10 Dumbest Money Moves

Ever made a big mistake with your money?  Lots of us have.  In a recent article called "My 10 Dumbest Money Moves - And How You Can Avoid Them," Stacy Johnson of MoneyTalkNews discusses ten frequently-made money mistakes and what you can do to avoid making them.  The ten mistakes he describes include:

1) Not having a goal.
2) Not having a spending plan.
3) Attempting to derive self-esteem from possessions.
4) Doing what everyone else is doing.
5) Starting to save large and late rather than small and soon.
6) Paying interest to buy things that drop in value.
7) Turning down free money.
8) Buying a new car.
9) Buying more house than you need or can afford.
10) Not protecting your good credit.

To read the full article, click here.

Aligning incentives between advisor and client

By Dan Danford, Principal/Chief Executive Officer, Family Investment Center

When I bought my last car, I faced a dilemma. At a critical point, I discovered that I liked the car a lot, but not the dealership. I had to choose: give up the car, or buy from a dealer I didn’t like.

Other people face the opposite problem. They like a particular dealership but aren’t happy with available brand names or models. They’d prefer a different car, but they want to buy it through their chosen dealer.

With cars, maybe you rely on a salesperson to answer technical questions, arrange test-drives, and help with the financing. You trust them to help you reach the right decision, sign necessary papers, and – hopefully – you go home happy.

What if you learned afterward that the salesperson earned special “incentives” all along the way? That the car you bought paid higher sales commissions (and cost more) than others? That your lender awarded paid vacation to sellers closing the most “deals?” Ultimately, you may have overpaid for the car and missed better financing opportunities. Would this upset you?

One solution might be a car “supermarket” – featuring multiple product lines through one dealer. You could get any vehicle you want through the same local dealership. Salespeople would be salaried, or at least they’d disclose how they are paid on every car. Then, you could reach truly informed decisions.

The compensation system is the problem. Behavior is often motivated by the way people are paid. Today, dealers sell the models they’re allowed (limited by the manufacturer) and salespeople sell easy options or those offering greater personal reward. For the consumer, it’s a dangerous system.

Family Investment Center exists to avoid similar problems in the investment industry. We don’t earn sales commissions or transaction fees. We help clients choose between thousands of investment options (no captive funds); there’s no financial incentive to recommend one choice over another. Our financial rewards are tied directly to long-term customer satisfaction.

What’s in a name, er, license plate?

By Dan Danford
Principal, Family Investment Center

Roll back the clocks to 1985. Missouri opened the door to a new avenue of self-expression: the vanity license plate. At the time, I was driving a well-used Plymouth Horizon hatchback, with nearly as much rust as paint. It certainly wasn’t glamorous, but it was what I could afford as a junior trust officer at First National Bank. Banking, in those pre-TARP days, didn’t pay so much!

I rushed down to the Department of Motor Vehicles and applied for personalized plates. I’m sure I requested “TRUST” and a couple of similar derivatives. The plate I eventually got was “ITRUST.” I’ve owned it ever since.

I stayed in the trust business until 1998 when I started Family Investment Center. I worked for three different trust organizations, and drove a dozen different cars. A few were “company cars” and the plates have been shifted back and forth among at least three different corporations. Today, they belong to Family Investment Center and are attached to my 2007 Jeep Cherokee. I’m not directly in the trust business today, but it’s related to what we do, and people have grown used to seeing my car and plates.

The most common query I get involves religion. People ask if I’m a preacher. “No,” I answer, “but I do trust God.” There was a period where Missouri’s plates used the same font for both 1 and I. Then, people would ask what “1Trust” meant.

Once, a national trust journal used a photo of my plate to illustrate an article about industry entrepreneurs. That was kind of fun, and I’ve still got a reprint of the article someplace.

The funniest was with one of my earlier cars (maybe the aforementioned Dodge Horizon. A guy on the street asked why I’d publicly announce that IT RUST? A fair question, that.

My wife is a school counselor (where she’s been recognized as one of the top in our state.) I devised the perfect plates for her, and she’s had them a similar period of time. ILISSN. If you ever see them parked together, you’ll know where to find the Danfords!

Go beyond sticker price to find bargain cars

Finding a car that will go the distance is important. In fact, one of the most wasteful things many people do is trade in perfectly good cars for a newer model, for no solid reason other than simply wanting a newer car.

Pay attention to many factors when you purchase. Do look at the sticker price, but also look at the car's long-term prospects. Review gas mileage, too, as fuel prices are climbing. Get away from status brands and avoid expensive trim packages. Pay attention to everything you're charged - and be sure to check multiple places for the best financing deal. Don't just accept dealer financing.

For more, here's an article that Yahoo! Finance posted as part of their Financially Fit series. Surprisingly, the Hyundai Accent tops the list as cheapest per mile to drive.

http://bit.ly/EtKZu

Cash for clunkers may not be the deal you need

By Dan Danford

The government has announced it will likely continue its CARS program (known by most as Cash for Clunkers), in which individuals are given a bonus for purchasing a new car. (Read a news story about it here. See the details of the plan here.) Rebates are $3,500 or $4,500, depending on the circumstances of the car trade-in and purchase. The old vehicle is scrapped, with the concept being that gas-guzzlers are traded in for newer, more efficient vehicles, including hybrids, which get more miles to the gallon of gas.

The basic tenants of the plan are as follows:

- Your vehicle must be less than 25 years old on the trade-in date
- Only purchase or lease of new vehicles qualify
- Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)
- Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in
- You don't need a voucher, dealers will apply a credit at purchase
- Program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first.
- The program requires the scrapping of your eligible trade-in vehicle, and that the dealer disclose to you an estimate of the scrap value of your trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate.

The idea of getting a discount on a vehicle may tempt some to consider purchasing a vehicle when perhaps it's not in the consumer's best interest. Avoid that common fallacy that you "saved" a lot of money by buying on sale. Unless you needed something in the first place, you didn't really save anything. If you are actively in the market for a new coat, and you find one at 50 percent off, then you saved that money. But, as is more commonly the case, you find it on sale, and you don't really need it, but you like it, so your buy it, then you actually spent money, not saved it!

The same holds true with cars. With car company rebates and the government's clunker program, it's a great time to be buying a car. But only if you need one anyway. If your family schedule called upon you to buy a replacement car anytime in the next year, this could be a big saving opportunity. If not, you're just rationalizing so you can get a new one. Those are the kinds of mistakes that led us into the mess in the first place.

In a free market economy, should government get involved in business?

Like most Americans, I am keeping a watchful eye on the bailout of the auto industry. Generally speaking, I’m a free market guy, so I tremble when the government gets involved in business. On the other hand, Peter Lynch famously advised, “Go for a business that any idiot can run - because sooner or later, any idiot probably is going to run it.” American automakers seem to prove his point.
Part of the problem, of course, is that government is already involved with these companies. Over the years, various programs from tax breaks to emission standards to union workplace rules created an artificial marketplace for American autos. In themselves, most of these things seem good, but the combined consequences, intentional or not, impact the markets, for both consumers and manufacturers. When times are good, the impact may look slight. Nothing looks slight today, however.
Are some companies too important to our citizens and economy to fail? Clearly, there are some very important people who think so. They argue that carmakers and the suppliers who support them employ millions of people who would be at best temporarily or at worst permanently displaced. That’s a huge additional burden for a country already disabled by a huge recession. Plus, the manufacture and sale of autos plays a large role in our national economy, and global trade. These are powerful arguments and, for now, they seem to have won the day. The government stepped in, loaned them money, and assumed an oversight role.
In that oversight role, they kicked out one top executive and ordered Chrysler to consummate a quick merger. Those are big steps, and they raise a lot of eyebrows on Wall Street.
I think the jury is still out on this issue. Like so much else in business or government, we’ll look back on this with a lot more clarity. I have concerns about government saving some businesses, but not others. I’m skeptical that career politicians know enough about business to make good personnel or other decisions. I cringe when Congress acts on polls taken in the barber shop or union hall. Still, with all these concerns, I’m hopeful that steps already taken avert disaster and keep good people working. These are unique times and call for unique measures.
More than anything, I fear unintentional consequences. So many good ideas in government create a dark side consequence. Sadly, many great ideas are short-term, but the consequences are long-term. That’s my concern about government intervention. Maybe this time is different.