…New Cars are Out of Reach for Most Americans

Here’s a news flash according to AutoGuide.com, “The Average American can’t Afford a New Car” Really?  No kidding.  Have you seen the cost of a new car?

The typical new vehicle is now more expensive than ever, averaging $30,550 in 2012, according to TrueCar.com data, and heading up again as makers cut back on the incentives that helped make their cars more affordable during the recession when they were desperate for sales.

According to the 2013 Car Affordability Study by Interest.com, only in Washington, D.C., could the typical household swing the payments, the median income there is a stunning $86,680 a year.

At the other extreme, Tampa was at the bottom of the 25 large cities included in the study, with a median household income of $43,832.What this Interest.com report really indicates I think is that most people are spending way too much money on their cars.

If you have read many of the articles here you will recall that I am constantly “preaching” about saving up the money to make purchases and trying to avoid financing things if at all possible.  The goal is to become and live debt free.

I understand that most people are not willing to forgo the new car and that’s OK I suppose, if you are able to pay for it without sacrificing anything else.  The study by Interest.com used the common 20-4-10 rule of thumb to figure out how much car each median income could afford.  If you are not familiar with the 20-4-10 rule, I’ll go over it real quick…

20-4-10 – Simply put means you should put down a minimum 20% down payment, the loan should not be for longer than 4 years & principal, interest and insurance should not be higher than 10% of your income.

For most people buying a car is one of the biggest purchases, after your home that you’ll make.  And don’t forget, a car is a depreciating asset.  Meaning today you purchase a car for $20k and by the evening it will be worth $16k. After 5 years it won’t even be half of that.

Another good rule of thumb is to limit the cost of the new car to less than 50% of your annual income.  That still seems like a lot to me.  But if you just have to have a new car, there’s no way around it.

With the ever increasing cost of new cars, in addition to the ever increasing cost of everything else, it is now more important than ever to be financially responsible, have a budget and manage your money wisely.

I would contend that there are more reasons to not purchase a new car, especially in these economic times and instead do some research and purchase a used car.  …you might even be able to pay cash for it and not have a car payment at all!  Here’s a list of what I think are the deciding factors in passing up that new car purchase and buying something used.

1. Depreciation — This is a big one.  As I mentioned earlier, you lose thousands of dollars of value in a new car the moment you drive out of the dealer’s lot. Think about the average price of a new car for a moment, $30,550 in 2012. That car could now be worth around $15,000. Who would you rather be the original buyer, who lost $15k or the second buyer who saves that much? Depreciation is why you can buy a  2008 Porsche for the price of a 2013 Toyota.
2. Dealer Fees — You’ve heard about the $500 rust-proofing that you didn’t need but there are other ridiculous fees that you can’t avoid when you buy a new car at a dealer….  Shipping charges, dealer preparation, destination fees, pinstriping or any other crazy fees they can think up.
3. Reliability — This is the best kept secret with used cars.  Depending on how old of a used car you are looking at, there may still be some of the factory warrantee left; most cars nowadays have at least a 100k mile warrantee.  If you make sure the used car you are buying was maintained at the dealer during its warrantee period, you can be assured that if there were any recalls or severe problems with that particular model, it has been taken care of.
4. Cost — This goes along with the depreciation I know, but if you are willing to do some research and find out what cars have a history of the least problems as they get long in miles, it is possible to find a great car, but with a lot of miles on it.  Most people are going to be afraid of a car with over 100k miles, but if you find the right car you can expect another 100k miles or more out of that car.  These cars usually cost considerably less than their low mileage counterparts. So much so that it is possible to save up the money to buy the car and avoid financing all together!

New cars look and smell great, but how much is that new car smell worth to you? You might have to make more of an effort and spend a little more time on research, but from the initial price to the long-term costs, you’ll feel like a genius for buying a used car that’s in good condition.

…and you can buy that “new car smell” and spray it in your financially responsible used car and pretend it’s new.

(CNN) — Students at an Attleboro, Massachusetts, middle school went hungry this week, if they had a negative balance on their pre-paid lunch cards. Five cents of debt was enough for cafeteria employees at the Coehlo Middle School to instruct kids at least one day last week to dump out the food they would have normally eaten.

About 25 children left the lunchroom with empty stomachs.

OK, deep breath… Blood shot from my eyes when I came across this story!  Middle school kids that showed up at the school cafeteria for lunch, those that are lucky enough to have piece of crap parents, got a taste of the “real world” when they were told they couldn’t eat the lunch they received.

All because they had a negative balance on their prepaid lunch cards.

I say “real world” because in the “real world” you don’t get your lunch if you can’t pay for it.  I just can’t seem to wrap my head around how something like this could have happened. Especially in this, no red ink, no dodge-ball, get rid of A, B, C, D, F for S, N, and U, everyone passes, everyone is a winner and everyone gets a trophy, world the public schools have created. These kids were forced to learn a life lesson too early.  Middle school aged kids should not have to worry if they are going to be able to eat lunch or not.  That’s just a shame.

What’s even more unbelievable than the kids being sent away without anything to eat, is the fact that they were made to dump out the food they had in front of them. Not only did they have to dump out their food but they were required to sit there in the cafeteria, for the entire lunch period, with no food while others around them ate.  My heart breaks for the kids that had to endure this humiliation.

I haven’t seen where it was reported but, you can be assured these kids were made fun of by the other kids.  …kids are cruel like that and this was a perfect opportunity to make fun of someone.

Of course none of the geniuses at the school want to take blame for this inexcusable fiasco.

The principal blames the food vendor; the vendor blames the employees that made the decision.  Supposedly students that have a negative balance are to receive a cheese sandwich, a fruit and vegetable, and milk.  …That sounds pretty good.  But they didn’t even get that!  They left hungry.

There is plenty blame to be passed around to all involved as far as I’m concerned, but the real blame, the root of the problem is the kid’s parents.

I can’t think of an excuse good enough to justify your kid going without food.  How is it that the kid’s prepaid lunch cards are ever in the negative?  There should be nothing more important than making sure you have paid the bill for your kid’s lunch.

Is it possible that the parent’s finances are in such great disarray that they just couldn’t make the lunch card payment?  And if you know you can’t or haven’t made the lunch card payment, should you send a bagged lunch with your kid?  …I guess they were counting on the “cheese sandwich when your parents suck” meal to cover their lack of ability to ensure their kids don’t go hungry.

If you are unable to keep track and make the payments for your kid’s lunch card, I think it’s time for a budget.  …with the first item that gets paid, even before buying smokes, paying the cable or buying the booze, is your child’s prepaid lunch card.

If you find yourself in a situation where your debt is starting to get out of control and you can’t make the most important of all your payments, then I think it’s time to seek the advice of a professional before it gets too late and your kid is the one sitting in the cafeteria without anything to eat.

The professionals at DebtHelper.com can explain the benefits of a debt management program and provide you with a fresh start.

One of the biggest long-term benefits of the debt management plan is the reduction in interest. Reduced interest allows you to pay off your principal balances faster while saving you possibly thousands of dollars in finance charges.

In order to determine if you are eligible for a debt management program, you can fill out an online budget application form now and then you can contact one of their Certified Personal Finance Counselors© at (800) 920-2262.

DebtHelper.com can currently accept clients from the states listed here. DebtHelper.com is licensed, insured and complies with all state licensing requirements to ensure mandated regulations are followed. They are diligently working on becoming licensed in every state and are opening new states monthly.

Please call (800) 920-2262 if you have any questions. DebtHelper.com’s consultations are free, call them any time.

FOXNews — According to the FOX News report, parks are closing, government workers are being furloughed. The Department of Defense is issuing warnings about compromised military readiness. The Department of Homeland Security is making similar claims about border security.

I have to admit, in the little bubble that is my world, I haven’t seen any effect of the sequester.  As a matter of fact, I didn’t even know what a “sequester” was until all of this hit the news. I always thought that sequestration was what you did to a jury in a big murder case or something. …the jury was isolated.

According to the official White House definition, the Sequester is explained like this:

“In 2011, Congress passed a law saying that if they couldn’t agree on a plan to reduce our deficit by $4 trillion — including the $2.5 trillion in deficit reduction lawmakers in both parties have already accomplished over the last few years — about $1 trillion in automatic, arbitrary and across the board budget cuts would start to take effect in 2013.”

“Unfortunately, Congress hasn’t compromised, and as a consequence, harmful cuts — known as the sequester — begin March 1.”

“These cuts will jeopardize our military readiness and eviscerate job-creating investments in education and energy and medical research, and don’t take into account whether they eliminate some bloated program that has outlived its usefulness, or cut a vital service that Americans depend on every single day.”

“The whole design of these arbitrary cuts was to make them so unattractive and unappealing that Democrats and Republicans would actually get together and find a good compromise of sensible cuts as well as closing tax loopholes and so forth. And so this was all designed to say we can’t do these bad cuts; let’s do something smarter. That was the whole point of this so-called sequestration.”

—President Obama

You know this seems like one of the dumber things that have come out of Washington.  The idea of setting up something stupid like across the board cuts, with the only way to avoid would be to actually agree on spending, cuts and taxes at some time in the future.  What were they thinking?  It took over 4 years to come up with a budget, a budget that has no chance of getting passed, but a budget none the less.

I’m starting to think that maybe this sequester thing isn’t such a bad thing after all. 

Hear me out…  I agree that the sequester is not an example of brilliant budgeting but I do like the idea of cutting federal spending. I contend that the high federal deficits should be controlled, and that the government could use the same kind of belt-tightening that millions of private households have gone through in recent years.

I think that these “automatic spending cuts” might be the only way to get the federal government to make spending cuts.  With the government spending money like a drunken sailor on shore leave (no offense to you drunken sailors) something needs to be done.

It’s not a popular stance but I think the spending cuts and or reform needs to be with the entitlements. If I had to choose between tax hikes or entitlement cuts, such as a one-year boost in the eligibility age for Social Security, my vote goes for the entitlement cuts.

All of the entitlements, in their current state, are unsustainable.  There will come a time when we will not be able to meet those obligations and then real drastic cuts will have to happen.  That’s when you get rioting in the streets like what is starting to happen in Europe.

There is a saying that is applicable in this situation we are in, “It may be an unwise man who doesn’t learn from his own mistakes, but it’s an absolute idiot that doesn’t learn from other people’s. “

Well, I guess we must be absolute idiots.

“What if computers could respond to our thoughts? Or language barriers could come tumbling down? Or if millions of Americans were suddenly finding new jobs in these fields — jobs we haven’t even dreamt up yet because we chose to invest in this project? That is the future we are imagining. That is what we are hoping for,” the president said in an event in the East Room of the White House. CNN

President Obama on Tuesday said that federal agencies plan to spend $100 million to jump start a study to map the human brain. It’s research that could lead to breakthroughs in the treatment and prevention of brain disorders.

There needs to be a study on what keeps my head from exploding every time I read another story about the government and their ridiculous spending.  Obama’s says that “mapping the human brain” is another one of his “grand challenges,” such as making solar energy cheap or electric cars more affordable. Well, we all know how well the government’s investments in the last two areas have gone.  …I hope the investment in these brain studies fares a better.

He says the initial $100 million will be supplemented with money from private companies and that the outlay is just intended to “launch this effort.”

I suppose it is not a popular position to oppose spending on something that could “lead to breakthroughs in the treatment and prevention of brain disorders,” but I think this new “project” is nothing but another attempt of Mr. Obama to build some sort of legacy, a legacy other than being the president responsible for the largest increase in national debt in history, and a litany of other not so popular titles.

This may seem like a completely revolutionary step for science, but America might be a few steps behind other world forerunners in the brain game. The European Union, for example, has a similar initiative running called The Human Brain Project, funded with 1 billion Euros. Although it’s only a few months old, it was born significantly earlier than the U.S.Brain.

Trumping both the U.S and Europe in brainy research is none other than China. China already sponsors initiatives such as Brainnetome and holds ties to the U.S based Organization for Human Brain Mapping, which held its 2012 annual meeting in Beijing. (Financial Times)

I know I keep going back to my analogy of personal finance when I read about government spending but it is how we should look at things considering our Nation’s debt.

If you were in debt well over your head, actually had debt that was more than your income (see our story Nation’s Debt Passes Grim Milestone), would you go out and spend money on something that does not help you become debt free?  No!  No, you would not, neither should our government.  Everything we do, much like in our personal finances, should help bring us closer to getting out of debt, not take us deeper into debt.

Why is it that a simpleton like me can figure this out yet it seems to escape the Ivy-League educated brain trusts in Washington?  The real reason I think is that politicians, the president included, are more concerned about keeping their job, getting re-elected or building their “legacy” and don’t care about the country as a whole.

America will never be destroyed from the outside.  If we falter and lose our freedoms, it will be because we destroyed ourselves.  ~Abraham Lincoln

Do you want to know the best way to avoid late fees and credit card debt?

Don’t carry any credit cards!

In an interview by the AP, 41-year-old Atlanta resident Paige LeFevre, said “People look at me like I’m an anomaly. But guess what? It’s a whole lot easier when you’re not juggling debt,”   According to the article, the idea of living without credit cards is being given more consideration at a time when Americans hold more than $850 billion in credit card debt, four times as much as in 1990.

I’ll tell you, since closing our mortgage business during the housing bust; my wife and I have made “corrections” to our lifestyle and way of life in general.  We now have a budget that we stick to and have managed to become debt free with the exception of my student loans.  Our cars are paid for and not new.  …my car is a 1950 Chevy, we now shop at Walmart and thrift stores for the boy’s clothes and other things.  We have totally changed how we view and manage money.  The first thing we did however was to get rid of the credit cards.  We do have one credit card that is used for emergencies and if it gets used, all of our efforts go to paying it off.

It would seem that we are not the only people cutting back on the plastic.  Mastercard Inc. and Visa Inc. reported credit card spending was growing at its most anemic pace ever.

It’s concerning that there are a lot of young Americans, barely into adulthood who are saddled with debilitating levels of debt, everyone almost always talks about student loan debt, but there’s a growing trend suggesting that today’s young adults are also drowning in credit-card debt — and that many of them will take this debt to their graves.

More than three-quarters of renters between the ages of 18 and 24 spend more than they earn every month, according to a survey of 1,000 renters (of all ages) by Rent.com. This is the case even though 17% of respondents in that age bracket say they’re willing to live with roommates to save money. (TIME Business)

My wife and I are teaching our boys, 8 and 10 y/o, about money, both saving it and spending it.  They are currently in the middle of learning about buying something on credit.  They have agreed to purchase an old iPod that I refurbished using credit.  They did not have the $40 to purchase the iPod so I have extended them credit in order to make their purchase.

“Why does the $40 iPod now cost me $50?”

In addition to a purchase contract for the iPod, there is a finance agreement complete with payment schedule and a truth in lending disclosure where the boys can see that with the added interest they are paying much more for their iPod by financing it than if they just saved their money and bought it outright.  …this is already turning out to be one of the best lessons yet.  The joy of receiving the iPod immediately has not outweighed the extra money they have to pay by financing it.  I hope this lesson sticks.

We are not naive and understand that you are not able to save for everything, and some things, due to their exorbitant cost, require financing.

…or do they?

The nation’s debt has reached a symbolic milestone. With gross domestic product of roughly $15 trillion, and total debt of $15.23 trillion, $15,000,000,000,000 that’s how many zeros in 15 trillion. Our total debt is now bigger than our economy, as USA Today noted. What’s more, the Obama administration’s projections put our debt at more than $23 trillion by 2020, well in excess of the projected $22.5 trillion GDP.

For those of you that don’t know, the GDP or Gross Domestic Product, represents the total dollar value of all goods and services produced over a specific time period.  It is one of the primary indicators used to gauge the health of a country’s economy.  How the bean counters calculate the GDP is confusing at best but a simple way of looking at it is by adding up what everyone has produced in a year.

The GDP is the total market value of all of the goods and services produced within the borders of a (our) country. . It includes all of private and public consumption, government outlays, investments and exports less imports.

So if the GDP goes up that’s usually a good thing.  What is bad is when our debt is more than what we make.  Some economists dismiss this as terrible news comparing it to the average American household.  They contend that the average income in America is say $50k a year but the typical house costs $225k.  That is a debt that outweighs the yearly income.  Well that’s all fine and well but the typical American household has to play by rules that the government doesn’t.  Like living on a budget and having to control and service debt.

If you can’t make your payments you can’t just increase your debt ceiling and everything will be fine.  …or just print more money.  The government should not be able to either, but they do.

If the economy was growing faster than the rate at which the government is borrowing money, the debt would not be much of a concern. Unfortunately, this is not the case.

Here’s something for you to chew on…  “The U.S. has over 315,000,000 people and over 112,000,000 taxpayers. This means the total debt per taxpayer is over $145,000 and total liability per taxpayer is over $1 million.” USDebtClock

The time to get your personal finances in order is here.  There are hard times ahead of us no matter what the talking heads on TV say.  We are in a holding pattern waiting for the economic crisis that is inevitable to happen.  To see our future all you have to do is look at Europe and the other countries that have a ton of social / entitlement programs that have led to unsustainable debt.  …we are next.

The best thing you can do if you are struggling with your debt is to contact a professional that deals with debt management and get things under control.

The professionals at DebtHelper.com can explain the benefits of a debt management program and provide you with a fresh start.

One of the biggest long-term benefits of the debt management plan is the reduction in interest. Reduced interest allows you to pay off your principal balances faster while saving you possibly thousands of dollars in finance charges.

In order to determine if you are eligible for a debt management program, you can fill out an online budget application form now and then you can contact one of their Certified Personal Finance Counselors© at (800) 920-2262.

DebtHelper.com can currently accept clients from the states listed here. DebtHelper.com is licensed, insured and complies with all state licensing requirements to ensure mandated regulations are followed. They are diligently working on becoming licensed in every state and are opening new states monthly.

Please call (800) 920-2262 if you have any questions. DebtHelper.com’s consultations are free, call them any time.