Buying a Car

My daughter and her husband recently purchased a new car. This is my advice to her as they worked their way through the process.

Most people love a new ride, I know I do. If you're buying a car and you're also buying new, do your homework. Make sure you know what options you want, what they list for and what manufacturer or dealership rebates are currently running. Information here is key because what you don't know will cost you money. The three pieces of information you need are the list price of the car with the options you want (go to Consumer Reports (www.consumerreports.org) for a better idea of what the price for a new car should be), the trade-in value of your car (if you have one) and the current interest rate for a new car from your bank.

Try to choose at least three car makes and models that you would be happy to drive for the next six to ten years. If you zero in one car, then you’re more likely to take whatever ridiculus offer the dealership makes to you. You need to be willing to walk away from your “dream car” and go to another dealership and start the negotiations all over again. I always tell a salesman this phrase, “You have one hour to sell me a car. At the end of an hour, I’m going somewhere else. I’m buying a car today and I’m not going to spend all day doing it.” This does several things all at once, a) it notifies the salesman you’re not just “kicking the tires”, b) you will not be held hostage by tricks until you get tired and frustrated and give in to whatever bad deal he offers up and c) you’re willing to go explore opportunities at other dealerships for a car. It sometimes has the added benefit of upsetting the salesman. Hah!

When negotiating with the dealership over a car, keep in mind the salesman is used for negotiating the price of the new car and the value of the trade-in. The business office is where you negotiate the interest rate you’ll pay over the life of the loan. I strongly recommend a loan term of no longer than 60 months. If you can’t make the payments at 60 months, then you really can’t afford the car. Obviously, a shorter term is better. Don’t be suckered into taking out a loan with a balloon payment at the end. I don’t recommend leasing unless it can be written off as a business expense and the car has a high residual value.

I use Kelley Blue Book ( www.kbb.com ) to get an idea of my trade-in’s value. Try to get as close to this amount as possible or consider selling it youself.

Make sure you talk to your bank or credit union to find out what the going rate is for “New Car” money. I use the tactic of asking the dealership to beat whatever interest rate I get quoted from my bank.

Don't forget to check with the insurance company about the cost of insuring your dream car, rates vary widely because of safety equipment, the cost of the repairs and the safety rating. Sometimes you can afford the car payments, but not the car payments and the insurance payments too.

Separate But Equal - Checking Accounts

As my kids grow up, graduate from college, get married and (finally) move out to make a life of their own, I want to give them some co-habitation financial advice that I wished that I had received when my wife and I were starting out. I want to give them my take on setting up checking accounts for themselves, so that money, hopefully, won't become a source of arguments in the future.

You and your "Significant Other" work hard for your money and deserve to have a piece of the pie to dispose of as you see fit. I recommend three checking accounts, all need to be maintenance fee free. One for you, one for him/her and a joint account for paying the household bills.

Why in the world, you may ask, do I need three? Each of you should have your own money, call it an "allowance", that you don't have to ask your spouse if it's okay to spend. That takes care of two of the three, the third one should be a joint checking account from which all household bills are paid.

As an example, you have diligently saved your "allowance" for a month and "Shoe Warehouse Grande" is having a sale. You should be able to, without a spousal conference, walk in to "Shoe Warehouse Grande" and buy those shiny black pumps you've had your eye on for the last three weeks. Likewise, your spouse should be able to buy the latest gaming console and the first person shooter that goes with it with their allowance.

The joint checking account is to pay the bills that you incur together, i.e. rent, power, cable, telephone, insurance, any furniture purchased together, etc. This account is handled differently than the first two. You should discuss everything that this account pays for and should make very few, if any, purchases from this account without first discussing it with your "Significant Other". You should set a limit on how much you can spend from the joint account without discussing it first. So, let’s say that the limit $50 dollars, but you truly need to make a purchase that is $100 dollars. A spousal discussion is required. Oh, and no getting around this rule by buying 5 things for $20 dollars each. This violates the spirit of the agreement with your “Significant Other”.

This advice does not change, if one of you stays at home full time with the children. I think it's even more important to have this arrangement in place, if one of you stays at home.