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Car and Home Decision Part 1

Car and Home Decision Part 1. Financial Planning - Yates. Smart Buying Process. Step 1: Do your homework Is the purchase a “need” or “want?” Consider alternative products and features. Does the purchase fit your budget? Step 2: Make your selection

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Car and Home Decision Part 1

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  1. Car and Home DecisionPart 1 Financial Planning - Yates

  2. Smart Buying Process • Step 1: Do your homework • Is the purchase a “need” or “want?” • Consider alternative products and features. • Does the purchase fit your budget? • Step 2: Make your selection • Comparison shop: price, product features, and quality. • Be informed: check library and Web sources.

  3. Smart Buying Process (cont’d) • Step 3: Make your purchase • Negotiate the price. • Evaluate financing alternatives. • Complete the purchase. • Step 4: Maintain your purchase • Resolve complaints; • keep good records.

  4. Transportation Needs • Step 1: Narrowing your choice • Step 2: Picking your vehicle • Step 3: Making the purchase • Step 4: The lease-versus-buy decision • Step 5: Maintaining your purchase • Step 6: Consumer protection and your car

  5. Step 1:Narrowing Your Choice • Consider your lifestyle and needs versus wants. • Look at the alternatives. • Fit your car into your budget; calculate the payment.

  6. Step 2:Picking Your Vehicle • Do your comparison shopping via the internet or publications: • Compare price • Compare features • Compare quality • Determine what is available in your price range. • Test-drive the exact vehicle you are considering.

  7. Step 3:Making the Purchase • Take advantage of sales, but negotiate the price: • Know the dealer’s cost of the vehicle and any holdback. • Understand the various dealer markups. • Be aware of any rebate(s)

  8. Step 3:Making the Purchase (cont’d) • Evaluate financing alternatives: • Determine the length of financing. • Shop around to find the best interest rate. • Choose a financing period and rate to give you an affordable monthly payment. • Consider a lease: • Negotiate a fair vehicle value and a low rent or finance charge. • Choose a vehicle with slow depreciation.

  9. Step 4: The Lease-Versus-Buy Decision • Closed-end leases, or walk-away leases: • Normally offer a purchase option • Require the dealer to be responsible for resale • Account for about 80% of all leases • Open-end leases: • Compare the market value to the lease’s residual value of the vehicle • Are to be avoided because you pay the difference

  10. When is Leasing a Good Option? • If you are financially stable • If you drive less than 15,000 miles annually • If you take good care of your vehicles • If you use your vehicles for business travel • If you do not modify your vehicles • If the vehicle you are considering doesn’t depreciate too quickly

  11. Calculating Your Monthly Lease Payment • Your lease payment depends on the following factors: • Agreed-upon price • Up-front fees • Down payment or trade allowance • Residual value • Rent or finance charge • Length of the lease

  12. Step 5:Maintaining Your Purchase • Read the owner’s manual and perform regular maintenance. • Don’t ignore warning signals. • Choose a good garage; check training and experience.

  13. Step 6:Consumer Protection and Your Car • Know and use your warranty. • Use the “lemon laws,” if necessary, to get a refund: • Made 4 attempts to fix the problem • Car out of service: • at least 30 days during the 12 months after purchase • or the first 12,000 miles

  14. Comparing Options for Housing • Houses – typically single-family, free-standing dwellings • Cooperatives – multi-unit dwellings • Condominiums – multi-unit dwellings • Planned unit developments (PUDs) – planned development with common land • Apartments and other housing – multi-unit dwellings

  15. Housing Options:Houses • Advantages: • More space • Greater privacy • Builds equity • Disadvantages: • Maintenance time and costs • Repair costs • Resale hassles

  16. Corporate-owned dwellings in which the residents, as shareholders, own stock representative of the value of their unit. (Monthly homeowner’s fee.) Advantages: Low maintenance More amenities Higher security Disadvantages: Lower capital appreciation Difficult to sell Less privacy Harder to finance Housing Options:Cooperatives

  17. Residents have sole ownership of the living space but joint ownership of the land and common areas. Monthly maintenance fee. Advantages: Low maintenance More amenities Higher security Disadvantages: Lower capital appreciation Difficult to sell Less privacy Housing Options:Condominiums

  18. Housing Options:Planned Unit Developments (PUDs) • Own home and land it sits on as well as shared ownership of the development • Monthly homeowner’s fee for maintenance and common expenses • Most popular on West Coast

  19. Housing Options:Apartments and Other Housing • Advantages: • Lower cost • Ease of moving (no house to sell) • Little upkeep • Disadvantages: • Limited remodeling ability • Limited lifestyle choices (e.g., pet) • Less privacy

  20. Addressing Your Housing Needs • Housing Step 1: Homework • Housing Step 2: Selection • Housing Step 3: Making the purchase • Housing Step 4: Post-purchase activities

  21. Housing Step 1: Homework • Compare your needs versus wants for housing. • Compare your options for housing and the costs of each. • Weigh your alternatives of renting versus buying.

  22. Housing Step 1: Homework (cont’d) • Determine what’s most affordable: • Lending standards: • Your financial history • Your ability to pay • The appraised value of the home • Maximum mortgage • The down payment • Pre-qualifying

  23. Comparing Needs Versus Wants • Decide on the fundamentals such as bathrooms, bedrooms, and closet space. • Decide on property size. • Compare other considerations like school systems, proximity to shopping centers, or safety. • Consider the future – such as additional family members.

  24. Costs of Housing: What’s Involved in Ownership • One-time or initial costs • Recurring costs • Maintenance and operating costs

  25. Costs of Housing: One-Time or Initial Costs • Down payment • Closing or settlement costs: • Discount points • Loan origination fees • Loan application fee • Appraisal fee • Other fees and costs

  26. Costs of Housing: Recurring Costs • Monthly mortgage payments • Maintenance and operating expenses

  27. Costs of Housing: Monthly Mortgage Payments (PITI) • Principal – what you borrowed • Interest – the cost of borrowing • Taxes – support of government • Insurance – protection of your dwelling and contents Note: T & I are held in an escrow account.

  28. Costs of Housing: Maintenance and Operating Costs • Repairs to the structure • Replacing an appliance • Landscaping

  29. Weighing the Alternatives of Renting Versus Buying • Personal and lifestyle considerations • Financial considerations: • Appreciation with time • Tax considerations

  30. Advantages of Renting • Mobility • No down payment • Can be less expensive • Protection from declining housing values • More extensive amenities • No home repair or maintenance • No groundskeeping responsibilities • No property taxes

  31. Advantages of Buying • Build equity in your home • Allows for capital appreciation • Greater personal freedom • Tax advantages • Protection from rising rent costs • Potential source of cash with home equity loan

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