Planning for financial independence.

Budget is the most important thing that will help you to get a financial stabilization. There are many people around us who earn a lot but never maintain a proper budget and if you look at them carefully, you will see that they don't have any financial security. These type of people have to face a lot of problem during their financial crisis. But those who maintain a proper budget are always out of any financial haphazards.

We sometimes think, why we need a budget, can't we live the life as it is? Can't we float with the waves of life? Yes we can, every one loves to be free from any trouble. But the problem is that you never know what will happen the nest moment. We are not super visionary, so how can you prevent the problem coming to you? The answer is a proper planning. And if you want to prevent the financial problem, you have to make a proper budget.

Debt is the biggest problem of this time and once you fallen in debt, it's not so easy to get out of that. The best way is to make a proper budget to get out of that. Budget dose not mean that you become cheap, it dose not mean that you won't have one burger but one thing that you may have to sacrifice some of your luxuries. Keep a particular goal in your mind and set your budget or expenditure according to that.

Make a fix budget on everything, on food, on transportation etc.. Keep the money in an envelop and write the name on it (like, for food or transport). Try to keep the budget within that. You may face problem at the beginning but later you will be habituated with the condition.

Don't think too much before starting a proper budget. Make a short term goal, it will help you to reach their quickly. And remember one thing, if you achieve something that you desire to get then it will give you a mental satisfaction, you will trust yourself more than before but if you make a huge goal and failed to achieve, it will dishearten you. It won't be good for you. So always start with a short term goal and after achieving them one by one, you can think of a long term goal.

It's your life, you know how to lead it but if you want to make your future, you have to go for a proper budget because we all know, prevention is better than cure.

Original post "Budgeting for Financial Freedom"

UK National Debt

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The UK national debt is the total amount of money the British government owes to the private sector and other purchasers of UK gilts.
From figures published May 2010, UK public sector net debt was £903.0 billion. (or 62.2% of National GDP) – Source: Office National Statistics [1] (page updated June 18, 2010)
Excluding Financial sector intervention, public sector debt is £771 billion or (54% per cent of GDP)
The PBR (annual government borrowing) forecast for 2009/10 is for net borrowing of £178 billion or 12.6% of GDP.
Graph Showing UK National Debt

National debt UK : ONS

After a period of financial restraint, National debt at a % of GDP fell to 29% of GDP by 2002. Then, national Debt as a % of GDP  increased from 30% in 2002 to 37 % in 2007. This was despite the long period of economic expansion. It was primarily due to the governments decision to increase spending on health and education. There has also been a marked rise in social security spending.
Since 2008, National Debt has increased sharply  because of:

• Economics Recession (lower tax receipts, higher spending on unemployment benefits)
• Financial bailout of Northern Rock, RBS and other banks.

Although 60% of GDP is alot it is worth bearing in mind, that other countries have a much bigger problem. Japan for example have a National debt of 194%, Italy is over 100%.  The US national debt is close to 71% of GDP. [See other countries Debt]. Also the UK has had much higher National Debt. e.g. after the second world war it was over 180% of GDP.

National Debt and Financial Bailout

The Nationalisation of Bradford & Bingley and Government purchase of shares in major banks like HBOS will cause even more borrowing. It is estimated National debt will could rise close to 100% of GDP by 2012
It is way above the government’s sustainable investment rule of 40% maximum. However, the debt is  different in the sense that the government has a reasonable chance of getting, at least, some of its money back. It is different to say borrowing to pay pensions.

What is the Real Level of UK National Debt?

However, it is argued that UK’s national debt is actually a lot higher. This is because national debt should include pension contributions and private finance initiatives PFI which the government are obliged to pay.
The Centre for Policy Studies (at end of 2008) argues that the real national debt is actually £1,340 billion, which is 103.5 per cent of GDP. This figure includes all the public sector pension liabilities such as pensions, and Private Finance Initiative contracts e.t.c (Northern Rock liabilities).

• However, these pension liabilities are not things the government are actually spending now. Therefore, there is no need to borrow for them yet. It is more of a guide to future public sector debt. I don’t accept the fact that future pension liabilities should be counted as public sector debt. In 2006, the Statistics Office did change calculations to include some PFI into public sector debt figures [pdf - Treasury.gov.uk]
• However, it is a sign that it will be difficult to improve finances in the future.

Another problem is that with the financial crisis, the government have added an extra £500bn of potential liabilities. Note: the Government has offered to back mortgage securities. They are unlikely to spend this money. But, in theory the government could be liable for extra debts of upto £500bn. If we include this bailout package as a contingent liability National debt would be well over 100% of GDP.

Forecast for National Debt

Source: HM Treasury – may prove to be overly optimistic
The Public Borrowing Requirement forecast for 2009/10 is net borrowing of £178 billion.
Problems of National Debt

1. Interest Payments. The cost of paying interest on the government’s debt is very high. In 2008 Debt interest payments will be £31 billion a year (est 2.5% of GDP). In 2009, they will be £35 billion (similar to defence budget). Public sector debt interest payments could be be the 4th highest department after social security, health and education.
2. Higher Taxes in the future.
3. Crowding out of private sector investment / spending
4. The debt problem will only get worse as an ageing population places greater strain on the UK’s pension liabilities. (demographic time bomb)
5. Negative impact on Exchange Rate (link)

See also:

• Should We worry about National Debt?
• US National Debt
• Books on Debt at Amazon.co.uk
• What went wrong with US economy?
• Problem of Personal Debt in the UK
• How is National Debt financed?
• Public Debt at the Office of national Statistics

History of National Debt

national debt as % of GDP: Source: no 10.gov.uk

National Debt since 1900

• Historical National debt
• What are the prospects for UK Debt Default?

Original post "UK National Debt"