Personal Finance and the Economy

[clean]

I've always been surprised by people who choose to receive their salary over 12 months. It's not just the tiny interest you get from putting aside some of it on a savings account, but it also helps deal with unexpected expenses. It's much better to dip into a savings account for your summer salary than to not pay off a credit card and pay 20% interest. But then I've seen people choose a 12 month salary while carrying credit card debt, and I'd be mortified to look at what the rest of their financial planning looks like.

I worked with someone that took the bigger check (over 9 months) but was unable to save for summer. Therer was ALWAYS an "unexpected expense".  He found himself in the position of HAVING to teach summers (for 2 schools! ) to get by because even in summer, there were ALWAYS "unexpected expenses"

Once he bit the bullet (after his divorce, if that matters) and went to 12 months, then he was better able to budget.  For some, IF they have the money they spend it!  Even when it means 'eating your seed corn' IF it was there, it was gone.  Better that he didnt get it, than to have spent a 12 month salary in 9 months (or less)!!

So SOME people are better off getting the money in 12.

For me, the first year I was at the old school, I took 12 because it lowered my taxes the first year (as my income was lower since I took home less that first year because the rest was paid in the next calendar year), and after that, it didnt matter. 

[spork]

I sent a paper check for $3,000 to my mortgage lender. I wrote "apply to principal ONLY" on both the check and and payment form that I put in the envelope. The bank applied the majority of the $3,000 toward next month's payment, even though I have automated monthly debit to my mortgage from my checking account with the same bank. I called to complain and was told that the error would be corrected by Wednesday of next week.

In other personal finance news, I correctly diagnosed the reason the washing machine was leaking water onto the basement floor. The replacement part cost less than $22, which I apparently installed successfully. And the part arrived at my door from an out-of-state warehouse via FedEx less than 24 hours after I ordered it. Local appliance repair shops were out of stock and quoted me higher prices. Hiring someone to do the job would have cost me at least $150. And the price of a new washer, which would be a front-loading model rather than the top-loading one we have now, is $1,200.

[evil_physics_witchcraft]

I sent a paper check for $3,000 to my mortgage lender. I wrote "apply to principal ONLY" on both the check and and payment form that I put in the envelope. The bank applied the majority of the $3,000 toward next month's payment, even though I have automated monthly debit to my mortgage from my checking account with the same bank. I called to complain and was told that the error would be corrected by Wednesday of next week.

In other personal finance news, I correctly diagnosed the reason the washing machine was leaking water onto the basement floor. The replacement part cost less than $22, which I apparently installed successfully. And the part arrived at my door from an out-of-state warehouse via FedEx less than 24 hours after I ordered it. Local appliance repair shops were out of stock and quoted me higher prices. Hiring someone to do the job would have cost me at least $150. And the price of a new washer, which would be a front-loading model rather than the top-loading one we have now, is $1,200.

I find it so satisfying to fix things myself (and with some help). Services are expensive! Glad you saved some money!

[mamselle]

Just noticed this, which might apply to homeowners in the US generally, (i.e., beyond the state in which the article was published):

   https://whdh.com/news/galvin-warns-mass-homeowners-of-looming-refinance-fee/

M.

[dismalist]

Somehow I missed this perfectly general advice -- All the Personal Finance Advice You'll Ever Need, on a 3 x 6 card -- which went viral some years ago..

https://kottke.org/13/09/all-the-personal-finance-advice-youll-ever-need

[lulu]

I'm sure this has been discussed extensively in the old forums, but I'm here to ask again since the answers I'm getting online are not helping me much: should I buy or lease a car?

My car is dying and I need a reliable car (just moved to a new city, 2 kids, parenting alone, zero knowledge about mechanics, and all that). I've always bought used cards, but I'm inclined to buy a new car to have peace of mind, even with a limited budget. I have about 2,500 for a down payment, and could afford $300 of monthly payments maximum. I'm looking for a car in the $22,000-27,0000 price range. My brother in law is trying to convince me that leasing is a best option because I would not have to worry about maintenance cost, and could certainly find something in the $200-250 price range for monthly payments.  He also insists that I should not make down payments, and save the money instead. I had never even considered the lease option, because I always though that it would cost more in the long run. But I agree with him that it would be nice not to have to worry AT ALL about unexpected maintenance costs for 3 years.

Can anyone help me make a decision? Pleeease?

Also, I'd be happy to know if anyone has a make/model they recommend (I've always stuck with Honda and Toyota, but have been curious about Subarus...)

[onthefringe]

Lulu, when I looked into this (granted years ago) I was firmly convinced that the arguments for leasing would not work for me. While the costs over three years may look cheaper, they frequently ignore several fees that you have to pay up front and at the end of the lease. They also ignore the fact that many companies require you to maintain pretty expensive insurance on a leased car, so your costs may go up there. And if you drive more than 10k miles a year or so, you may have to pay excess mileage fees.

But more importantly at the end of the three years you either have to buy a car, or lease another car, robbing you of the cheaper part of owning a car where it's paid off but still reliable.

But things may have changed, and I do buy new cars as opposed to the more financially savvy plan of buying a relatively newer used car that has gotten its steepest depreciation out of the way, so I think there's some room for non-financial concerns to weigh into the decision.

[arcturus]

I'm sure this has been discussed extensively in the old forums, but I'm here to ask again since the answers I'm getting online are not helping me much: should I buy or lease a car?

My car is dying and I need a reliable car (just moved to a new city, 2 kids, parenting alone, zero knowledge about mechanics, and all that). I've always bought used cards, but I'm inclined to buy a new car to have peace of mind, even with a limited budget. I have about 2,500 for a down payment, and could afford $300 of monthly payments maximum. I'm looking for a car in the $22,000-27,0000 price range. My brother in law is trying to convince me that leasing is a best option because I would not have to worry about maintenance cost, and could certainly find something in the $200-250 price range for monthly payments.  He also insists that I should not make down payments, and save the money instead. I had never even considered the lease option, because I always though that it would cost more in the long run. But I agree with him that it would be nice not to have to worry AT ALL about unexpected maintenance costs for 3 years.

Can anyone help me make a decision? Pleeease?

Also, I'd be happy to know if anyone has a make/model they recommend (I've always stuck with Honda and Toyota, but have been curious about Subarus...)

The buy/lease question can be resolved based on your expected behaviour patterns. If you plan to get a new car every few years, then leasing makes some sense because you don't have to deal with the trade-in hassles. However, if you plan to get a car and use it until it drops, it never makes sense to start that relationship with a lease. During the lease period, you are paying extra for the priviledge of not owning the car.

In general, buying a new car is not the best financial decision, since the car itself depreciates by several thousand $ upon leaving the dealership. However, I do not live my life exclusively based on least-cost analysis. For me, having a reliable car is worth spending the excess dollars. My most recent vehicle came with Toyota-care, which included 2 years of no-cost servicing (including oil changes). If they are still running a similar program, I would argue that that is even more reason to purchase, not lease, since you get the same benefit of free servicing for several years.

[dismalist]

There are some calculators to help compare lease with buy. Here is one https://www.allstate.com/tr/car-insurance/buy-or-lease-a-car-calculator.aspx

[clean]

With a lease, you make payments for 3 years and at the end you have nothing, but a need to find a new ride!  IF you overestimate the miles you will drive, you pay more than you need to pay, and if you underestimate the miles, then you are stuck with a HUGE payment at the end of the lease, OR as I have known people do, have no choice but to park the car for months to prevent going over the limit.

You will pay higher insurance with a lease as the lease will require more insurance coverage.  You may well get charged for normal wear and tear that the dealer determines is above the norm. (So if you have small kids that may spill something, you may be paying a bundle at the end of the term).

The myth that new cars require no maintenance or that used cars will leave you stranded is just that, a myth. 

The best financial decision i have ever made was to buy a 2 year old, higher mileage car (a Toyota Avalon) and religously keep up with the preventative maintenance.  Change the oil every 5000 miles, rotate tires every 10, replace belts and hoses even before they break or completely wear out.  I purchased it with 44000 miles and sold it 17 years later (If I remember correctly) with 265000 miles.  (It needed a new water pump and timing belt, and IF I could have got the job done for up to $700 I would have fixed it, but it required 1100 and that was just too much.

My 'new car' is a 2000 Mercury Grand Marquis I bought from an estate. It had less than 50,000 miles, was garage kept and the deceased owner kept it well maintained. 

I have said before, "The best place to buy a car is the obituaries".  A lot of people will buy a car upon retirement or even older will buy a new car years into retirement. They do not travel much, and tend to keep things well cared for, so you may find a calendar old car that has only a year or 2 of actual mileage. 


I dont even believe in the warranty that dealers will charge.  Those 'all oil changes included" are far more expensive than the cost of getting an oil change, and the work that they cover is not all inclusive!  (And you may be charged 'dealer labor' charges to do the work they 'say' you need done, but miraculously isnt covered). 

It isnt pleasant, but take your time. Look at dealerships and check with the your friends to see if anyone knows of a car that is available.  If you are worried about 'being stranded' get AAA Plus (it will tow you 100 miles! -- how often are you more than 100 miles from home?)

Do not Lease! 

Buy a car.  Pay it off, and then keep making a payment into your savings account earmarked for the next purchase.  (Now that I am married, we pay ourselves  $400 a month to build up a car fund, because my car is 21 years old!! and her car, though much newer is not the quality I would have picked... but I was not asked about this premarital purchase!)

[Vkw10]

Leasing generally isn't a good financial option unless you must have a recent model car at all times, for all the reasons cited above.

Most financially savvy people advise buying a recent model used car, because the value of car drops dramatically during the first few months. Disadvantages to buying used include lack of warranty period, state lemon laws generally don't apply, and difficulty in finding a good deal in recent years. If you can find a good low mileage used car, buying used is smart.

I buy new cars, from local dealership with good reputation for service. I budget for routine maintenance, maintain my cars carefully, and have no worries about spills or minor dings. I also drive my cars at least a decade. Financially, buying a low mileage used car may be smarter, but I enjoy that first year of a new car.

[Parasaurolophus]

And if buying a used car, I'd recommend buying directly from the owner rather than a dealer, and not trying to snag a serious bargain (that's how you get ripped off). Figure out what your price point is, and what you want from your car, and be cool with just paying that much for whatever it is that you want when you find it. Sometimes you find a deal and that's great, but you don't want to wait for months and look at dozens and dozens of cars, or keep being beaten to the punch (in a non-rural location the real deals will get bought up really quickly--within minutes or hours of being advertised--so don't hold out for one, because it's tough to get there in time), or spend $3000 on a deal that turns out to be a lemon¹.

¹A few years ago we bought a car for $3000 which was a really, really good deal. A total steal. It rained hard that evening and we discovered--on the highway, going up a hill--that the electrical system shorted out in the rain. It was a really, really scary situation, actually. We got our money back, thankfully, and the lesson has been learned.

[lulu]

Thank you, everyone. Reading your answers validates my initial perception. I'll check the calculator dismalist posted. I also had not thought about higher insurance and hidden initial fees, so that's good information for me to have.