nutshell, Bachelier’s work explained financial markets as a continuous gradual movement of prices, following a random pattern like the tossing of a coin, heads the markets go up a little, tails the markets go down a little.  Though the probability of a coin throw landing on heads or tails is 50/50, the probability of throwing heads 20 times in a row is a lot less likely, these probabilities can be plotted in a graph and will show the famous Gaussian bell shaped distribution curve.  Therefore for many years, based on Bachelier’s mathematics, we have believed that financial markets were a somewhat random, but easily tamed beast, following quite simplistic patterns.

Could this Butterflys wings cause a hurricane on the other side of the world. Image via Flickr.com

Mandelbrot argued that this understanding of financial markets was too simple.  He explained the financial markets as being a very complex chaotic system more akin to the weather than coin tossing.  More importantly, unlike in Bachelier’s explanation where probabilities follow a Gaussian bell curve, and large fluctuations in price are largely ignored, Mandlebrot showed that they follwed a stable distribution, therefore although large price changes were indeed few, they were likely to be so large that they were the most important aspect of the explanation.

A simple yet altogether imperfect way to understand this conclusion is to imagine Bachelier’s explanation as saying: “in the summer the weather is nice with occasional showers.” Mandelbrot on the other hand says: “in the summer the weather is nice with occasional showers, but every now and then, there will be a hurricane and flooding.”  The importance of these differences in understanding of financial markets, and the risk therein, are huge.

In the science of weather, we all accept the concept of freak-weather, yet we consider financial markets as something a lot less random and even something that we should be able to control.  Mandelbrot has shown us the naivety of this assumption and we have learned the lessons of our failure to understand the nature of financial markets too late.

In conclusion, we are just as unlikely to prevent or predict a financial meltdown as we are a hurricane.  However, just as we build buildings to withstand earthquakes, and flood defences to protect our towns from flooding, we must now start to take seriously Mandelbrot ideas and build the financial defences we need for the occasional, but disastrous consequences, of Financial hurricanes.

Bank of England (image Rev Stan)

So Mervyn King, the Governor of the Bank of England, has announced that they are to inject £75bn into the UK economy as part of their quantitative easing (QE) programme. The move comes after a series of global shocks, like the problems in the United States and the Eurozone crisis, which have raised fears of a double-dip recession.

The Bank’s Monetary Policy Committee voted for the first time since November 2009 to increase its purchases of gilts, this time by a further £75bn to £275bn. At the same time the governor decided to cheer everyone up by also announcing that the nation is facing the “most serious financial crisis ever” . . . slightly uncalled for if you ask me, we’re all fully aware of the situation without people causing more panic.

So what is QE?

Well essentially it’s just printing* more money. The Band of England (BOE) uses this money to buy assets, in this case Government Bonds known as gilts, from banks or other financial institutions. The sellers of these assets can then use the extra funds the Bank gives them, to spend on other investments, or lend to households or businesses.

So why haven’t we just printed trillions of pounds and made everyone a millionaire? Well because doing this also increases inflation so things get more expensive, and you’ll get less for your money. Since most UK salaries have been frozen just now, a high inflation rate would make things more difficult.

But QE is the one of the few monetary policy tools left to help avoid another recession since the coalition government is sticking to “Plan A”, which rules out more government spending to offset the flagging demand of households and businesses. They are insisting that their awesomely named economic strategy will save the UK from a double dip recession, despite the fact that there has been no real growth in the economy since . . . well a long time.  Many pressure groups, like False Economy, argue that the government is making spending cuts too fast and too hard.

So does this increase in QE mean that the BOE are frustrated with the coalition’s hard hitting strategy? It certainly suggests there are some doubts in its ability to get the economy growing again. With it being quite late on, the use of QE as another confidence trick perhaps looks a bit desperate.

I know this might have been a bit of a depressing blog post for a Friday so I’ve decided to leave you with some wise words from big Mervyn, on the financial crisis:

“I do not know when it will come to an end.”

Yup, if the Governor of the Bank of England doesn’t have a clue, then there’s not much hope for us.

Have a great weekend guys!

*The money isn’t actually printed. The bank just signs a sheet of paper. Similar to when you buy a house, you don’t drive a lorry full of cash to the seller.