Personal Finance—The Takeaway Issues
Particularly when framed in the context of financial news and markets, the fundamental issues that drive personal finance concerns and anxiety are too often ignored. While not as flashy as corporate earnings, Federal Reserve interest rate decisions, and mergers and acquisitions the building blocks of personal finance are critical to understand. Purchasing an automobile, buying a home, and financing education are the largest financial decisions that are undertaken by individuals, and we are going to look at action-oriented steps for individuals to put into practice. While the details of these decisions will obviously be different for every individual the key concepts and steps that can (and should) be taken are consistent.
Buying a Car
Now I know that this is titled “buying” a car, but these principles will also apply for people seeking to lease a vehicle. If at any point there is a point that I think is specific enough to call for leasing concerns, those items will be bold-faced. Before that, however, it is important to remember what a vehicle is, and what it is not. A vehicle is a tool that enables you to get to work, get to school, pick up kids from soccer practice, and in general have the flexibility that you need to live your life. Especially in the suburbs, or anywhere outside of major urban areas really, a car is a necessity as opposed to an optional purchase.
With that in mind, it is easy to get caught up in using a vehicle as a status symbol, especially when it comes to technology and optional features. These can be nice, but inevitably cost you more money—money that could be used to save for your longer-term goals, or a treat like a birthday trip somewhere you want to go. So, let’s take a look at some items to always keep in mind, and be aware of, when you are looking at upgrading/purchasing a vehicle.
1. Do your homework—There is virtually endless information available online, and it is free of charge, so it is really the responsibility of the consumer (you and I), to take advantage of this information. Clearly the decisions and information will be different, and include different specific characteristics depending on the purchase in question, but there are a few data points that should be analyzed.
a. What is the total cost of ownership? And by that, I mean what is total cost of both the monthly payments and associated fees that are included within the cost of the lease or purchase option? Generally, the overall cost of leasing is usually more expensive than a purchase decision related to an automobile. Specifically, there are several fees and conditions that should always be analyzed when deciding whether to lease or purchase an automobile, and these factors apply regardless of make of model.
b. First, you must examine the terms and conditions linked to the lease agreement versus the options available if the vehicle is purchased. Drilling down, there are two terms and conditions that must be analyzed when evaluating the purchase versus lease decisions. What is the mileage cap on the lease agreement? This is one of the most often violated terms of a lease agreement, and can easily add up to thousands in extra expenses. Second, the specific terms related to the condition of the vehicle when it is returned must be taken into account. Put simply, the dealership wants to be able to resell or release these vehicles, and any dings/scratches, or stains will reduce the trade in value you receive for the vehicle.
c. In short, when you are deciding to lease or purchase a vehicle, which is the second largest purchase (after a home), in the financial life of most individuals, it is imperative that you do your research. Understanding both the costs and obligations that you face if you purchase the automobile or lease the vehicle is important when you are assessing a vehicle decision.
Home Ownership
So, after purchasing a car or truck, the most important financial decisions in a person’s life are (1) saving for retirement, and (2) purchasing a residence (whether it is condo, co-op, or single family home). While these decisions are clearly personal and emotional in nature (all you have to do is watch the shows on HGTV to see the emotional aspect of home purchases), the bottom line is still the bottom line.
1. Are you going to rent or purchase this residence? This is an important question and decision that is too often overlooked and overshadowed in the midst of decisions linked to the details of the home purchase itself. In essence, the decision to rent or buy the home in question boils down to whether or not you are certain about the residence in question.
a. Renting, is in the long run, paying money to live in a place that you are not certain you want to remain (otherwise, why don’t you buy a place there), or it is located in an environment that is unaffordable for purchase.
b. Purchasing the residence, clearly, is a longer-term financial obligation and should be evaluated as such. Perhaps the most important thing that you can do in order to set yourself up for financial success is to be sure to review the terms and conditions of whatever agreement you sign. This cannot be focused on enough—being sure to read the terms and details of what you sign is essential.
2. Make decisions based on what your career and financial goals are, and be sure to keep these different items are closely aligned as possible. Imagine if you started to train for a marathon, then decided to train for powerlifting, and then wanted to do Cross Fit. You probably would not make much in the way of progress on any goal—your financial decisions are not any different!
a. Be realistic though, and make sure to incorporate other different trends that are going to influence both your career and your real estate decisions.
Saving
When the topic of saving or budgeting inevitably fails to bring out the eye rolls and other signs that the people listening are not interested in whatever follows. Saving and budgeting, far from being boring or topics not to be interested, form the foundation of whatever financial plan or goal you are ultimately planning on achieving. Building a budget and saving funds for your different goals does, however, require several steps depending on what your goals are, and your own personal financial objectives. While these steps will obviously be different for everyone the core concepts remain the same.
1. Make a plan—Regardless of what you are planning or where you currently are in your financial path, having a realistic plan is very important. That said, making a plan that is not linked (really) to reality and your current position is not going to do you any good. So, with that said, you really have to make sure that the following elements are built into your plan.
a. Is your plan reasonable? Meaning can you actually follow your plan with the tools (more on that later) and techniques that you have at your disposal?
b. Do you have a budget buddy or other kind of support network? Just like a training buddy or partner helps make going to the gym earlier, or waking up for that early morning run less painful, having a budget buddy does the same thing for your personal finances.
c. Where are you currently? When you take a look at where you want to end up, how close are you to your goals at this point in time? In addition to being realistic for a path forward, your plans and budget goals you need to have some connection to where you stand at the present. This will also help you decide what to do with regards to the next point.
d. Do you have short-, medium-, and long-term goals? Before drilling into the tools and resources available you need to make sure that you have your own personal milestones set up. Being able to treat yourself….
Tech Tools
As promised throughout this book we are going to take a look at some of the tech tools and resources that are available for people (that means you) to use who are interested in learning more about their personal finances and improve them. With that said, it is important to remember that no matter how advanced the tool is it is up to you to make the best use of these devices and tools. Many of these tools are widely available for free, but it is imperative that you remember what we discussed earlier in the book. Identity theft is not an isolated matter, and should be something that you keep in mind whenever you access any of these mobile tools on your phone or tablet. What that said, let’s take a look at some of these tools. Obviously, these tools will change and evolve over time, but as long as your stay current with your phone and tablet updates you should always have access to the most current version of the tool.
1. Mint—Mint is a tool that you can personalize to your specific needs and requirements that is widely available in the app store. In addition to being able to personalize the information and functionality you see, it is also free for initial sign up! Accessible from desktop, tablet, and smartphones, this is a very popular tool that is rapidly gaining popularity.
2. PocketGuard—Pocket guard is an app that links directly to your bank accounts, and allows you to see (in real time) your transactions and account balances. In addition to this convenience the app also analyzes recurring payments, recommends planning steps you can take, and summarizes these data in graphical formats for ease of use.
3. You Need a Budget—You need a budget (YNAB) is a robust financial planning tool that focuses on four basic concepts to help you build and maintain a budget on the move. These rules are—give every dollar a job, plan for infrequent expenses, roll with the punches, and learn to live on last month’s income. Following these rules can help you construct and maintain a budget that is built for real life.
4. GoodBudget—Remember those envelopes that you or your parents might have used to help split up which funds go where? Well this is the digital version of that very same system! Additionally, and this is where it really benefits you—this app syncs across all devices you have it installed on, so there is never any confusion as to what is what.
5. Mvelopes—This is another great budgeting app and tool that also provides you the flexibility to pay bills, and also manage your spending in real time. The ability to monitor your spending habits in real time is a great tool that can help you build spending plans and habits that help you establish a budget that can withstand the ups and downs of everyday life.
Wrapping Up
We have talked about a large number of personal finance topics, financial literacy resources, and specific tools that can be used to help you build the best budget for your needs, but this is just the beginning. Equipped with this information and knowledge you have all of the necessary knowledge and skills you need to be empowered to succeed. Most importantly, by having read through this book (and making it all the way to the end!) you have made an active choice to improve your finance and your financial life. The tools are in your possession, you have this guide (and access to other resources through this book), and you obviously have the motivation to improve your financial fitness.