Personal Finance Advice

“Get term life insurance, not cash value insurance.”

“Stay away from annuities.”

“Do not spend a lot of money on a car.”

This is all great advice for the general population.  These - and other - bits of personal finance advice are usually encountered when seeking out personal financial advice that is generic and intended to be read by many different people.  Yes, most people would probably be better off with term life insurance instead of cash-value insurance, most people should stay away from annuities, and not everyone can afford to spend a lot of money on a car.

What about the small portion of the population who actually have quite a bit of money? Whether they inherited a huge bundle of money from a relative or if they worked like mad to build up a fortune, there are indeed people out there for whom the general rules of personal finance do not apply.

Why is that? The reason is because some of the products designed for wealthy people have trickled into the mainstream, panicking personal finance experts because these products simply aren’t suitable for people who don’t have quite a bit of money.  For example, cash-value life insurance is designed for people who need to find a way to build up some money that doesn’t fall under the usual tax rules for savings.  Most people don’t have to worry about this, but nonetheless the product is still offered to people who really shouldn’t have it.  This is why you’ll run into ample warnings to stay away from cash-value life insurance from personal finance experts.  The fact remains, however, that cash-value life insurance can be a good product for people who have a good amount of money and need the tax benefits.  Is cash-value life insurance appropriate for everyday folks who don’t have an abundance of cash? In most cases, the answer is no.

What does this mean for people who have a lot of money? It means that you can’t necessarily follow the advice designed for people who aren’t in similar financial situations as you.  The rules change for you when you have more money to deal with because you have more tax considerations to think about and other factors that may not apply to people who have quite a bit of money.

While everyone can benefit from general personal finance advice, everyone needs to research to find out what’s best for their personal financial situation.  People who have a lot of money should get personalized advice from a fee-based (not commission-based) professional.

Don’t be intimidated over the prospect of negotiating the cost of a car.  If you do it right, you won’t wind up haggling back and forth.  Instead, you’ll merely wait patiently for the seller to agree to your asking price. 

Preparation is key when you’re ready to buy a vehicle.  Don’t just wander onto a car lot and arbitrarily throw out bids on a car without knowing what the car is actually worth.  You can’t expect a car salesperson to fall at your feet and accept a ridiculously low offer on a car, even in a tough economy.  Even if dealerships are hurting for sales, there are some offers they simply can’t accept because it wouldn’t be cost effective.

While it’s true that most dealerships place quota expectations on their salespeople - and this can work to your advantage if you just so happen to be the customer who strolls in at the end of the month when a salesperson needs just one more car sale in order to meet a quota - there are no magical days of the month when you are absolutely guaranteed a car purchase at rock-bottom prices.  For all you know, the salesperson helping you may have already met the monthly quota and may be ready to make the deal only if a huge profit for the dealership is involved.

For this reason, you need to prepare before heading to the dealership.  Find out the market value of the car you want to buy, then find out what sort of discounts other people are getting on the same model.  If your bank or credit union offers a car-buying service then find out what price the same car costs when using the service. Find the lowest advertised cost for the type of car you want - even if the best price is on the other side of the country - and print it up and take it with you to the dealership.

Walk into the dealership, present the advertisement for the lowest priced vehicle, then tell the salesperson you want the same price.  Make it clear that you’re not looking to negotiate.  You don’t want to haggle and you don’t want anything extra.  This is the price you want to pay, and if the seller can’t accommodate you then you’ll go to another dealership.  Don’t be snooty about it, but don’t be a pushover either.

The salesperson will balk at the price and then might bring out an invoice showing you that you’re trying to buy a car for less than the dealership purchased the vehicle for.  This is when you need to keep repeating that it’s fine if they can’t meet the price and you don’t need to buy a car from them today.  You should actually mean it when you say it; go into the situation telling yourself that you don’t need to buy a car today.

You’ll probably be asked to add at least a couple hundred dollars to your offer.  You’ll also probably get whispered warnings from the salesperson that the finance people will never accept such a low offer.  When it comes right down to it, though, as long as the offer isn’t absurd and you stick to the number then you have a good chance of getting what you want.  Plus, if they don’t accept the offer, you can always thank them for their time and head toward the exit; there’s a chance you’ll get stopped on the way out and they’ll concede.

Once your offer is accepted, read all the documents put in front of you.  You’ll need to make sure that nobody “accidentally” added extras onto the purchase agreement.  If the documents are wrong then refuse to sign them, even if this means you’ll have to wait another hour for corrected paperwork.

The key is to be prepared and to not be in a rush to buy a car.  If time is on your side then a dealership refusing your offer won’t be a big deal because you can just go somewhere else at your leisure.

A few years ago, having bad credit meant that you had to deal with a few credit rejections but ultimately you could usually wind up finding financing for whatever you want as long as you were willing to pay high interest rates and plenty of fees.  Some lenders were willing to work with borrowers who had credit problems and many lenders specialized in subprime lending.  After all, this particular branch of lending can be incredibly profitable since the borrowers are paying really high interest rates and fees and in many cases don’t think to ask for lower interest rates.

Fast forward to present day and the subprime lending market has taken a substantial hit.  It isn’t only the subprime mortgage lenders who have tightened their lending standards considerably - or ceased operations altogether - but credit card companies, auto lenders and other financial institutions are no longer as willing to entertain the idea of lending to people with damaged credit histories.  The risk is simply too high with an unstable economy, and with the vast numbers of borrowers defaulting on every type of credit product lenders are getting more and more apprehensive.

So what do you do if you have a low credit score in today’s economy? You have a few different options:

1.  Accept credit at horrible terms.  If you can’t find a traditional lender to loan you money you might look toward P2P lending, which is a new trend popping up on the Internet.  “P2P” stands for “Person to Person.”  You’ll join a website that allows you to put out your request for a loan and individuals will review your request and fund some or all of your loan.  If you have bad credit, however, you might wind up paying a really high interest rate.  It’s a viable option for people with bad credit who have no other choice. 

2.  Do without credit for a while.  Do you want credit because you need it or because you just think you’re supposed to have it? If you can go without credit for a while then do it.  Operating on a cash basis for a while will help you with your budgeting and may actually allow you to build up some savings while you’re at it.

3.  Work at improving the credit you have now.  Improving your credit will help your chances of someday not needing to seek out subprime lenders to begin with.  Pay your bills on time and work at paying the balances down.  Consider this a period of time for you to get your personal finances in order and in a few years you’ll have a credit rating that allows you to request credit through almost any lender.    

Will the economy recover? Of course it will…just like your credit rating can.