Stephen King , the Group Chief Economist of HSBC recently described the current economic situation to be similar to being “stuck in a time of economic permafrost”,  he sees us as being stuck “in the bleak midwinter”, recession may have come to an end in some economies but the real problem is that to date there is no sign of any growth and 2012 is likely to mark the fourth consecutive year of at best stagnation and possibly another recession.

So, how can I possibly wish you a “Happy New Year” against such a background. Well, I am bold enough to say it because I think against this background we need to think about what really makes us happy……so, we can no longer do as much shopping for those “little extras” but did we really need them? What we need to do is to look around us at the things which do make us happy such as our family, our hobbies and interests, our home or garden. It may just be meeting up with a friend for a pint or a coffee. We need to concentrate on the here and now, we have very little control over the future, that is in the hands of the politicians, need I say more.

When looking to 2012 and beyond we need to be realistic and I am going to take this as my theme for the articles for this year – “Putting realism into your financial planning”

So, how do you look realistically at your financial plans on 2 January, 2012? I am giving you a day off to recover from the hangover. First you need to look at the current situation and see if there is likely to be much change. I think not, interest rates are low and will continue to be so, inflation is high and may fall slightly but is likely to remain with us through the next 12 months, the world stock markets will remain volatile  because of the uncertainty amongst investors.

So, how should you position yourself? if you are still in the workplace, then I think it is important to keep a large emergency fund in cash in case you lose your job, I would recommend the equivalent of 12 months’ earnings. If you are in employment and part of your salary package includes benefits,such as life, health and income protection insurance, you should think carefully about how vulnerable your family would be if you lost that benefit and perhaps consider putting some personal cover in place, you can always cancel this in the future. You will see below that I talk about those in retirement pruning their various subscriptions, if you are still employed a thorough look at your bank statement may show up the gym membership or similar  which is not being regularly used. Why not consider cutting out these costs now rather than waiting until you are forced to do so.

If you are retired, you should also take stock, in your case it will be difficult to increase your income so you need to concentrate on expenditure.The big question you need to answer is whether your costs will increase in the next 12 months, I think they will. My recommendation is that you should spend the early part of the year looking at your costs and seeing if it is possible to obtain your various insurances and utility supplies at a cheaper rate. I know that most readers of websites are very “clued up” but do remember that it you are over age 65 there are many offers available for the retired. Many of my clients are retired and when I look through their bank statements, I frequently find subscriptions being paid for periodicals or clubs which are now no longer really needed and cutting out these costs  this may be a good start on economising.