Monthly Archives: February 2017

Buying a Car? Read This Financial Advice First

A few years ago when my son was in college, I gave him my old car to drive. Now, four years later, my son has a job and an apartment and uses this same old car to commute. The car is still reliable, but does need a little maintenance, and my son is thinking about buying a new car. He’s asking my advice, so I thought I’d share my advice with everyone. Buying a car is one of the priciest purchases you can make, so it’s definitely a subject that requires some financial advice.

Choosing the right car is very subjective. There are practical, emotional and aesthetical needs. Some people only care about a car as transportation. For some, a car needs to be comfortable. For others a car needs to project the buyer’s personality or be beautiful to look at. For still others, a car is the manifestation of sophisticated technology and needs to look and go fast. I think of a car as transportation, but I also want to be comfortable while I’m being transported. My son wants the car to fit his transportation needs and be fun to drive. When my wife bought her last car, her only need was a place to put her purse that wasn’t on the passenger seat or too far away. So how do you choose?

Make a List

You won’t be happy if you get a car that looks great and goes fast, but can’t fit your family or transport your dog or bottoms out on your driveway. So make a list of the most important transportation criteria and use this as a guide during your search.

Research

I happen to think Consumer Reports is one of the best sources out there for car information. They have a lot of technical information on the cars, and they test drive every one. They collect information from their readers on reliability issues and even have a buying service to help you get a good price. Since they accept no advertising, their advice is unbiased, but remember, their criteria are not necessarily your criteria.

What Can I Afford?

Financially, the best way to buy a car is to buy it new with cash and keep it for a long time, preferably 10 years or more. You can get the best price, you don’t pay any interest and you can sell it at any time. A car is a depreciating asset that doesn’t depreciate in a straight line. New cars depreciate the most when you drive them off the lot. They depreciate rapidly in the first couple of years and then depreciation slows. Keeping your car a long time means the rapid depreciation when the car is newer won’t matter to you.

How much car you can afford is obvious if you’re paying cash, but not if you take out a loan or lease your car. Then you have a monthly payment. Don’t get into any deal that lasts over five years (or 60 months). If you do, you are likely to be under water (where you actually owe more than the car is worth) for at least part of the deal. Sure your payments will be lower, but you are locked in for way too long. Make a realistic budget and include the car payments, insurance and maintenance. Try to keep your debt-to-income ratio less than 15%. You should also be continuing to save 10% or more of your income. If your car payments cause your savings to go away, you’re buying too much car.

If you find that you can’t buy the new car you want, look into a used car. For as little as $2,000 you can get a used car that will take you from point A to point B, and if you spend more you can actually get a nice car. Just remember that any used car will need some maintenance, so put that in the budget. If you buy a used car from a dealer, you might be able to get up to a six-month warranty, but you will definitely pay more than buying from a private party. Always get a Carfax report on any used car you buy. Most dealers will provide it for free, just ask. For a private party purchase you will probably need to buy it. The Carfax report will give you the car’s collision, repair and purchase history.

 

Steps Toward a Financially Fit New Year

Let’s face facts: after the holiday season shopping is completed, most of us find that our bank accounts are a bit smaller than we hoped they would be.

With this reality check in mind, here are 10 steps everyone can use to start off the new year on a smarter note with their money, and hopefully stick with them throughout 2017:

  1. Stop getting “nickeled and dimed” by everyone. And don’t start doing it to everyone else.  Why let stores, friends, family, etc., take advantage of you when it comes to money? Be fair about money matters and don’t get taken advantage of by anyone. Instead, use coupons, negotiate better deals or terms (especially when it comes to insurance) and ask firmly but nicely (mind your manners!) for the money you’re owed. Please stop drawing the short straw in these situations—you deserve better.
  2. Put a budget in place AND stick to it. No sense in spending your money without a clue–let’s figure out how to better use this green stuff, eh? Nothing will help you do that better than really seeing what money goes out and what money comes in. No excuses either—there are plenty of cheap and easy to use software/apps/tools that can help you create and track your budget. After you do this, you can figure out where you need to improve and make progress.
  3. Put a financial plan in place AND stick to it. See above. Make sure your investments and tax situations are where they need to be with your goals in mind… whatever those goals may be.
  4. Eliminate terrible debt. The big-box store plastic is probably the biggest problem for most people. The only acceptable debts (as long as the interest rates are reasonable) are mortgages, car loans, home improvement loans, and college loans. Negotiate lower rates whenever possible – no need to pay more interest than you should.
  5. Get a sufficient emergency fund in place now.  This way, you won’t resort to using plastic when you have one of those “uh-oh” moments.  Ideally, save three months of income for starters. One year of income saved would be best.
  6. Improve your health. Yes, this affects your money. Less money spent on medications/prescriptions, fewer doctor’s visits (except your regular checkups), etc. Eating better (you can contact me about this too – I know a thing or two in this area) and regular exercise (try to start somewhere – even if it’s just taking a walk after lunch or dinner) are truly your financial “friends.” If you make some healthy changes, you will spend less money on many types of insurance going forward and enjoy a better quality of life. Who doesn’t want that?
  7. Take care of the things you have. There’s no sense in spending money frequently on big-ticket items. Make them last for a while. Maintenance is key, especially when it comes to vehicles, boats, your home, properties, etc.
  8. Be satisfied with what you have.  Too many people play that silly game called “keeping up with the Joneses.” Having the latest big-screen TV in every room in your house is not wise if you don’t have enough saved for retirement or for little Suzie’s college education. Prioritize the things that really matter – delay instant gratification instead of having the “I need this yesterday” mentality that gets far too many people into financial trouble.

Don’t Wait to Teach Your Kids About Money

The adage “youth is wasted on the young” comes from the idea that young are too inexperienced and have too little perspective to take advantage of their youth; thereby it is “wasted.”

In many areas of life, this will always hold true. However, in the world of personal finance, this need not be the case. If only we adults would take the initiative to teach our kids and give them the knowledge and perspective they so sorely lack, our youth could take advantage of being so young and create far different life outcomes.

Recently, I had a conversation with my 17-year-old daughter, who just received the third of three paychecks from a summer internship. She received $500 at three separate intervals for a total of $1,500 and we were talking about what to do with the money.

Teachable Moments

  1. I didn’t ask her what she was going to do, I told her. Yes, it’s her money. Yes, she earned it. No, she does not get free reign over what to do with it. Let me explain. Maddy is an extremely bright and conscientious 17-year-old. But, she’s still 17. She doesn’t have any idea how money works, how to think about the role of money in her life, or the opportunity she may be squandering due to her inexperience. Isn’t one of the major roles of parenting to protect our children from doing harm to themselves? Not teaching children about the role/importance of money in their lives constitutes a certain level of neglect. Sure, only a financial advisor would say such a thing, but that doesn’t make it not true.
  2. The importance of having this discussion as early as possible. Maddy didn’t fight me. She’s young enough to still care about what her parents say to her. If I waited until she was older and already had ingrained spending and saving habits, it would have been a much more difficult fight.
  3. Even though I “told” her what she was going to do, I took the extra step to explain to her “why.” How do you think she feels knowing she could easily be a millionaire if she just builds a couple of keystone habits now?

Common Habits That Can Increase Wealth

Find Good, Thoughtful Books to Read

Great leaders and successful businessmen and women are all known to have read…a lot. Alexander the Great had libraries that he took with him everywhere he went and Bill Gates goes on reading retreats with multiple books and just lets his thoughts create new ideas from these books. Reading allows you to learn new ideas and tricks but also allows you as the reader to learn from the failures of others.

Create an Exercise Plan that Works for You

Studies have shown that having an exercise routine gives you more energy throughout your week. Exercising also helps with brain function and of course ultimately helps you stay healthy and prevents extra doctor visits and medications that cost money. It doesn’t have to be intense. Go bike, run, do push-ups, Pilates, yoga… whatever works for you.

Stop Eating Out for Lunch Every Day

It is easy to eat out for lunch every day and fun. But it is also more expensive than brown bagging it or going home for lunch. You can save a good amount of money by making your own lunches instead of dropping at least $12.00 a day on lunch.

Stop Getting Drinks after Work Every Day

I know this seems tedious but it is the same logic as eating lunch out every day. You may not be the person that gets the $10.00 cocktail but still that $5.00 beer can be $5.00 saved for that trip you want to take or the new used car you have your eyes on.

Meal Plan the Week Out

This goes with learning how to cook. Planning out your meals allows you to know exactly what you need to buy at the grocery store, no more and no less.

Have At-Home Date Nights

Date night at home is sometimes more fun. Create the environment of a date with special food, candles (for the romantics), board games, or your favorite movie. I even put up a tent in our living room once and we had a movie night in the tent. It was fun and different and I believe we even made pizzas that night.