While many people are frightened of taking on debt and how they will finally be able to pay it back, there are situations when debt is good and debt can actually HELP get you out of a tricky situation. There are many many situations in your personal and business life when under funding will cause major problems.

Some areas to consider :-

House Purchase

For the vast majority of the UK population a house purchase will be the largest transaction they will ever be involved in during their lives. While a mortgage of tens if not hundreds of thousands of pounds around your neck can cause problems, it can cause even more problems if you are underfunded for your purchase.

Many people have tried to cut their budgets to lower the need for a large mortgage only to find that they hit trouble in the future.

Your Own Business

This is perhaps one of the main areas of concern with regards to under funding, with more small business people than ever before running scared of taking on debt. While it is not always advisable to take on large amounts of debt for a business, there are many situations where you will need to ensure you are fully funded and able to support the operations of the business.

In the early days when you probably have more money going out than coming in, it is vital that while taking a sensible view of debt, you ensure that you have enough to ensure the smooth running of the business as well as promotional and advertising work.

Personal Finances

This is also an area where people react to debt in a manner which is helpful short term but may have more implications on a long term basis. While the majority of us will have debts of some form, whether this is credit card debt, loans, etc there may come a time when you receive a windfall, bonus from work, etc. Too many people in this situation will rush to payoff all of their debts and reduce their short term liabilities.

While it seems sensible at the time, many people are then left in a situation where in the medium to longer term they are short of funds and need to revisit their bank for a loan. If you are able to keep up with the repayments on the original loan it might be advisable to put your windfall into a savings account where it is earning interest and there for a “rainy day”.

Summary

There are many people who are scared of debt in the UK, and some quite rightly, but if used sensibly it can help to make your life a little smoother. It can help in both your personal and business dealings and while it is never correct to take on debt for no reason, it can be a very useful tool.

Those who fear debt are often the ones who get themselves into long term situations which can result in IVAs and bankruptcy. Respect debt and it can actually help you!

It seems that the £50 billion bailout of the UK money markets will not be enough on its own to see the economy through the worst. In an unprecedented attack on corporate governance in the UK, the Governor of the Bank of England Mervyn King has warned the banks that they will need to play their part to ensure that the UK economy does not take yet another turn for the worse. So what is happening?

While there was a flurry of relief that the government had pulled off something of a coup with the injection of £50 billion into the markets, this case is slowly unraveling. We are still seeing mortgage lending slumping month on month, house prices have fallen over the last 12 months for the first time for many years and many mortgage lenders are placing ceilings on the maximum mortgages which they will authorise. The situation is not getting any better in the short term!

It would be unfair to suggest that the government thought the affect would be immediate but the much expected flurry of relief has yet to materialise in the market place. Banks are still running to shareholders for billions of pounds to shore up their balance sheets and many of the smaller mortgage lenders are going to the wall. As many people suggested at the time of the £50 billion cash injection, this is one storm which we will have to ride out and one which will get much worse before it gets better. So what about that tax payers cash?

The £50 billion of tax payers money which was introduced to the markets is still very safe with the banks being asked to provide collateral much higher than the amount of money they are looking to raise. There is also the further safe guard that the banks have committed to covering any potential loses on the government’s asset swap. Even if one of the smaller player or a larger player was to go under, the industry itself would be forced to foot the bill just to ensure public confidence remained high.

There has been little news of late with regards to unemployment figures but these are set to rocket over the coming months. There is often a time lag between the economy falling and jobs being lost, although it will not be long before the bad news starts to flow. We are hearing news over the last few days that some of the larger budget clothing Groups in the UK are under severe financial strain with MK One recently put up for sale.

This is very much just the tip of the iceberg and there will be substantially more bad news before we start to improve. The Bank of England may well be forced to reconsider their current stance on interest rates and inflation and look to cut rates in line with their US counterparts. When you know that £50 billion is not going to bail out your economy you know that you are very much in trouble!

If you have ever checked out the UK tax code system you will know that it is not the simplest of systems to figure out!

Research has shown that not only are many people actually having tax deducted from their income under the wrong tax code, but more and more people are not claiming for benefits which they are entitled to. We are not talking just a few hundred pounds, we are literally talking about billions of pounds of money which goes unclaimed each year – money which has actually been set aside.

Why are some employees under the wrong tax code?

While it would be easy to blame the government for the system and the way changes are recorded, this would not be the whole story. The truth is that more and more people in the UK seem to ignore their own tax situation, the allowances they may be able to claim and ultimately they are giving away money which they are entitled to retain. Tax rates in the UK seem to change on a regular basis (more so as we approach a General Election) but that is really no excuse.

A simple phone call to the tax office will help you to confirm which code you should be on, which code you are on and any money which is due to you for overpayment. Alternatively, although highly unlikely, some people may actually be asked to pay extra tax if they have been on a lower code than they should have been on.

How are people missing out on benefits to which they are entitled?

The UK benefit systems must be one of the more complicated in the world with the authorities often forcing you to “jump through hoops” to get what you are entitled to. This seems to be the main problem, with more and more people just giving up after the tenth form to fill in!

However, one area of society who seem a little more reluctant than most to claim their benefits is the elderly. Many of the older population of today grew up looking after themselves and benefits are something which some of them feel a little embarrassed claiming for. They should not feel this way!

As each change in the tax and benefits system filters through we seem to hear about new and more complicated tax frauds and benefit cheats appearing from nowhere. These are the people who claim for more than they are entitled, while some of the needier of society claim for nothing.

It seems that each new government which comes into power promise the same thing, simplify the tax laws and make benefits easier to claim. However, very few over the last 50 years have actually delivered on their promises, with many now sceptical of how the system is run. Working tax credit has become a shambles, people are being forced to pay back thousands because of incorrect payments and the people who need assistance are often being left out of the loop.

Will we ever find a simple tax and benefits system?

Given the chance there is not one investor in the world who would pass up the chance to make a profit on a short term investment, but you ask how many would take that gamble with no guarantees and it is a totally different matter. In the heady days of the 1980s and early 1990s we saw the trend towards so called “day trading” take off, with more and more people chasing the fast buck in markets that seemed to rise and rise. The technology boom was the perfect market, until the bubble suddenly burst – BANG!

The bursting of the technology bubble in the early 1990s saw many people literally wiped out with the vast majority of so called “day traders” suffering horrendous losses - many were not able to return back to the market. One problem for the day traders was that when the good times rolled, margin (i.e. collateral held by a broker to cover the investment) was no problem, but once the bubble burst losses began to grow and grow and margin calls become greater and greater. Many decided to try and trade themselves out of the market, but this placed more and more investors in impossible situations.

While it would be wrong to say that all day traders lost their investments in the technology boom and burst period, it was only the clever ones, the ones who sold before the top who actually made and kept their money. As more and more people chased the markets, this pushed share prices higher and higher, further feeding the frenzy to get in and make a quick buck – many investors were making thousands within hours, but it could not last!

Short term investment is a high risk game unless you are very astute and actually know what is happening in the wider market place, sectors and individual companies. You could get the right share at the wrong time and lose, when in a better market the same share and situation would have made you a fortune. It was this fact that many people could not grasp, they became greedy and share price valuations shot into outer space – it just did not add up.

Any investment which you make into the stock market should be seen on a long term basis and money which you will not need for some time. If it is money that you cannot afford to lose then you really need to consider whether you should be investing at all. As we are seeing at the moment, economies move in cycles and there are clear times to buy and clear times to sell, although they only become clear after the event!

Long term investments have the potential to give you the best rewards, choose your stocks, your sector and monitor your investments carefully. Long term investment into a good long term company is great and should reward you, but on the other hand, if your investment shows signs of trouble then you should consider whether the investment can recover in the long term.

Stock market investment has proven to be very beneficial in the longer term (outperforming the vast majority of other asset classes over an extended period) and while there may be chances to make a short term profit, is it sensible to invest with a short term investment view?

Independent Financial Advisers (IFA) and the charges which they will take from you have always been something of a controversial issue with many looking to sort out their financial security. To many people they are just the gap between those who need a service and those who offer a service, but is there more to it?

Many people seem to be under the impression that IFAs are simply there to take you money and pass you on when this is certainly not the case. On the whole they offer an excellent service and a service which many people will ignore at their peril. The financial markets and the number of financial products on the market is a minefield for the general public, but when fees are mentioned many people suddenly become experts!

The problem for many people is the fact that the IFA industry has, and continues to (to a lesser extent than years gone by), attract rogue traders and those willing to cut corners to get the fee income in. At the end of the day you get what you pay for, so if you are looking to cut costs to the bone, but still expect a high level of service, then you are taking a chance.

The subject of commissions has always been a rather contentious area with some IFAs in the past concealing the fact that they were receiving commission when guiding you towards a certain products or a certain company. Those days have gone and under law each IFA is now required to confirm what commissions they will be receiving with regards to any transactions they organise for you.

The services offered in general are of a standard which is far higher than in years gone by, and one fact which many people seem to forget, if it all goes wrong and you lose money through “bad” advice, there are ways and means to claim compensation. Not only can you sue the IFA involved but there are also a variety of industry funded compensation schemes which may be available to those who have suffered financial loss.

Oh how David Cameron must have loved Prime Ministers Question Time today with news breaking that Gordon Brown had caved into a possible Labour Party revolt and agreed to compensate those hit hardest by the abolishment of the 10p tax rate. So what does it mean for you?

While the 10p tax band had only been around for a short while, Gordon Brown introduced plans to axe it last year in his last budget speech. The band basically meant that those on the lowest pay were the main gainers with a portion of their income taxed at only 10p in the pound. It had been well received by traditional Labour voters and seemed to be a vote winner for the government, although quite why Gordon Brown decided to axe it is a mystery.

The Government have now promised a full review of ways in which those who lost out can be compensated, with many suggesting increased winter fuel allowances for the elderly and those without children being introduced to the tax credit system. Quite why the government don’t just reinstate the 10p tax rate is a little strange, because all of the methods which have been mentioned as possible ways to compensate people will actually be expensive to run themselves!

It will be interesting to see how the rebel Labour MPs and the opposition react in the immediate future because we had a situation where a government budget could (and was probably about to be) blocked in Parliament. This would have caused something of a constitutional crisis and seen Gordon Brown’s credibility fall even further. By “caving in” to the rebels he has definitely chosen the lesser of two evils – but for how long will he keep the Premiership?

At this moment in time the UK financial system is like a rudderless ship with short sharp corrections attempted when someone decides to take the wheel. For many months now, voters have been hit with rising taxes, rising fuel cost and a general rise in the cost of living, all at a time when income is under pressure and money is tight. If an election were called now there is every chance that the Tories would gain a majority in the Houses of Parliament, but even a delay until 2010 at the latest may not be enough to save Gordon Brown.

He waited years to take the role of PM and then just as he gets comfortable in his seat it all starts to go very wrong. In the eyes of many voters, and Labour MPs, he is now damaged goods and highly likely to see a leadership challenge at some point over the next 12 months (possibly after the May local elections). More surprising than anything has been his dithering with regards to the UK economy and the tax regime of the current government. Time and time again the former “Iron Chancellor” has performed massive U-Turns with even his most loyal supports at a loss to explain what has gone wrong.

Control of the UK economy evaded Gordon Brown some time ago and he is now losing control of his party.

As the recent increase in house prices has shown, more and more people are being pulled into the inheritance tax bands which have been around for many years. While the current allowance is around about the £300,000 mark, i.e. you will not pay any inheritance tax (IHT) on assets under that level, many people have homes approaching that price, not to mention investments, insurance policies, etc on top. But why do you need to pay tax on your estate when you die? What is the reason behind it?

While Inheritance Tax only appeared back in 1986, it was affectively a rebranding of the old Estate Duty and Capital Transfer Tax although quite how the authorities thought a change of name would throw us off the trail remains to be see. There has been pressure on successive governments to reduce the impact of what is seen as an unfair tax – you pay your taxes in life and then you are charged again in death – but there has been no real change as yet. So why was it ever introduced?

A look back in history shows that even though there have been IHT laws since the 1800s, in the early days the tax was hardly ever collected. However, as time progressed and governments looked to raise more and more money, they soon realised that IHT as it is now, was easy pickings – after all who could really complain with the original owner of the estate dead?

Slowly but surely we saw the tax income from estates creep higher and higher, with more and more assets falling under the IHT regulations. The problem over the last few years has been caused by the massive increase in house prices (with some doubling in price in only 5 years) and a slower increase in the IHT “nil band allowance”, affectively pulling in more and more people. So what can the traditional UK tax payer do about the situation? How can they protect their estate for their surviving family?

It is taxes such as IHT which have encouraged a massive tax planning industry in the UK – not to be confused with tax avoidance (or so they say) – where ever more inventive schemes and ideas about how to work within the rules keep coming to the fore. However, as quickly as the experts find a way to take assets out of the IHT equation, it seems the authorities look to close any loop holes as soon as possible.

While tax planning was once thought of as only for the rich, famous and middle classes, the situation has developed a lot further since those days. More and more people are facing potentially enormous tax charges on their death, often leaving their surviving family with very little to inherit. However one thing is for sure, the recent proposals by the Tories and counter proposals by Labour have put the subject firmly back on the agenda.

When the next election eventually arrives, you can be sure that IHT will get more than a fleeting mention!

The UK government and Bank of England have today announced plans to inject some £50 billion of capital into the money markets by way of an asset swap with the clearing banks of the UK. Under the arrangement the banks will be able to swap a portfolio of their more risky mortgage investments in return for government bonds – with a total of £50 billion on offer during the 3 years scheme. Surely £50 billion will be enough?

On the surface you would surely hope that £50 billion would be enough to bail out the markets and increase liquidity again, but there are some who have their reservations. For many observers the “fix” has come too late to save many leading financials from disastrous losses, but on the other hand why should the taxpayer affectively bail out the banks for what has been a sustained period of greed within the financial sector?

There should be little risk to taxpayer’s money because the banks will be asked to swap assets with a much greater book value that the bonds which they receive in return. The commercial banks have also agreed to underwrite any losses on these asset swaps, thereby ensuring no loss for the taxpayer – in theory!

This type of move has never been seen before in UK markets, then again we have never quite been in a situation like we are today. By affectively switching their more risky assets off balance sheet and bringing onboard bonds which are guaranteed by the government, this should free up a large amount of liquidity. Not only will this liquidity benefit the clearing banks, but it will also allow the smaller financial institutions to borrow in the markets to get their business wheels in motion again.

This is a final throw of the dice by the government and if there is even the slightest hint of failure with this they will lose all face with the markets and voters. The fact that it has actually taken so long to decide upon this action has surprised many, because for the price of the taxpayer’s investment into Northern Rock they could already have had a similar scheme in place.

Many market observers are expecting to see a short term upturn in sentiment and then it will be down to the markets to find a level of risk and reward at which they are most comfortable. This £50 billion is no quick fix, it will not put right the wrongs of the market overnight but it has a great chance of setting the wheels of the economy moving again.

While the current government can afford to wait until 2010 to call the next election, it really will take some time to get the economy back on an even keel. Even though the money markets may start to show more signs of life, and a certain degree of confidence will return, many in the UK will still have to go through the pain of financial losses, employment worries and housing repossessions – which is all part of the boom and bust culture which all developed economies go through at regular intervals.

Rumours are rife in the City that Royal Bank of Scotland will ask shareholders to stump up to £10 billion in order that they can restore their capital ratios near to those of their European counterparts. Despite commenting that no funding raising would be required only two months ago, it seems that the Bank has had a change of heart. But is it all bad news?

Despite the doom and gloom headlines which will no doubt hit the press tomorrow, there is actually a sense of relief that finally we have a major UK bank willing to stand up and say that help is required. There are also many people who believe that the expected call for cash, which has not officially been confirmed, will mark the bottom of the credit crunch crisis (although the situation is unlikely to actually improve for some time).

The possible reason the news has leaked into the market is the fact that prior to announcing the rights issue, they will have held urgent talks with major shareholders and advisers, some of whom may have inadvertently leaked the information to third parties. Now that the Royal Bank of Scotland seem set to show their hand there are rumours that Barclays Bank are also in talks about a possible rights issue next week – perhaps looking to take the shine of the Royal Bank of Scotland announcement and beat them to the punch.

However, while strangely enough this may mark the bottom of the downturn if, as expected, more UK banks use this break in silence to ask shareholders for more money, there may be competition for institutional funds. While no bank would want to “give away” new shares, they will have to be priced at a level which makes them attractive to large and small shareholders alike. It would take a brave investor to underwrite an issue in such difficult markets, so that traditional backdrop may not be there for some banks.

The UK banking sector is very much at a cross roads after years of expanding overseas with many now hit by the credit crunch and their over weight exposure to markets such as the US. While this will not stop further expansion in the future it is sure to make a number of high flying chief executives think a little longer and a little harder before spending shareholder billions in overseas ventures.

If this is the bottom of the UK banking crisis then the UK tax payer may actually see a swift return on the money used to bail out the Northern Rock. It is no secret that the business of the Northern Rock is being reduced in order to get their house back into order ahead of a trade sale some time over the next few years.

We may well look back on this day in the months ahead and realise that it was the turning point in the cycle, but then again who knows what shocks and surprises await us in the future!

As the recession starts to bite it is becoming more and more obvious that the tax changes over the last decade are starting to really bite into the small business sector. More and more entrepreneurs are suggesting that times are getting harder, money is tighter and costs continue to rise despite the many promises to look after the sector. Let us not forget that the small business sector is a main part of a success economy, something which was evident when the economy was doing well, but it is a sector which often exists on thin margins and inadequate funding. So what happens next?

Despite promises that the economic boom and bust cycle of the past was over we have seen a sharp return to old ways in the light of the credit crunch. Those who thought that boom and bust scenarios had disappeared forever are quickly realising that this is not the case. Human nature will always ensure that in the good times we all become a little greedy and in the bad time we batten down the hatches and keep our money in our pockets. For anyone to believe otherwise would represent a great leap of faith!

Successive UK governments have found it very easy to hit the small business sector with yet more red tape, VAT and other tax rises over the last decade with the economy rising and nobody really concerned with the fact tax charges were rising and extra expenses being heaped on the sector. Now that we are seeing demand dry up and sales harder to come by it is only just starting to hit home with many business people that their costs and expenses are very top heavy.

The current government are unable to assist with any reduction in taxes because of the dire state of the UK balance of payments – indeed the Treasury announced that in the face of common business logic they will borrow more and more money to spend their way out of the UK recession.

For many years the UK has had a very buoyant small business sector, and while this will not disappear over night, the chances of a sharp rebound in the sector seem fairly small. Indeed when we eventually move out of the recession into the good times again, many small businesses will suffer from funding issues and a lack of liquidity with which to expand their business.

The name of the game for the small business sector over the next couple of years at least will be to reduce their cost base, keep investment to a minimum and just get through the bad times. At some stage they will need to introduce significant marketing expenditure to the equation, but the time for that is still some way off.

Only now we are seeing the catastrophic results of gradually increasing small business expenses and taxation, which went unnoticed by many in the good times, but are really starting to hit home in the bad times!