Читать книгу How to Be a Financial Grownup - Bobbi Rebell - Страница 19

ELLIOT WEISSBLUTH

• FOUNDER AND CEO, HIGHTOWER

MY FINANCIAL GROWNUP MOMENT

The summer after my freshman year of college I decided to buy a car. I walked into a dealership and learned that I had the option of financing one of their shiny new models by borrowing more money than I’d ever had in my life: no money down, just sign on the dotted line.

Tempted but skeptical, I looked at the interest rates and did some quick math. Yes, I could drive off the lot in a brand new car today and pay zero dollars out of my pocket. But the true, total cost of the payments and interest on the loan would have bought me two new cars on the spot. I turned around, walked out of the dealership, and bought a used Jeep instead – in cash. The Jeep needed a lot of work, but I realized I’d rather roll up my sleeves than rack up the debt.

MY LESSON TO SHARE

Using credit or loans to buy something you can’t afford doesn’t change the fact that you can’t afford it. It only makes sense when the purchase delivers a return on your investment to offset the cost of the debt – like a home that will increase in value over time or an education that will boost your future earning power. Cars, on the other hand, start to lose value as soon as you drive them off the dealer’s lot.

With a little elbow grease, my junker of a Jeep got me where I needed to go. More importantly, it steered me away from taking on an expensive debt burden early in my financial adulthood. Last but not least, that old Jeep introduced me to a new passion: to this day I still love to tinker under the hood of a car.

WHAT TO CONSIDER IN BUYING A CAR

ELLIOT’S PASSION FOR tinkering with cars is a great hobby. And it kept him out of the kind of trouble Heather Thomson faced early on. He thought about his priorities and his true needs. He also did not get emotional. We’ve all heard stories about people going in to buy a practical sedan and driving off the dealer’s lot with a fancy sportscar. Clearly, you need to pay attention to what’s really important to you.

Cars have always been a symbol of financial independence and freedom for young people. Countless movies and television ads have memorialized the ritual of a teenager getting his or her first car, and with it a taste of freedom from parents. In fact, in gathering these stories I was surprised at how often cars came up as being central to big life decisions. If your parents can buy you a car, debt free, count yourself lucky. But if you’re on the hook to finance it yourself, consider your options carefully.

DO YOU REALLY NEED A CAR AT ALL?

New options have emerged in recent years that are changing the game. First and foremost, the sharing economy has come to the car business. Now, especially in urban areas where cars are seldom needed, there are lots of sharing options. They include short-term rental companies such as Zipcar as well as taxi-alternative services such as Uber and Lyft. So you may be able to avoid the entire problem of taking out a loan to buy a car.

Think carefully about whether you really need to spend money on owning a car, and if not, then just say no. You can always change your mind later if your needs change.

DO YOU NEED TO OWN THAT CAR?

Leasing has become much more popular among young people. According to Edmunds.com, the percentage of young people ages 18 to 34 who are leasing cars is up 46 percent over the last five years. In fact, in the first half of 2015 close to a third of all new car purchases were actually leases, according to Edmunds.com.

Edmunds.com found that Millennials were sticking to their budgets – doing the math and realizing that they could get a better car for the same payment by leasing. They are avoiding going into debt to own a depreciating asset, as Weissbluth points out.

The right car also changes with your life stage, and leasing avoids committing to the wrong car. The needs of a single person are different from those of a couple, and a world away from the needs of a family. Leasing allows a lot more wiggle room as the picture changes.

I spoke to a number of the Edmunds.com survey respondents, and several told me that technology was a key reason they didn’t want to own a car. Buying a car today and owning it for the life of the car, usually more than a decade, would put them far behind the curve as technology changed. Think about what the technology in a car bought in 2006 would look like in 2016. Connor, a young entrepreneur I spoke with, admits he will always have payments. But he also told me that he will always be in the car he wants to be in.

Allison, a 30-year-old executive assistant from Staten Island, also liked the lower payments of leasing, which allowed her to deploy the extra cash into other investments. In fact, she owns a couple of investment properties in the Pocono Mountains. It also got her into a higher-end car, specifically a Mercedes. She doesn’t have to worry about repairs and enjoys having a new car every few years.

BUYING THE CAR

On a purely mathematical basis, buying has traditionally been proven to be the best choice. Most car loans are five years, and then you’ll be payment-free for as long as you keep your vehicle. Loans are getting longer in order to lower the monthly payments. Doing that will ultimately make the car more expensive because you’ll pay more in interest, but your lower monthly payments will help you meet other financial obligations such as paying down your student debt or having more money to invest. As of now, the average car on the road is more than 11 years old. So even if you stretch your car loan out a little longer, you’ll have a nice stretch of years with no payments. And while cars do depreciate in value, when you do finally move on to your next car you’ll likely get something for your old car, even if you give it to charity and get a nice tax deduction.

THE USED CAR OPTION

As I mention above, cars now last a really long time. And with all the leasing going on, there are going to be a lot more used cars available that are in great shape. So if you’re looking for value, this may be an option. Don’t be a snob.

Karl Brauer, senior director of insights and senior editor for Kelley Blue Book, points out that because car companies are going to have so many used cars to sell, they are improving their certified pre-owned programs. Warranties on used cars are as good as if not better than those on new cars. And he reminds buyers to always spend time researching before heading to the dealer. Given how much information is now available about the value of both new and used cars, there’s no excuse to not be prepared and know what you should be paying.

GO FOR THE INTERNET SALESPERSON

The salespeople who work the floor of the dealership get paid on a traditional commission structure. They will assume that you haven’t done extensive research online and will offer you a higher price from the start, according to TrueCar’s Vice President of Industry Insights Eric Lyman. He says a little-known secret is that if you come in through the Internet sales team, they will often offer you a lower opening price because they know that you’ve done your homework. While it varies at different companies, Lyman says that in most cases the Internet sales team is paid differently and has more wiggle room when it comes to price negotiation.

GETTING THE BEST FINANCING

Here’s a case where that good credit really hits home. Buyers with fair credit will end up spending about six times more to finance a vehicle – equal to about $6,100 in additional interest payments over the life of a $20,000, five-year loan – than consumers with excellent credit, according to WalletHub.

For all the effort car buyers make negotiating a price, they often let the financing slip through the cracks. Brauer says that the most important thing is to do your research before you even get to the dealer.

 Local credit unions often have the best deals. Banks can also have better rates than dealers.

 Make sure you know your credit score. Brauer says buyers are often surprised that their score isn’t as high as they had thought and are left scrambling at the last minute at the dealer, figuring out if they can still afford the vehicle at a higher rate.

 Ask the dealer to beat, or at least match, the best rate. If they do, go with the dealer. They can make the whole process run more smoothly, without you having to go back and forth while the paperwork is being done. But if they don’t, you will be prepared to take your business elsewhere.

 Don’t relax. Watch all the numbers until the entire transaction is complete. Just because you negotiated a price for the car doesn’t mean that you can put down your guard. Pay attention to everything. If you’re trading in a car as well, fight for the best price. As it is you bought at retail and are selling at wholesale.

BEWARE THE UPSELL

If you’re adding on extras, be careful that you really want them and that you aren’t just becoming passive because you’re excited to get your new car. Make sure that what’s on the contract is what you agreed to. Read everything.

Brauer also says to really look carefully at the extras that dealers present. Take your time and do the math. In most cases paying ahead of time for things such as maintenance and extended warranties is not the best financial deal.

THE ULTIMATE GROWNUP DEBT: MORTGAGES

Taking out a mortgage is a really grownup thing to do. In many cases you’re committing to payments that could last as long as 30 years. The amount of the mortgage is probably daunting. But take a deep breath. In general, mortgages are good debt. They allow you to invest in a home, which will likely be your biggest asset. We’ll talk more about what to look for when it comes to deciding what to buy in Chapter 7 on real estate. But first, let’s go over the key things to think about.

Choosing a Lender

The good news is that because of the Internet there are countless resources available. Try to choose a lender before you shop for a home so you’re pre-approved. Get referrals from friends, and ask those friends why they had a good experience. Also ask them if there were things that they felt could have been done better. If you have a trusted real estate broker, that person can also make recommendations.

Ask a lot of questions before you sign on. Assuming you have good credit, lenders want your business. This is the time to negotiate, not when you’re under pressure to get a loan to lock in a home you fell in love with.

Some good things to ask:

 What are the terms of the available loans and their interest rates?

 What are the title insurance fees?

 What are the fees for services you’ll need such as help from an attorney and document preparation?

Get Pre-Approved

It may sound obvious but it needs to be said. Getting approved in advance can often mean the difference between getting the home of your dreams or watching someone better prepared snag it right out from under you. Get your paperwork in order. That will include pay stubs, W-2s, bank statements, tax returns, and relevant loan documents. It will help a lot to have locked in a lender you’re happy with before going through the pre-approval process. If you want to switch lenders after pre-approval, you may have to go through the whole process again, which will involve another hard credit check. And as we know, that could hurt your credit score.

Do the Math and be Conservative

Don’t take on a mortgage you aren’t sure you can afford. There are a lot of adjustable rate loan products out there that can make your monthly mortgage payments lower. But beware. Taking on a complicated loan that changes rates after a few years is risky. If you have the capital saved to provide a cushion, it may work. If you know that you’ll be moving before the rates adjust it could be a great option. But for most first-time home owners a conservative 15-or 30-year standard mortgage is a safe bet. Add up your housing costs. It should be no more than 30 percent of your income. Don’t forget that housing costs include more than your mortgage. Factor in taxes, insurance, maintenance, and unexpected expenses, such as a large repair or a tree falling.

Read the Paperwork and Ask Questions

Taking out the biggest loan of your life is a big deal. Don’t rush. You’ll be on the hook for huge sums of money, and the folks you’re dealing with are incentivized to get you to sign as fast as possible at the closing. Read through each page as you sign. If you don’t like something, say something. Ask for clarification. If you still aren’t happy, see if they can make an adjustment. Everyone at the table during a closing has a vested interest in getting a deal done that day. But if you need to stop and make a change, do it. No one else there is going to be living with the consequences of an oversight but you. They walk away with a check. You walk away with the debt. So make sure you do so with your eyes fully open.

YOUR FINANCIAL GROWNUP CHECKLIST DEBT

Don’t be afraid to just say no when you’re offered credit cards.

Do be strategic and aggressive when paying off debt.

Research ways to get help paying down student debt, from government programs to employers.

Do the side hustle. More income from a second job is always good.

Cars depreciate and are not investments. Do you really need one?

A mortgage is probably the biggest loan of your life. Tread carefully.

Always read the fine print. Twice.