Don’t Lose Your Voice When It Comes to Your Finances

March 14, 2017

My husband loves cars. No, I mean he really, really, really loves cars. Whenever he is driving, our conversations will quickly go from what we are going to eat for lunch to the engine power on the vehicle next to him – often in the same sentence.

I thought I was all alone, until my colleague, Vekevia, shared with me that her husband loves cars too. As we started talking, I wanted to share her wisdom on how to keep the peace in a household with very different interests, especially when one person manages the household finances. Below are her thoughts:

Some couples manage money together and other couples have one person who primarily manages the money. Usually, in cases where one spouse manages the finances for the family, that individual is more financially savvy or may just be better at handling that responsibility. That makes sense.

It becomes an issue when either spouse, most likely the one not handling the finances, feels like their financial goals or desires are overlooked or not taken as seriously as the other spouse’s financial goals or desires. This is especially true when you just do not see eye to eye on the value of what either spouse holds dear. I handle the finances in our family and have had to learn to work with my husband so that we both feel heard.

My husband is an avid car lover and I don’t just mean that he enjoys seeing nice cars. No, his passion extends far beyond that. He is fascinated over how a car is designed and built. He cares about the horsepower and enjoys seeing how it performs.

Every year, we go to a well-known racetrack in our area to see other car enthusiasts show off what they’ve built and race each other. As you might suspect, this is not cheap. On average, the cost to build a car like what you would see at this type of event can sit close to six figures and annual maintenance after racing can fall in the five-figure range. Guess what? He wants to build one.

Initially, this was a problem for me because I do not value cars the way he does. I just like when a car is visually appealing, dependable.…and INEXPENSIVE! The good news is that we are compromising and he plans to build a much less expensive car, but the financial planner in me wants to scream. Cars are depreciating assets that lose value rapidly over time.

However, my husband’s passion for cars, as expensive as it may be, holds a value that I can’t technically plug into my calculator and put down on paper. It would mean a lot to him for his dream to become a reality at some point this lifetime. I value him and his happiness. Life is short and you only live once.

Being financially healthy doesn’t mean denying yourself the things you’re passionate about just because of cost. It’s about fitting your passions into your budget. Sometimes, you may have to find ways to make more money or decrease your expenses. We’ve chosen to fit building a car into our budget, not at the sacrifice of keeping a roof over our head, saving for our son’s college, or being able to retire, but it’s important, so it’s there.

Are you in a similar situation with your spouse? Here are some tips to show your spouse he/she has a voice in your finances:

Have an open conversation about your financial passions or dreams.
Decide what you value most. (You may have to choose 1 or 2 passions each this go around and take on the others in your next lifetime.)
Calculate how much you need to save for other financial priorities like retirement and funding your kid’s education.
Estimate the cost of making it all a reality.
Determine if your current income can carry the cost.
Seek opportunities to increase your income. That might mean pursuing a degree to make a career change, going for a higher paying position, or taking on a second job for extra income.

Realize that the cost of something is important, but so is the way your partner feels when you are willing to acknowledge and support his/her interests. You both should have a voice in your finances and work together to set up a feasible plan to make your dreams become a reality.

Don’t Pay a Multiple of a Car’s Sticker Price

February 17, 2017

Anyone who has ever been a passenger in my car knows that I am not a big fan of buying new cars very often. My last two cars got to 250,000 and 300,000 miles before I sold them for parts. My current car is a 2002 with over 150,000 miles on it and I’m hoping to get this one to 300,000 miles.

Living on the East Coast, with all the snow and salt, bay/ocean water and sand, the exterior of cars can take quite a beating. Mine certainly has. That doesn’t even count the kid who rode his bike directly into my driver’s side rear door, leaving a gigantic dent and paint scrape. Needless to say, my car isn’t going to win any beauty contests, but I haven’t had a car payment in a decade or so. I’m not much of a “car guy.”

That’s why when I read this article about negative equity in car loans reaching an all time high, I found it very alarming. Negative equity, for those who are unfamiliar with the term, is not a wonderful thing. If you owe $10,000 on a car that’s worth only $7,500, you have $2,500 in negative equity. Just about 1/3 of all new car purchases in the first three quarters of 2016 had trade-ins with negative equity and that negative equity was, on average, just over $4,800. That’s nearly $5,000 on top of an already fairly expensive purchase.

To me, this is a huge warning sign about how we think (painting with a broad brush here) about the value of a car. To me, a car is just a way to get from Point A to Point B quickly without needing to walk in the rain. To a lot of people, the type of car they drive is a reflection on who they are as people and they are willing to make questionable financial choices in order to have their car reflect the values that are important to them.

If I owned a coffee shop (I’ve been watching Friends episodes with my kids, so Central Perk is stuck in my head) and would sell you a cup of coffee for $3 but would charge you $8 if you drank half and asked for a new cup, how many new cups do you think I’d sell? I’d hope ZERO! But that’s what we do with cars. We (the folks with negative equity) drive them for a while and before we are finished with them (like getting to 300,000 miles), we trade them in for a much more expensive but shinier model and we add to the cost with that troublesome negative equity.

If a person repeats this pattern a few times, they might end up paying almost twice the sticker price for a car. If you add in the cost of interest on a car loan, it could be 3 or 4 times the sticker price. There’s not a car in the world that I’d pay that much for.

I wrote a while ago about how to save money when buying a car, and I still very much believe in that philosophy when buying a car. If you use it, or something similar, you can avoid the ever-growing problem of negative equity in your next car purchase. As pricey as cars are today, don’t let yourself pay a multiple of the sticker price.

How to Evaluate and Review Automobiles

November 01, 2016

My husband is a car lover and enjoys the process of looking for cars, whereas I would rather go to the dentist for a root canal. As we were sharing our differences with a friend of ours, she said that the biggest question she has is just how to get started. Below is how my husband answered her question:

No matter which category you fall into, one things become very apparent. It takes time and energy. To make the best decision, first consider how you will use the car to narrow down your options. For instance:

How much driving will you do? The longer your drives, the more gas mileage and wear and tear becomes important. So you may start evaluating cars for gas mileage and the overall cost for wear and tear. Consider using websites like Long-Term Quality Index and Consumer Reports to evaluate the reliability of the vehicle. These reviews can also help you avoid the most troubling models to increase your likelihood of having a reliable vehicle.

What are your capacity needs? Is it just yourself driving or a bunch of kids? Will you be hauling major items or just groceries? Consider reviewing websites like Edmunds and Car and Driver to get a road test evaluation as to how the vehicle fits into your lifestyle needs

Once you have determined this, evaluate your budget to figure out how much you can either afford to pay with cash or how much of a monthly payment you can make. The general rule of thumb for car payments is the 20/4/10 rule, which is to put 20% down, to have repayments terms of 4 years or less and for the cost of the vehicle (payments, maintenance, insurance, and gas) to be 10% of your monthly gross income or less. Websites like Kelley Blue Book give you an estimate of what cars you can afford in your budget and they can even estimate car payments.

If you are me, the thought of doing is like nails scratching a chalkboard. Trust me though. In the end, you will thank yourself for doing the upfront work now to get a reliable vehicle that you can use for years to come.

How to Avoid Hidden Car Costs

August 09, 2016

Experiencing two car accidents in four months has a way of making cars top of mind. As I was discussing this, one of our resident financial planners, Teig, offered great guidance about avoiding the hidden cost of cars. Here are his thoughts:

I really love cars. I bought my first car before I was old enough to drive and read the entire mechanic’s repair manual for it, cover-to-cover. The car was older than I was, a classic ’68 Mustang, and I spent every spare hour for three months repairing the engine, replacing worn out parts, painting, and polishing it up for my 16^th birthday. It was a real head turner until a drunk driver plowed into it head-on one night – an event I shouldn’t have survived, and my car certainly didn’t.

Since then, I’ve owned about a dozen great cars, some new, most over 15 years old, some common, and most extremely rare. I’ve always been able to keep my cost of owning these rolling works of art and fine engineering to a minimum by knowing what to maintain and how so I was able to offer Tania some guidance on her questions. I will now pass them along to you, along with a few other money saving and car-life sustaining tips:

At the gas station, choose the fuel recommended by the manufacturer of your vehicle. All cars come with a specific fuel “octane” rating requirement, and filling up with the wrong octane rating can cost you big time. The octane rating is a measurement of the pressure at which fuel combusts (explodes) and is the number you see on different grades of gasoline at the pumps (usually 87, 91, 93).

Since combustion is what drives the engine of your car, you want every little explosion to happen right when it is supposed to for maximum efficiency. The manufacturer knows precisely when your fuel must combust for that efficiency, and they give you the octane number that works best for your car. You can look it up online, it’s in the owner’s manual, or in some cases, it’s printed on the gas cap or inside the gas door. Also, using the wrong octane will cause your engine to run inefficiently, use more fuel than you need, and damage the engine slowly over time – and repairing or replacing an engine will cost you about 10% to 20% of the car’s original value.

If you do decide to put a higher octane fuel than recommended into your tank, you may be spending hundreds of dollars more than you need to per year: According to AAA, the average gas price nationwide right now is $2.20 per gallon for regular, 87 octane, and $2.72 per gallon for premium, 93 octane. That’s a difference of $.52 per gallon. If the average distance driven per car in the U.S. is 15,000 miles, and the average gas mileage is about 21 miles per gallon, then buying premium gasoline when you don’t have to is costing you over $371 per year. Amazingly, that’s almost the average cost of a new set of tires.

Avoid letting your fuel level get below a ¼ tank to avoid damage to the fuel pump. No matter how clean your gasoline, it still contains some sediment that settles in the bottom of your tank. When you let the tank get low, those sediments can get sucked into the fuel pump and filters, slowing the flow of fuel, causing you to use more of it than you need to use, and damaging the fuel system – all of which drain more money out of your pocket.

Rotate and balance your tires every 5,000 miles. For average drivers, that’s three times a year, and it’s an inexpensive and easy way to get the most value out of your tires. Assuming you maintain them (keep the tire pressure between 32 and 35, depending on your altitude), most tires will last you 30,000 to 40,000 miles so plan to buy a new set every three years or so.

A decent set of tires on my family’s every day drivers typically run between $400 and $600, but shop around as prices do vary wildly. Also, be mindful of the seasons where you live. In Colorado, where I live, buying tires around the first and last snow storms of the year is more expensive since there is usually a rush to change in-and-out of snow tires.

Only use the oil weight and other fluids recommended by your manufacturer. You don’t necessarily have to go with their suggested brand, but just as with gasoline, using the incorrect type of oil and other fluids will cost you money in damage to your engine over time and lead to costly engine repair. For most vehicles, change the oil every 3,000 to 6,000 miles and other changeable fluids according to the manufacturer’s recommendations.

The Internet is loaded with additional tips for maintaining your vehicle, which can lead to some great financial savings. If you don’t share my enthusiasm for cars, don’t despair. Instead, check out my colleague Erik’s recent blog post on how to give up your automobile completely: https://www.financialfinesse.com/2016/06/23/would-you-go-carless/

Don’t Overspend on Assets That Depreciate in Value

April 22, 2016

My middle child, who is merely days away from taking his driver’s license exam, thinks that it is a major hardship that he isn’t going to have a car on day one after he gets his license. That’s not such a bad problem to have considering all the problems in the world. I asked him about the kind of car he’d like to drive and he said he wouldn’t mind a new Mercedes or BMW…a Ferrari would do. In a perfect world, a Lamborghini or Bugatti would be his preference.

That’s when I reminded him that the world is not perfect and that it was time for a quick re-visit of our reality. I had my hiking boots in my car and told him he is going to get a car that resembles those old hiking boots, probably not a car that a high level executive would drive, but it beats walking or riding a bicycle. My rationale: a first car is far more likely to be dented, dinged and wrecked than a car that you buy after 20 years of driving experience. Inexperienced drivers pay higher insurance rates because they are a higher risk, so we are going to opt for an old ugly car that goes slow and is incredibly safe over a shiny, fast small sporty car. I’d like to see him live a long, healthy life and this car choice will help that along.

I use this theory for buying my cars:

Buy a high quality car that is 3-5 years old with 40,000–60,000 miles and coming off the first lease. I can pay pennies on the dollar based on the original price. I’ll drive it until it has 200-300k miles on it and leaseholders tend to take very good care of their cars. I’m getting a nearly new and high quality car at a low price. My current car is a luxury model that I bought for just under $10,000 2 or 3 years ago and has been a great purchase.

For my son:

If he wants a Mercedes or BMW, that’s great! But it’s not going to happen. Unless we find one that is 10+ years old, has 100k+ miles on it and can be had for a very low price. More likely, we will look for great deals on high quality cars with lots of mileage. He will be commuting a few miles to work or school and taking the occasional road trip.

I want him to have a 4 cylinder engine to be effective on gas mileage and not have much horsepower. And I want the car to have a great safety record from a car maker that has a reputation for safe cars. Looking at cars.com, I found 200+ cars for under $5,000 that my son, his mom and I can all pitch in and purchase together. Now his job is to pass his exam and come up with 1/3 of the cost of the car!

What do I hope you learn about from my son’s car? Don’t overspend on assets that depreciate in value! Americans spend far too much on cars and other things that don’t increase in value. Set some rules about how much you’re willing to spend on things like this and stick to them.

My kids all laugh when they say they’re going to “invest” in a new computer or video game. They roll their eyes when I ask how much of a profit they’ll make if they sell their new “investment” 5 years later, knowing that they’re about to hear investing means trying to earn a profit. Spending is what we do when a purchase decreases in value. The moral of this long story is to minimize the cost of purchases so that you have room to invest for your future.

Fix These Expenses Before They’re Fixed For You

January 28, 2016

Last week, I wrote about the importance of reducing so-called “fixed” expenses and not just discretionary ones like that morning coffee at Starbucks.The important thing is to reduce them before they become fixed. Here are some of the key decision points in which you can make that happen: Continue reading “Fix These Expenses Before They’re Fixed For You”

Can You Walk Your Way Out of Debt?

November 06, 2015

I was talking with one of my fellow financial planners, Cynthia Meyer, about a wide range of topics recently. During our conversation, I laughed that I was feeling too lazy to walk the two blocks from where I live to the grocery store. That’s when she told me this story of when she decided to walk EVERYWHERE…. Continue reading “Can You Walk Your Way Out of Debt?”

Is Uber Cheaper Than A Car Payment?

August 24, 2015

My colleague Doug Spencer asked himself that question when his oldest daughter began to drive and so far for him, the answer is “yes!” Like many families, they have two busy kids going in different directions for school, activities and work and with a third driver, a third car seemed like the answer. For many people it probably is, but here are the reasons that Doug has decided to hold off on purchasing another car: Continue reading “Is Uber Cheaper Than A Car Payment?”

“Worthless” Hunks of Junk

April 10, 2015

My daughter and I were talking about cars recently.She borrowed mine to “allow me” to drive hers for a few days to see if I could figure out what was the source of a noise coming from her car. After driving it for two days, I couldn’t figure out the noise but I was able to fill up her empty gas tank, check her fluids and inflate her tires. Continue reading ““Worthless” Hunks of Junk”

Is Bigger Better?

October 21, 2014

JLo and I have something in common regarding our rear ends – our recent car accidents, that is. We both walked away unhurt and with minimal damage to our SUVs after being rear-ended at a stoplight. Not so lucky was the young driver of the Honda Civic who hit me from behind since his entire front end was crushed like an accordion. JLo’s accident was due to a drunk driver so he is probably even more unlucky. Continue reading “Is Bigger Better?”

Is Your Budget Penny Wise and Pound Foolish?

October 12, 2012

I talk to a lot of people about their cash flow, budgeting, and debt and when we dive into the details of their monthly cash flow, we tend to look for relatively easy ways to trim spending. We will look at things like keeping vs. ditching a land line, cutting back on the premium movie channels, and cooking more and going out to eat less. These are all worthy pursuits and can all lower your monthly cash outflow for years to come. But I’ll put them in the “micro” budgeting category. Micro budgeting can save money, for sure. But is it possible to make an even bigger impact on your budget? Continue reading “Is Your Budget Penny Wise and Pound Foolish?”

How I Saved Money on Some Normally Big Ticket Items

September 14, 2012

I was looking at Facebook a few days ago because I got a notification that my daughter had posted a few hundred pictures and I wanted to see what they were. She’s a pretty talented photographer already at age 16 and some of her photos make me see something I’ve seen a million times in a completely different light. As a guy with absolutely ZERO artistic talent, I am amazed by those who do have talent in that area. It makes me wonder if I’m really her father, because I can’t even draw a recognizable stick figure, but I guess that’s a topic better suited for Jerry Springer than for a financial blog, huh? Continue reading “How I Saved Money on Some Normally Big Ticket Items”

What Eating the World’s Largest Lollipop Can Teach Us About Spending Money

August 02, 2012

Last week, my fellow Financial Finesse planner Michael Smith wrote a blog post titled “What the World’s Largest Lollipop Has to Do With Our Financial Problems” about how the “bigger is better” mindset can lead us down the path of debt. The problem is that a desire for growth and improvement in all areas of our life, including materially, is arguably ingrained in our culture, if not our very DNA. Don’t we always want to become more fit and healthy, more educated and knowledgeable, more liked and respected, more financially secure and yes, more materially comfortable? Continue reading “What Eating the World’s Largest Lollipop Can Teach Us About Spending Money”

Frugal vs. Cheap: How to Tell the Difference

February 25, 2011

In my prior blog, Car Buying: A Way to Save a Fortune, I talked about how I like to be a bit frugal when it comes to buying my cars. Many of my friends have read that blog and, of course since they’re my friends, they aren’t afraid to chime in and tell me what points I failed to make. With friends like that…well, you know the rest of that line.

Here’s the overwhelming commentary I got from people I know. There is a difference between being frugal and being cheap. Continue reading “Frugal vs. Cheap: How to Tell the Difference”