Sunday, September 28, 2008

Getting Together With Money

Power..........
Control.........
Trust........

Three very big words that few couples factor into the marriage equation before the vows and exchanged and the words "I do" have echoed into the air.

Yet each has the chance to tarnish even the most golden of relationships. Especially in the area of money. It is so critically important that couples go into a marriage understanding each partners expectations of money and it's uses.

So many couples expect to continue and smoothly transition to living in their parents lifestyle by living in similar homes, decorated in a similar manner while driving the same vehicles and taking the same vacations. In many cases, it took their parents a decade or more to build up to that lifestyle. Today's newly weds believe it's possible to recreate that same life all within a few months or a year. For most, it simply is the beginning of financial problems that can lead to financial ruin.

Also, so many couples planning a marriage haven't really discussed the roles each will play in terms of income. The family dynamic has chanced once again, and many soon to be mothers are now staying home to raise a family instead of returning to the workplace as their mothers and grandmothers often did. While certainly a wise choice, most new young couples have already designed their footprint of living conditions without factoring the loss of income from the now staying at home partner.

Finally, consider the big three mentioned above. Power, Control and Trust. It is very easy for the remaining breadwinner to transition into a person who begins to consolidate power and control of the budget as they are the person now earning it. What was once an easy alliance between the couple, trust begins to erode in equal measure to the financial stability beginning to erode as the lifestyle begins to strain the relationship. What was once a strong relationship now has become fragile.

It is key for any couple planning to spend their lives together to truly understand the motives, needs and temperament of each other as they move toward the wedding day.

Tuesday, September 9, 2008

Opportunity Cost


Yesterday I wrote about the chance of having two car payments if you trade in a car that still has payments remaining. I noted that as long as you had a paid off car and paid cash for your new purchase you were ok.

I was reminded by my friend Living Almost Large that just because you have cash in hand doesn't always mean you can afford or should be making a car purchase. Or any purchase for that matter.

It all boils down to opportunity costs.

Opportunity costs you say. What exactly is an opportunity cost and why is it so important?

Opportunity cost is generally a business or economics term. Technically, opportunity costs are choices that yield often completely different results. It's the use of scarce resources wisely. And it's not always cash as it could include time, enjoyment and pleasure. A company for example may have to decide to build a plant addition or invest that money in the marketing of existing products. They may need to decide whether to expand overseas or further develop here in the states.

For us regular folks, LAL was pointing out that there may be a more enjoyable, pleasurable or simply better use of the cash other than spending it on an automobile.

And frankly, LAL is correct. Is it best to spend the money on a vehicle or would it be better to invest it for a long period of time and enjoy the fruits of it's earnings at a later date?

It becomes often a matter of understanding the need for gratification and when it's best to delay it.

As Dave Ramsey tells us, a spoiled child cannot wait for gratification and must have their gratification need immediately fulfilled. A mature adult knows when it's time for gratification and when it's time to delay gratification for the greater good.

In many ways, using cash instead of other means of monetary exchange often helps us decide the opportunity cost of a decision. It's always harder to part with dollar bills versus using a credit or debit card. We realize the stack of money bills in our hand or wallet will be less, much less, if we spend them on something in the present. That's another prime example of opportunity cost.

Enjoyment and pleasure also are an opportunity cost offset often by work and the earnings the work can bring.

As with all things, balance and moderation must come into play.

If we choose to work as much as possible, the opportunity cost is lost relationships and often poor health. In this situation, we need to balance the need for income and the largest wealth building tool most of us will ever have with the relationships we have with friends, nieghbors, spouses and children. All suffer if we work too much.

We will also suffer if we spend to much time with them and don't work at our career and nourish it through continuing education. We no longer can afford to do things and care for those important to us if we allow ourselves to become work obsolete as well as not being accountable to an employer if employed or customers if self employed.

Understanding the opportunity cost of life choices will be a challenge as long as we live.

Monday, September 8, 2008

How Would You Like to Make Two Car Payments at the Same Time?


I get a variety of emails from a variety of places. One that I get that I always look forward to is the one I get from talk show host Clark Howard. Clark is one of talk radio's premiere financial gurus, and certainly unrivaled in the geek division.

I say that lovingly. Clark is one of the nicest people you'd ever want to meet or work with.

Clark is bringing to his listeners attention something that I had never thought of. The latest thing to watch for when purchasing a new car from a dealership is not the purchase itself, although that is a critical element. It's happening with the car that's being traded.

Seems that in these tough times, many auto dealers are on the brink of closing their doors on an almost daily basis. Some survive to come back another day. Others turn the lock on the door and never reopen.

So what does this have to do with anything?

When the door locks on the dealership for the final time, it's possible that the loan you may have presumed was paid off when you bought the new car and left the old one as a trade wasn't. Remember, the dealership may be.....well.....broke!

So you still assume you're off the hook? Dealer has the car so it's their problem. Think again.

The lending institution still has a lien on a car that is no longer in your possession. You can't drive it. But you'll still have to pay for it because they still expect payment. And the law is on their side.

So now you've just drove a new car off the lot with a fresh payment book and the old payment book still has coupons in it......that still need your check to accompany it to the payment address. Because you have a car locked somewhere on a lot that you are still responsible to make payment but no longer own.

Boy, doesn't that new car smell become less sweet with that news?

And how do you avoid such a situation?

Well first, stop buying new cars when your old car isn't paid for. And when selling an old car, sell it outright. You'll likely have larger net proceeds by selling to a private party. And finally, buy that new or new to you car with cash.

Remember, if you can't pay cash for it, you really can't afford it.

To learn more, click here to go there.