As a direct result of further pressure in the middle east, brought about by the announcement that Turkey are looking to venture into northern Iraq to counter terrorist groups attacking their troops, the price of oil has risen sharply to over $90 a barrel.  While on the surface, with winter coming, this could not have come at a worse time, is this the real picture?

Surprisingly, many experts are privately suggesting that the recent rise in the price of oil is as a direct result of increased trading by speculators, and does not reflect the true supply and demand situation on the ground.  This case has been further strengthened by the fact that the gasoline market is still lagging the recent oil price rise, suggesting it may be the fault of speculators.

However, if the current oil price were to be sustained for some time it will have an impact on everyday costs, including power, transport and the like, not to mention even traditional food expenses (where increased transport expenses will need to be covered by the consumer).  It is in everyone’s interest to ensure that the middle east situation is kept under control, but attempts by countries such as Turkey to “protect” there own assets are becoming more likely.

We may be in a similar situation to last year, where we saw a massive increase in the price of gas, and it will be interesting to see how the authorities and the gas supply companies respond this time around, after so much criticism last year.  There is also talk of transport strikes with the implementation of Gordon Brown’s long delayed increase in fuel duty.

Recent events in the money markets have shown that once you sign that mortgage / loan deal, do you really know what happens, and where your liability may end up? Unless you have done some major research into the sector, you will probably not be aware about what goes on behind the scenes.  Let us tell you what happens…….

Once you sign that mortgage or loan deal, there is every chance that your agreement could be split up into many pieces and sold to a number of financial companies around the world.  But how is this done?

Simple!

When you sign a financial agreement you will create two separate income streams, interest and capital, which will be stripped and bundled up with a variety of other financial elements.  By bundling many different qualities of income stream into a new financial instrument, it is possible to create a customised vehicle for any requirement.  Risks and the duration of the instrument can be varied simply by taking on different “strips” of any other agreement.

So in effect you take your mortgage out in the UK and within a matter of days your agreement could be scattered to all areas of the world.  This is part of the problem with the ongoing credit crunch in that nobody really knows who is at risk until the pack of cards start to fall, then A cannot pay B who cannot then pay C, and so on.  After a short period of time, liquidity dries up, finical institutions need to retain their funds, and the internal money market is dead.  Step forward Northern Rock for 75% of that last mortgage they agreed, in the form of a commercial loan, but the funding is not there!

While the above description may sound a little simplistic , it really is that simple.  A lack of confidence in the money markets can lead to banks withdrawing their finance from the markets, which results in other companies not being able to function normally, which results in Northern Rock like situations.

Northern rock is a little different than most banks as it borrows a large amount of mortgage funding from the market, rather than being in a position to use its own assets.  The likes of Barclays, Lloyds, etc are total different in that they are more likely to use their own asset to back 75% of a mortgage agreement, and borrow 25% from the money markets. 

While many people see financial planning for those who are a little older, a little nearer their retirement date, this is not the case.  Financial planning should start as soon as you are in employment, as soon as you have money coming in, and as soon as you can afford to put that little extra aside.  So what should you be planing?

There are a number of financial issues which you should look at from an early age, including :-

Pensions

It is never too early to either start contributing to your company scheme, or open up your own pension plan.  While retirement and later life may seem a long long way off, you need to ensure that you will be able to support yourself in later years, and enjoy your retirement.

Mortgages

Buying a house will probably be the most worrying experience of your life, the expectation, the liabilities and the pressure.  You need to budget not only for the next payment, but for the next payment rise, the next call on your cash.  Ensuring you are not living from month to month without some form of savings can be difficult, but if you can put a little aside for a rainy day, DO IT.

Endowment Policies

Many people have taken to setting up endowment policies which are effectively savings plans which can be scheduled to mature at any time in the future.  For the younger generation they can often be a gift from grandparents who have decided to give their relatives a head start when they get older.  Often forgotten n the financial world of today, they can be very useful.

There are many different areas of anyone’s life which will require some form of financial planning, and while it would be impossible to look into every option, these are some of the basic products which you should consider.

Those who once thought that the state would look after them in their hour of need, or their later years, are just now beginning to find out how hard it can be, and how useful just a  small amount of savings would have been.

Credit cards have become a way of life for the majority of the UK population over he last decade of so, but those who treat them with a lack of respect can often find themselves in trouble.  Credit cards should only really be considered for short term funding arrangements, with the user certain that they can pay the funds back as soon as possible.  However, many have fallen into the trap of multiple cards, with offers for more and more cards dropping through the letter box on a regular basis. 

Is there an alternative to long term credit card debt?

The best credit card users are the ones who pay off their debts every month in full, although this is a rare occurrence with the UK credit card fraternity. The problems can easily count up if you fail to pay off the full amount, but continue to spend on your card.  Unfortunately it is very easy to push your debt up to £100, then £200, then £500 and further.  At some stage you will get to a level where you think another £100 will not make a difference in the long term, but is there an alternative?

For those not in a position to pay off what may have become a large credit card debt, they should be considering a personal loan to pay off and close their credit card accounts.  There are many benefits to this which include :-

· A drastic reduction in interest rate charges.

· A more structured debt management plan.

· Easier financial planning for the month.

· A path away from a life of constant debt and possible bankruptcy!

If you are liquid and have a decent income coming in on a regular basis, the banks will not have any second thoughts about lending you more and more money, increasing your credit card limit, etc.  However, if you bury your head in the sand and ignore an accumulating debt problem, by the time you realise you are in trouble it may be too late.

As soon as you realise that the majority of your income is going on servicing your debts, it is time to act!

Over the last few years overdrafts have become very much a normal way of life for many people in the UK, something to fall back on in times of need, but should they really be a part of every day financial planning?

As competition hots up in the financial industry it has never been easier to get an overdraft, banks are literally giving them away as soon as you open an account. While many people are often attracted by the small “buffer” zone which is interest free, they tend to forget that the interest rate on overdrafts (not to mention the monthly fees which many banks charge for the service) can be fairly high.

Other aspects to consider about an overdraft include :-

· The majority of people who have an overdraft will use it at some stage EVERY month.

· Check your monthly overdraft charges each month - interest and monthly fee - and you will be surprised how high it actually is.

· If you are constantly into your overdraft each month, that may restrict your opportunity to move elsewhere, and take advantage of other offers in the sector.

· Overdrafts are repayable on demand - as soon as you hit any kind of financial trouble, watch the banks withdraw the service. For some this can be the beginning of serious financial troubles, with a major knock on effect.

Unfortunately for many, the chance to spend their overdraft can often be too tempting and can lead to further over spending.  This can then lead to extended overdrafts which they have little opportunity to actually repay, and possibly new loans, etc.

Surprising as it may sound, for those who make constant use of their overdraft facility, a loan may often be a more sensible option.  A loan offers a more structured repayment plan, a small amount each month going to pay off the debt, and very often the interest rate will be less than the cost of an overdraft.

To make the most out of any borrowing facility, it is essential that you have a structured repayment plan.