Have You Considered ETFs?

The beginning investor, or what the finance world calls the “retail investor,” has a lot of homework to do. Stocks? Bonds? Mutual Funds? And once the asset class decision is figured out, the decision of which specific asset to choose as an investment vehicle immediately rears its devious head. While most “experts” generally tell beginning investors to pick stocks as investment vehicles, most “experts” are probably active traders. The active trader is heavily involved in the research and trading of personally owned stocks, and other asset classes. The passive trader is someone who works 9 to 5 in a field other than finance. While the passive trader still devotes time to investment homework, she can not possibly match the active trader in breadth, depth or analytical knowledge of one stock.

There are people hired by various banks and financial institutions to sleep, breathe and eat just a handful of stocks.

The knowledge and time deficit exhibited by the passive trader is a fantastic reason why investing in ETFs should be explored. Here are five reasons why index funds should be considered as part of your portfolio.

  1. Investment, Meet Diversification.

    Diversification is not just the opportunity to make more money by spreading the pennies. Diversification is an insurance policy that you will not lose all of your pennies. ETFs meet the diversification criteria because the goal of an ETF is broad market, albeit concentrated, exposure. Take a look at the iShares Russell 2000 Growth ETF.  The ETF is focused on identifying growth companies, that operate in America and can be acquired at a reasonable price. Look at the breakdown of sector concentration.

    iShares

    Source: iShares Russell 2000 Growth ETF % Market Value

  2. Actively Managed, but Not Managed Actively

    Most ETFs follow a very simple strategy: invest in the market. The EFT manager simply creates a fund that follows an entire index, like the S&P 500. An example of this would be the SPDR S&P 500 ETF (SPY). When the S&P 500 moves up, on average, SPY moves up. When the S&P 500 moves down, on average, SPY moves down. The manager will re-balance the fund every so often to keep the ETF diverse, but also maximize profits. If Apple is soaring, then the manager may purchase more Apple stock (AAPL) while decreasing positions in others. For this management, you may pay a fee.

    Now, the iShares Russell 2000 Growth ETF is more actively managed. The managers and analysts look for domestic growth stocks and take small(ish) positions in each stock for a well balanced portfolio.

  3. Less Homework
    The big reason why many “experts” find a certain disdain for ETFs (and other managed funds) is because of the fees. Yes, you will pay a fee in order to take part in these funds. But, if the fund performs well – which is very easy to check on a regular basis – I think the fee, which may take the form of increased commission at the time of purchase, is well worth knowing that someone with more knowledge and analytical power is watching over your investments. ETFs make money through fees, and the way the acquire more fees is to bring in additional investors.

A Word of Warning

ETF investing does not come without caution. Remember, they are simply funds that follow multiple stocks – some more than others. Some ETFs are very narrow, and very focused, on growth. A focus on growth is always accompanied by increased risk. An ETF like SPY that holds 99 stocks is interested in balance. Within your ETF investment portfolio, you should still aim to diversify. Don’t park all of your money into one ETF. And don’t park your money into too many. Why? Because, within the world of funds, it is easy to have a portfolio with redundancies. This happens when too many of your ETFs contain too many of the same holdings. 

Now, in some cases, that’s fine. If you purchase two growth oriented ETFs, they both may contain a stock that is poised to gain. But when you purchase those growth oriented ETFs, then a technology EFT, then a healthcare ETF, and, finally, something like SPY, you may have the same stocks being a primary driver of the EFT if the stock spans multiple sectors. Though you have a very diverse portfolio, the assets within those funds expose you to additional risks.

ETFs are awesome because they are very transparent. At any given time, you can go to the ETF website, or some other financial application, and see which stocks the ETF holds, at what percentage, and how those stocks are moving.

Please note that ETFs are a long term commitment. Because the commission structure is greater than a typical stock, ETFs should not be traded in the short run.

 

 

#taxes1

How Taxes Really Work

In less than a year, many Americans will be going to the polls where they will cast a vote for the next President of the United States. In the months that follow, the word “taxes” will be spoken as part of policy propositions, on repeat, by all candidates, and  at all possible times.

We will hear phrases such as:

“We need to simplify the tax code!”

“Taxes are too high!”

“The rich aren’t paying their fair share of taxes!”

“The taxes on the middle class need to be reduced immediately.”

The receivers of these messages – the would be voters – make decisions relating to the support of certain tax policies based on their knowledge, and experience, with taxes.

However, with information comes distortion, and with distortion comes lack of clear decision making ability. Many Americans simply do not understand how the United States tax code works. Part of the reason for this lack of understanding is complexity. Politicians may lie, but no politician is lying when he or she says the tax code is a large, complex and continually changing document.

The other reason for the lack of understanding the tax code, and perhaps even more relevant to voter decision making, is textual distortion by opponents, and proponents, of certain tax policies.

Have you hear this one before? “What, are we supposed to have the wealthiest Americans pay 90% in taxes?”

There is, of course, some truth in such a statement. A candidate may be proposing the the wealthiest (insert percentage) of the population pay 90% in taxes. But, in America, we have a progressive tax system. And what the candidate fails to tell the voters is that the wealthiest (insert percentage) would not be paying a flat 90% tax rate. Instead, the wealthiest would be paying up to 90% in federal taxes after they reached a certain income dollar amount.

America’s progressive tax system makes for two tax rates: the effective tax rate, and the marginal tax rate.

#Taxes

#Taxes

Let’s say I make $150,000 by November of the current year. The IRS tells me that I fall in the 28% tax bracket category ($91,000-$190,000). According to this logic, I am left with $108,000 after taxes, not including what I must pay to the state.

And, while that may be true, that’s not actually what I will end up banking.

Before we move on to why I will bank more than $108,000, let’s add to this example.

At the end of the year, I perform consulting work, and I end up with an additional $50,000, bringing my marginal tax rate up to 33%. But I won’t be paying 33% on the full $200,000. Instead, I will pay 33% on all dollars past $190,000. In America, the more you earn the more taxes you pay on a certain range of dollars.

So, would it be accurate to say that someone making $200,000 per year pays 33% in taxes? Sure, if someone says “an individual making $200,000 pays a marginal tax rate of 33%.” The marginal part is very important. It’s important because what you are marginally taxed is not correlated to what you will retain after taxes.

Effective Tax Rates

With the income staying $200,000, I have a 33% marginal tax rate. Just using something called the standard  deduction, I substantially lower my effective tax rate.

Standard deduction: A fixed dollar amount, usually changing each year, that reduces your tax liability (how much you owe in taxes).

A $200,000 income with a 33% marginal tax rate brings my tax liability down to $47,527. Now, $200,000-$47,527 = $152,473. This is representative of a 23.8% tax rate.

The above calculations assume I am single, with no IRA contributions, no personal exemptions, and no children. Changing these factors can significantly reduce your effective tax rate.

What Will I Pay?

While everyone pays the marginal tax rate, no one – and I mean no one, no matter how loud they scream “taxes” –  pays the marginal tax rate. People always retain more of their earnings due to standard deductions, itemized deductions, various write offs and other federal and state programs that may induce consumption (home purchases) in turn for a lower effective tax rate.

So when you hear someone say they pay a certain amount of taxes, ask them what their effective rate is. In many instances it will be substantially lower than the quoted tax rate.

 

SalaryCostofLiving

You Should Probably Go for the Higher Salary Over a Lower Cost of Living

“I THINK I’M GOING TO MOVE”

For many millennials, moving is a rite of passage; moving to experience a new geographical area, for a significant other, for the dream job, for a greater salary, for necessity, or some combination of the preceding factors.

While there are certainly a variety of reasons to move, the most common are for money and career.

But not all careers in all areas come with an equal salary.

Pretend there is a software engineer who is considering a move to either Mississippi or Rhode Island. The software engineer has between 3 and 7 years of experience, and therefore will be eligible to earn the median salary many state and salary comparison tools use.

This estimator uses the state and salary estimator from Indeed. 

Salary Comparison Tool

This is a clear no-brainer decision for the software engineer in question: move to Mississippi.

But what is the cost of living difference between Mississippi and Rhode Island?

First, let’s pretend that the software engineer is living in South Dakota.

Using the CNN Money cost of Living Comparison Tool, we find that:

  • A software engineer making $95,000 per year in Rapid City South Dakota needs to make $121,149 in Providence, RI in order to make a comparable salary. Notably, housing is 49% higher in Providence when compared to Rapid City.
  • In Jackson, Mississippi, the software engineer only needs $83,600 in order to have a comparable living. Just about all services and consumption items are priced lower in Mississippi.

So, the decision is reaffirmed: move to Mississippi. the software engineer will be making a great salary slightly above the national average, and be paying far less for all services and consumption items.

But software engineers typically make a very good salary wherever they go. What about a career that is more varied in pay, such as a school teacher?

Teacher Example

Suppose a middle school education teacher is looking to move to Boston or Atlanta. First, the teacher looks at the salary comparison.

Middle School Salary

This is interesting: the middle school teacher in Boston and Atlanta, at the median level, make roughly the same. Let’s say the teacher currently makes $50,000 per year.

The results are much different than that of the software engineer.

  • In order to make the cost of living adjusted equivalent of $50,000 in Boston, the middle school teacher must make nearly $70,000 dollars.
  • However, in Atlanta, $50,000 is the equivalent of $36,000.

Moving to Atlanta seems to be the correct choice for the middle school teacher.

But in both the case of the middle school teacher and the software engineer, the choice making is not over yet.

Salary Now. Salary Later. Savings Now. Savings Later.

What happens when we use something other than the median wage in these comparisons?

Payscale data shows that the software engineer, in Jackson Mississippi maxes his or her salary out at $115,000 per year. Using this same metric, the software engineer in Rhode Island will max his or her salary out at $94,000 per year.

Now, the real clear winner is Jackson, Mississippi.

Also using Payscale data for teachers, it shows that the middle school teacher working in Atlanta, Georgia tops out at $63,000 per year. The middle school teacher who works out of Boston, MA tops out somewhere around $84,000 per year. That is approximately $20,000 more per year.

Other Factors

Should the teacher move to Boston instead of Atlanta? This is a bit more complicated that a $20,000 per year difference. Some factors to include are:

  • Cost of housing prices-rent and mortgage payments represent at least 25% of a household’s take home salary. This may be different in Atlanta depending on the position and salary.
  • Long term salary accumulation-the value of money does not change between states. A millionaire who moves to a low cost of living place, but who once lived in a very expensive area, is a more powerful millionaire. This is why many people “retire” to a place with a lower cost of living. A simple experiment to gauge long term salary is to figure out how many years the worker tends to remain in the workforce at the maximum level of salary. Then break down expenses such as mortgage, rent, taxes, and any extra costs such as childcare services.
  • Transportation-moving to a place far away from family? Cost of traveling, usually multiple times per year,  adds up. Sometimes the cost of transportation is so great, there is no money saved on paying cheaper rent.

The best thing anyone can do when deciding to move is research. The mover should figure out how much of a salary he or she would obtain and the cost living, especially on rent and foods.

For most people, chasing a higher salary is the better long term financial bet. Usually, prices are tied to a cost of living. Even with a higher cost of living, there may be a much better salary that allows for long-term wealth accumulation at a much higher rate when compared to living in a place where the cost of living is low, but so are wages.

Cost of College

The True Cost of College

The costs of college do not stop at tuition and fees. Even if a student attends a low priced school (relatively low price, of course), there are still additional multiple costs involved in attending a university in a traditional format.

A typical student must pay for housing, text books, supplies, technology (laptops, tablets, software and hardware), and travel. This leads to a much larger final cost than most students, and parents, anticipate.

However, there are other expenses that, while less significant, are not added to the expected final cost of the price of attending a four year college.

Tuition, Housing, and Food

Let’s pretend that you are ready to attend a college that costs $10,000 per year for tuition and fees. The admissions counselor then discusses housing options. The cheapest option available is to live with three other roommates, and this costs $7200 per year.

($10,000)+($7200)*4 = $68,800, or, an extra $28,880 over the course of four years. It’s not uncommon for room and board fees to cost almost as much as tuition.

Now, we need to add a meal plan. A meal plan is designed to ensure a student has sufficient nutrition for breakfast, lunch, and dinner. While colleges use to offer a distinction between unlimited and other tiered meal plans, the prices of those plans has started to converge, meaning most students are opting for the unlimited meal plans.

The average meal plan costs roughly $5200 per academic year. This is two semesters of schooling with no summer courses. With each semester being 15 weeks, there are 210 days of food and beverage consumption. Over the course of 210 days, the price of each meal comes out to be approximately $8 dollars.

New Total Price: ($10,000*4)+($7200*4)+($5200*4)=$89,600.

The cost of college has doubled by adding in housing and food.

Not Done Yet

Tuition, housing, and food are the “big three” of college costs. Unfortunately, that’s not where the costs stop.

Books + Supplies: Textbook costs are $200-$400 per semester, or more. Let’s add in an extra $5 per semester for pens, pencils, paper, and printing. The four year cost, using $300 for text books, over $2400 dollars. The supply cost is much greater for art, biology, and medical students.

Technology: Art, engineering, computer science, economics, and math majors will have to purchase proprietary software in order to complete some coursework. Student licenses are usually $100 per academic year. But the biggest technology costs are laptops and associated computer equipment. A student purchases two laptops over the course of four years, with each laptop cost $700. The four year technology cost $1800, minimum.

Travel: Commuter students will need money to get to school. Students who live away from home will most likely travel home during vacation and the summer semesters. Being generous, if each plane ticket represents a $200 expense (round trip), and the student comes home twice per year, then that is an additional $1600 to the final price of attendance. This does not include the potential expenses necessary for bus, train, and vehicle transportation.

Final Cost…Almost

Tuition + Housing + Food + Books / Supplies + Technology +Travel = $95,200.

The associated costs of attendance are greater than the cost of the education.

I Said “Almost,” Didn’t I?

The final price of attendance also includes:

Clothing and Outfit Requirements – Nursing majors, biology/pre-med majors, and some engineering majors.

Test and Test Prep Fees: Planning on going to graduate school? How about taking the nursing board exam, or the LSAT? Prepare to set aside an extra $1000 for preparation and testing.

Dorm Room Furnishing: Sheets, pillow cases, a bookcase, night stand, and dresser, just to name a few.

Personal Supplies: Toiletries, clothing, and medication.

Entertainment: Money set aside for downtime.

Potential Costs: Cellphone plan, entertainment and media subscriptions, gym memberships, and outside food options.

Done…For Now.

A reasonably priced $40,000 education now costs closer to $100,000, or more.

Plan for the costs of college to at least be double the cost of tuition, especially if the tuition price is lower, as it usually is in state school systems.

________________________________________________________________________________

Michael Pelosi is the Director of Digital Media for CardBlanc and Napkin Finance. He as an MS in Applied Economics and Statistics, and is currently attending The Johns Hopkins University.

Retirement Age

Time to Retire Retirement

Well meaning (hopefully) financial advisers and economic optimists will tell their clients and friends a fairly simple formula for retirement savings:

“ Save as much as you can afford, hopefully around 10%, and invest the savings in a compound interest earning asset such as a stock or index fund. Since the market returns 7-8% per year, by saving and investing 10% of your income, you should have enough in retirement to keep pace with your current level of spending.”

All of this traditionally sound advice until it’s not. Imagine if you were ready to retire in 2009, and between 2007 and 2008, your lifetime earnings eroded by half due to a major global recession? If a 7-8% return with 10% savings can create wealth in the long-run, a year or two of low or negative returns can destroy it.  

Those who were able to keep their funds in the market saw tremendous growth in the years to follow-record growth, actually. However, not everyone is able to continue working longer years, and between 2007 and 2009, many retirees took it on the chin. Financial planning went to emergency planning. Instead of figuring out how to distribute an inheritance among children and grandchildren, retirees were forced to figure out how they planned to live on half the amount of money they had “planned for.”

You May Retire in a Recession

Recessions are easy to spot in retrospect, but no one seems to sound the trumpet quite loud enough when calamity is around the corner.

This does not mean you should not invest in stocks, index funds, ETFs, and even bonds. Aside from real estate and other entrepreneurial activities, market investments are the greatest chance you have to make your money grow. What this does mean is that you must plan only on a 3% to 4% return, and if you get more, great. Naturally, this also implies you’ll need to save more cash in a 401(k) or IRA in order to make up the expected lost returns.

Anyone who still retirement plans in the 7% to 10% return range is being largely dishonest with their clients, or are simply ignorant. The economy has changed. Competition for jobs in now global. Corporations are investing in international, not domestic, development. Foreign firms are investing in America. When the global economy falters, the American economy will as well. Though America is certainly poised to create an enormous amount of wealth in the coming decades, there is no more denying that America, and your investments, fate is not intertwined with the productivity of international economies.

7% to 10% returns is a planning strategy of the past.

How to Save for Retirement in the Modern Economy

  • Try to save between 12% and 14% of income versus the traditional 10%. This is a minimum guideline.

  • Choose stocks wisely. Those that have greater foreign exposure will see greater growth, but also are more volatile.

  • Index funds are fantastic. I really really really like index funds. For example, you can purchase a fund that covers every company trading within the S&P 500 Index. It tends to beat fund managers year after year.

  • Use the three year rule when retiring. Let’s say that, in twenty years, there will be a ruling that the retirement age must be increased to 70. If your investment returns are at an all time high, you must know the wave crashes harder than it rises. You may be able to retire early. Now, if you turn 70, and a global recession enters the picture, it’s probably better to work a few a more years.

  • Find a job and career you love. You need to plan to work much longer than 67. Working until 70 will soon be expected. Working a job you despise has significant economic impacts, the most apparent being increased deterioration of health.


Start Saving

Start saving right now. Pay off credit card debt first, then begin investing. Expect no more than a 3% to 4% return each year, and model how much you need to save based on that value of return.

I wish I could writing something saying that a 7% return on investment was still a reality. I can’t, and any planner, adviser, or expert shouldn’t either.
Michael Pelosi is the Director of Digital Media Napkin Finance. He has an MA in Applied Economics and Statistics, so he kind of knows about money, too. Visit us as www.mycardblanc.com/napkinfinance for more awesome money tips.

1 is the loneliest number. But it sure beats .01.

Savings Accounts Worth Your Time and Money

“Hello. I would like to open up a savings account with your bank/credit card company/credit union. What will I earn for letting the bank use my money?”


“Well, young man/woman, you’re in for a real treat today. I can give you a .009 percent interest. Would you like to make a deposit?”

Savings accounts are, generally speaking, a really poor place to park your money. Savings accounts typically pays very little interest on your deposits, and may even require a certain maintenance balance to avoid outrageous fees.

Fees + low interest + required balance = bad for you.

However, as our slow, but growing, economy gets moving again, financial institutions are starting to offer more generous savings rates.

Generous is 1%.

1 is the loneliest number. But it sure beats .01.

1 is the loneliest number. But it sure beats .01.

Yes, a minuscule 1% on all of your hard earned cash. But I would rather have my money earning something as opposed to nothing.

Here are savings accounts that deserve your money, and interest your money deserves.

  • Synchrony Bank

    Synchrony Bank is currently offering 1.05% interest with no minimum balance and no monthly fee. That’s pretty fantastic.

  • Cit Bank

    Cit is good, and like Synchrony Bank, offers 1.05% simple daily compounding interest. However, it does require a minimum of $100 to open. There are no maintenance fees and maintenance balances required.

  • Ally Bank

    Ally offers slightly under 1% interest at .99%. However, they do offer an easy to use interface, free online banking, and no associated fees. Ally also has top-notch customer service.

  • Barclays

    I personally use Barclays. They are currently offering a 1% interest savings account with no fees. Of all the institutions listed, Barclays has the best interface and mobile application I have experienced.

Should I Even Bother with Savings Accounts?

This is a great question. My answer is of course you should! But beware of monthly transaction limits and associated fees. The idea of a savings account is to have some money that is separate from a checking account, and not readily used. If you are confident that you will diligently save, but still use the money in the near future, a savings account with 1% interest, or more, is ideal.

Finally, do not confuse savings with investing. Savings is cash on hand that, at one point in the near future, should be spent or invested. 1% interest, in the long-run, is still pathetically low when real estate, stocks, and even CDs offer you a much greater return on investment. But if you need a place to park your cash for a while, a high interest (relatively) savings account will suffice.

Michael Pelosi is the digital media director  for CardBlanc | Napkin Finance. He has an MA in Applied Economics and Statistics, so he kind of knows about money, too. Visit us as www.mycardblanc.com/napkinfinance for more awesome money tips.

So sad to see you go!

What I Learned from Buying my First Used Car from a Dealership

I have driven a 1997 Toyota Corolla for the past eight years. The vehicle is reliable, fuel efficient, and cheap to fix.


However, all good things must come to an end. After almost 20 years in service, and 100,000 miles of mostly city usage, I decided on donating the Toyota to Cars for Kids.

There is a stick holding up my window!

There is a stick holding up my window!

As I watched the vehicle I came of age with drive away into the sunset with another man behind the wheel, any sadness I experienced was instantly removed by the thought of a different car-one that was a little newer, fresher, and maybe even a bit safer.

I also knew that this would be my first dealership purchase. Walking into a dealership and negotiating everything from price to finance terms is intimidating for some. Putting together the pieces of how to most efficiently purchase a new vehicle, I assure you, is even worse.

With a few ideas for a new vehicle in mind, I ventured off into the scary and unpredictable world of car shopping. Here is all I learned along the way.

Research Everything

I will never purchase a new vehicle. With tools such as TrueCar available, anyone can find a used vehicle, with relatively low miles, and for a competitive price. New vehicles tend to be disproportionately more expensive that lightly driven vehicles. For example, a new 2015 vehicle that comes with only a few miles from dealership lot driving can be priced at 20% or greater than a 2014 vehicle with 15,000 miles. There is simply not enough difference in utility (value) in purchasing such an expensive asset. Remembers, cars,except for a few years, models, and makes, depreciate rapidly.

Knowing that I would be purchasing used, I made a simple list to determine, and simplify, my purchase criteria.

  1. What is the car safety rating?
  2. What is the price in relationship to other dealerships?
  3. What is the mileage?
  4. Is the Carfax clean?
  5. Does the dealership offer a vehicle warranty, and will they offer extended warranties for a reasonable price?

Financing

You have two choices when choosing to finance a vehicle: obtain financing through the dealership, or obtain financing through a third party lender such as a bank, credit union, or credit card company. Great financing is a competitive interest rate for a stated credit score that does not charge a penalty for early payoff.

Speaking of credit score, get yours before you begin the purchasing process. My favorite site to obtain and monitor my credit score is Credit Karma.

Dealership Pro’s:

  • Bigger dealerships may offer better financing because they work with a greater number of institutions. Pulling a credit score once can generate interest rate quotes from multiple financial institutions.
  • Some dealerships, big and small, may offer certains deals if financing is done in-house.

Third Party Pro’s:

  • Banks and credit unions may reward long time customers with good credit scores attractive financing options.
  • Entering a dealership pre-financed may give you greater negotiating power. Since you already know what your monthly payment will be, you are in a position to lower the price of the vehicle.

No matter how you choose to be financed, choose once and only once. It is never good to have your credit score pulled on multiple occasions in  a short time period. Don’t be fooled by the advertisements from banks that read something like “0.0% APR!”. These deals are usually reserved only for those with phenomenal credit scores, and a history of revolving accounts.

If you are a first time car buyer, dealership financing is probably the way to go, unless you (a). know your credit score, and (b). can receive quote estimates based on your credit score.

Monthly Payments

How much of a monthly payment can you afford?

Answer: A close to zero as possible.

This is why it is important to, at the very least, put down 20%. Not putting down 20% can put you upside down in your car value (owing more than the car is worth). My favorite tool for quickly calculating auto-loan payments is the Auto Loan Calculator from www.bankrate.com. Look at the differences in length of payments when various amounts of money are put towards the principal of the vehicle. This will help you gauge what your monthly payment will be.

Next, consider how long you want to extend the payments for. The longer the terms the lower the monthly payment, but the more you pay in interest on the principal in the long run.

The ideal term, for most vehicles, is 36 months.

However, four to five years, for most people, creates a much more manageable monthly payment.

The best scenario? Choose the longest financing option available to receive the lowest monthly payment, but commit to paying the principal of the vehicle, in full, over the course of three years.

REMEMBER! NO PENALTIES FOR EARLY PAYMENT!

Negotiations, Paperwork, and Due Diligence

  • Do not be afraid to ask the salesperson, “What is the best price you can do for me?” As long as you have shown your serious about the sale, there is usually some playroom in the price.

  • If the salesperson says “This is the lowest I can go,” then respectfully tell the salesperson that you saw similar vehicles for similar prices at other dealerships, and would like to view those options before making a decision.

  • However, if you like the car, and the car is priced fair in relationship to other dealerships, it is okay to accept the price at the sticker value.

  • Get all the information about the warranty and return policy. Next, if a 100,000 mile warranty can be added to the price.

  • The 100,000 mile warranty is a great investment. However, the terms must include “bumper-to-bumper” coverage. For most dealerships this means everything except brake pads, rotors, oil changes, tires, and other cosmetic damage. This coverage usually excludes accident based damage.

  • Look at the Carfax one last time before signing on the dotted line (multiple times).

  • If, and when, you are comfortable with the financing, vehicle history, price, warranty, and extended warranty, shake hands with the salesperson and get excited for your new vehicle.

My Story

After a few days of endless vehicle research, and browsing dealerships online, I settled on purchasing a Ford Focus, Fusion, or Taurus. All the vehicles have excellent safety ratings, and all were being sold for good prices by a few well reviewed dealerships. Plus, I have always liked Ford vehicles (I know, I am biased).

I chose dealership financing. The financing manager told me that, by checking my credit score once, he would be able to obtain quotes from five different institutions. The bank I ended up obtaining financing through was on par with quotes I received from my credit union.

Vehicle: 2013 Ford Focus.

Vehicle Mileage: 9989 miles.

The sticker price of the vehicle: $14,001 (does not include taxes and related fees).

The price after brief and pleasant negotiations: $13,201 plus new tires and a full tank of gas.

Bumper-to-Bumper Warranty: $1500 for 100,000 miles. Each repair is a $100 deductible.

Return Policy: 90 days or 1000 miles.

Financing: 4.9%. This was higher than what I hoped for, but a competitive rate nonetheless.

Money Down: $3300 dollars.

Monthly Payments: $202 per month for five years. Will pay off before three years.

Extras: Remote starter installation, $399. (It gets cold here in Boston!).

Conclusion

Buying a used car is not stressful when the right amount of research is done prior to entering a dealership. Thanks to the internet, dealerships have to price competitively. Consumers have a wide variety of purchasing options, finance quotes, and reviews to choose from.

We hope this guide helps you on your quest to buy awesome and used vehicles. Because we never buy new, right?

Michael Pelosi is a digital media guy for Napkin Finance. He has an MA in Applied Economics and Statistics, so he kind of knows about money, too. Visit us as www.mycardblanc.com/napkinfinance for more awesome money tips.