Distractions draw your attention away from the road whenever you’re behind the wheel. On any given day, you might confront thousands of things that cause you to divert your attention or take your mind off traffic. Some are necessary. Stop signs, merging vehicles, traffic lights, and construction crews all must be acknowledged. On the other hand, cell phones, texting, reading, and putting on makeup should be avoided while driving. These and countless other distractions dramatically increase the risk of causing an accident. That will cause your car insurance rates to climb.

Below, we’ll share a few statistics that will demonstrate the extent to which talking on the phone impairs your ability to drive safely. We’ll then take a look at other activities that can pull your attention away from the road. You’ll also learn how a single mistake due to distracted driving can influence your auto insurance rates for years to come.

Talking On The Phone While Driving

It should not come as a surprise that using a phone while driving diverts your attention from the road. The U.S. National Highway Traffic Safety Administration (NHTSA) found that 18 percent of accidents involving fatalities, and attributable to driver distraction, involved the use of cell phones. Additionally, the Insurance Institute for Highway Safety (IIHS) reported that drivers are up to four times as likely to cause accidents when using handheld devices, including phones.

Many drivers think their experience behind the wheel reduces the risk. That is, they assume most of the accidents are caused by younger drivers, or those who have not driven for long. But this is inaccurate. The Insurance Bureau Of Canada (IBC) commissioned a study (published in 2007) that found novice and experienced drivers were equally distracted by cell phones.

Over the last several years, there has been a transition from using handheld phones to hands-free devices. This was based on the assumption that people are distracted by phone usage because they are forced to hold their phones while talking on them. But a study conducted by researchers at the University of Utah found this assumption to be untrue – or at least questionable. Findings from the study revealed that a driver’s reactions while using a phone are similar to those of a drunk driver, regardless of whether the device is physically held.

These studies demonstrate that using a phone while driving is a bad idea. But it is important to realize that many other seemingly benign activities may prove equally disastrous on the road.

Distractions Beyond Talking On The Phone

Researchers categorize distractions into three types: manual, visual, and cognitive. Manual distractions force you to remove your hands from your steering wheel; visual distractions cause you to look away from the road; and cognitive distractions affect your focus. With this in mind, consider the myriad things you might do that pull your attention away from the road.

Do you read while driving, including looking at maps or directions? Do you attend to your car’s stereo system (i.e. changing CDs, lowering the volume, etc.)? Do you shave or brush your hair in traffic? Many people eat meals while driving. Not only is doing so distracting, but some foods can drip, spill, or leave your hands greasy.

These activities may seem harmless, but will impair your decision-making ability on the road. In doing so, they expose you to an increased risk of causing an accident.

How Distracted Driving Affects Your Rates

If you’re caught driving while distracted, you may receive a ticket and be required to pay a fine. Although both are inconvenient, the financial cost of distracted driving can be far more severe. Your auto insurance rates are calculated based on numerous criteria. One of the most influential factors is your driving record.

If you have a clean record devoid of accidents and tickets, you’ll enjoy lower rates than otherwise (shop around to find the lowest rates possible). But a single at-fault accident on your driving record can cause your rates to rise by up to 40 percent. The reason is because your insurer will reevaluate the risk of loss associated with insuring you, and adjust your premiums accordingly. If you cause an accident due to being distracted, you’ll pay higher premiums for several years. That will amount to much more than a one-time fine.

Clearly, it pays to avoid distractions while you’re on the road. However, if you cause a collision that sends your rates skyward, shop around for another insurer. You may find that comparing quotes from several insurance companies uncovers a less-costly alternative.

This post is brought to you by Kanetix, which offers both Canadians and Americans an opportunity to comparison shop their insurance needs.

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By Kevin M

It’s often said that the only two things that are certain in life are death and taxes, and while that’s true enough, if you own a car you can add car insurance to that short list. Car insurance is virtually mandated in most of the Western world, and since you have to pay it, it helps to keep it is inexpensive as possible.

How do you do that? There may be 100 ways, but I’ve identified at least eleven.

1) Carefully chose the car you buy. Much of the cost of car insurance is set when you purchase your vehicle. Higher priced vehicles, certain model types as well as newer cars generally cost more to insure. Before buying your next car, you might want to get insurance quotes to see what it is you’re setting yourself up for. Once you own the car, it will be too late.

2) Keep your mileage down. Some insurance companies may offer discounts for lower mileage. Reduce your driving as much as is practical, keeping in mind that not only will lower mileage save on insurance premiums, but it will also lower your auto expenses across the board. This can also be a real incentive to set up a work-at-home arrangement; just removing a daily commute can have a major positive affect on premiums.

3) Raise your deductible. We’re often tempted to keep our insurance deductibles to a minimum so that we don’t see large, unpleasant bills when it comes time to file a claim. But if you have a good driving record, raising the deductible can lower your premium substantially. One way to do this without increasing your exposure is to add the increase in your deductible to your emergency savings, that way you’ll have the funds available in case of an accident. For example, if you increase your deductible from $500 to $1,000, add $500 to your emergency fund to have it ready if necessary. If you never have a claim, you’ll be $500 richer.

4) Keep your driving record clean. This is the single best step toward keeping your insurance premiums down. The premium penalties for accident claims and traffic citations is substantial, so make a habit of driving conservatively. If you have some driving events in your recent past, it’s crucial that you stay clean from now on. Most jurisdictions will clear your record after three years, and the insurance savings for doing so will make it well worth it.

5) Keep your credit rating clean. There is apparently some correlation between driving habits and credit ratings! Keep your credit as clean as possible, especially if your driving record isn’t. Be sure to pay all of your bills on time, and if you’re credit report reveals any discrepancies, collections or charge-offs, do what you can to clean those up. Many old creditors will accept pennies on the dollar to settle old debts, and cleaning them out can have as substantial affect on your credit rating—and your insurance premiums.

6) Take defensive driving courses. Many insurance companies offer discounts if you’ve recently completed a defensive driving course. But before you rush out and sign up to take a course, make sure that the cost of the course won’t exceed the discount you’ll receive on your car insurance premium for taking it.

7) Look for discounts. There are all kinds of discounts available depending on the insurance company. Discounts are often available if you have a college degree or for certain employment affiliations, such as unions, government jobs, affiliate companies or the military. Some offer discounts if you have a garage, if you’re a member of AAA or even for multiple discounts. Never assume that an insurance company will automatically disclose what discounts they offer—be bold and ask.

8 ) Safety equipment. Having certain equipment in a vehicle can have a positive affect on insurance premiums. Security systems, passenger and back seat air bags, anti-lock brakes, and automatic seat belts can all lower your premium. Check with the insurance company to see which systems and equipment will lower the premium and see how your vehicle stacks up.

9) Bundle with other insurance policies. This is a time honored insurance saving technique but it’s worth re-emphasizing. You can often get a break on your car insurance premium by adding homeowner’s coverage or some other type of policy to your package. Insurance companies do this as a way of both attracting and retaining customers.

10) Shop, shop, shop! Shopping for car insurance can be a bit of a pain so you may be tempted to avoid it, but don’t! Rates are moving all the time, and if you stay with the same carrier for many years you may miss out on lower premiums. An insurance carrier may cut their premiums in order to attract business from their competitors, and by actively shopping you’ll be in a position to take advantage of the cost savings.

11) If all else fails, relocate… I’m not suggesting that you relocate to take advantage of lower insurance rates, but depending on which country you live in, car insurance can vary significantly based on geographic location. In the U.S. for example, car insurance rates can vary substantially from one state to another. And what you typically find is that the same areas that have high car insurance rates often have higher than normal rates for health insurance, property taxes, rents, property values and a host of other expenses and fees. So if you’re planning to relocate to lower your cost of living, lower car insurance rates may be another factor weighing in favor of the move.

What are you doing to keep your car insurance expense under control?

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By Kevin M

Do you ever find yourself wondering—perhaps when you look at your paycheck or even your W2–I make a good living, why don’t I have more money saved up?

You might look at your income and your regular expenses and think that you should be saving more, but somehow it all seems to just disappear, almost as if there are termites gnawing away at both your wallet and your checking account. And perhaps there are a few termites infesting your finances. Call them “stealth expenses”—stealth because we usually underestimate them—if we even notice them–expenses because that’s just what they are.

We all have fixed expenses that we know only too well—house payments, car payments, student loan and credit card payments. There are also day-to-day survival expenses, like groceries and gas. We’re very familiar with all of these, but it’s those others, the variables, that slowly suck the life out of a budget. Those are the stealth expenses, the ones that aren’t always so easy to measure or even to prepare for.

”Where does all my money go?”

Stealth expenses are “soft” expenses that hit us in small chunks, but they’re substantial when taken together. Worse, because of the variables related to each, you can’t know with any degree of certainty what they’ll cost you in any given year. The prime suspects:

Insurance. This category is complicated by the fact that it usually has several components–home, auto, life, health, etc, that add up to many thousands of dollars each year. Often they’re paid in ways we don’t notice, such as payroll deductions for health insurance and the little corner carved out in the monthly house payment that includes homeowner’s coverage. Then there are some policies that have annual, semi-annual or quarterly payments that can escape yearly budget projections. They all add up to less savings in the bank at the end of the year.

Co-payments, deductibles and co-insurance provisions. Uncovered health expenses–deductibles, co-pays, co-insurance (the percentage of first dollar medical expenses you’re required to pay past the deductible—nearly every health insurance plan has this provision!) and costs for procedures that aren’t covered—also fully qualify as blind-side expenses, and they have an uncanny knack for hitting at the worst possible times. In any given year there’s no way to know what they can be, but they can torpedo a budget in short order.

Utilities. Utilities might the biggest of the stealth expenses. They can easily amount to hundreds of dollars per month but we don’t notice because it’s usually split between several bills (electric, water, garbage, gas, cable, internet, etc). A major complication is weather, which can increase payments even if you’re on a budget plan. Another is unexpected and often steep rate increases. Many utilities are virtual monopolies and if they’re approved for fee hikes you’re stuck.

Entertainment. The stealthiest of all stealth expenses, perhaps because we don’t like to think about budgets and saving money when we’re planning on having a good time. Like dominos, one fun activity usually leads to another, like dinner and a movie. Then there’s the gray zone factor—is eating our part of your food budget or is it really entertainment? What about cable TV? And how to you establish an entertainment budget—and live within it—when you don’t know exactly what your needs will be? Entertainment is, after all, driven more by emotional factors than logic.

Car repairs. Probably the most unpredictable of all stealth expenses, you can budget for this but you can easily miss by thousands of dollars. The reason is the wide variation in repairs costs. Replace a battery at $150—piece of cake—replace the transmission at $2,500–now we’re talking real money. Multiple major repairs could mean that all budgetary bets are off. This is a category where you can get off easy with $500 one year, then get clobbered by $5,000 the next. The older the car or the more vehicles you have, the less predictable the expense will be.

Holidays—especially Christmas. There’s often a tendency to think that this expense can be blended into a budget with little extra effort, a notion that usually breaks down quickly when the January credit card blizzard hits. Christmas in particular is difficult on a budget in part because of its sheer size. It sits astride the “holiday season”, sandwiched between Thanksgiving and New Year’s, and that season often facilitates a breakdown in budgetary order. Not only is there shopping for gifts, but there are dinners out “on the fly” because there’s no time to cook. Then there are decorations and often travel. A blessed holiday for sure, but a hard one on the finances.

If you think about if for a bit, you’ll come up with even more categories that qualify as stealth expenses, but the more important issue is taking control of them. Because stealth expenses have multiple sources, there need to be multiple plans on how to deal with them.

Keep close tabs on ALL spending

Stealth expenses like entertainment get out of control precisely because they escape close scrutiny. Tracking them will show the reality of what you’re spending, highlight substantial increases in spending trends and give you a chance to make cuts where necessary.

Controlling fixed expenses is more important than we think

Stealth expenses usually eat up a bigger chunk of your budget than you think. The wide variety of them can make it hard to establish a workable budget. An alternative is to lower fixed expenses, like housing and car expense. Not only are there fewer fixed expenses, but they’re usually larger so cutting will have a far greater impact.

And here’s a bonus: the lower your fixed expenses are, the lower your stealth expenses will be. For example, the size of your home will affect your utility expenses, while the cost and type of car you drive will have a huge impact on both car repairs and insurance costs.

Set up a dedicated savings account for predictable but irregular expenses

Set up a third savings category—somewhere in between an emergency fund and long term investments—that will cover the loosely expected and vaguely predictable nature of stealth expenses.

Emergency funds are typically based on predictable monthly living expenses, which include regular insurance and utility payments. However, car repairs and health insurance deductibles and co-insurance provisions are close to impossible to predict with any certainty—all we know is that they can happen, and will at some point in the future. How do you save for that?

One way is to average how much you’ve spent on these over the past few years. It’s far from scientific since car repairs can increase as your vehicles age, and healthcare is always an X factor. You could use a worst case scenario on healthcare, for example, by adding up the deductible and co-insurance provision that you would have to pay for a large medical expense for one person, then add in an average amount paid for car repairs. You could also begin loading up the account as the holiday season approaches, or you have a wedding or graduation to attend when entertainment expenses will increase.

Stay liquid!

Liquidity is vastly underrated as a budgetary tool. The lack of it is a primary reason people go into debt. Don’t overload investment or retirement savings at the expense of near term needs. You’ll pay for these one way or another, and it’s always best to do so without using credit.

A “stealth expense” is any expense that we would be likely to underestimate or to even exclude from our budgets; can you think of other examples?

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Entertainment For Less

By Kevin M

$55.12. That’s what I just paid to fill the tank of my Nissan Maxima—a mid-sized car. I generally view $50 fill-ups as the tipping point on gas prices. You can buy dinner for four at a moderately priced restaurant for that kind of money. That’s the kind of money that makes noticeable dents in a budget. And it’s ongoing; you’ll pay it every time you fill up.

Most of us seem to get seriously concerned only when gas prices set a new record. When prices pull back—even a little—we settle back into the comfort zone we call “normal”. Right now, with gas prices hovering in the $3.50 to $4.00 range—we seem to be right about on the border of the “serious concern zone”. We’re watchful, but not overly concerned.

Despite all of the rosy predictions of energy independence in the nearly 40 years since the 1973 OPEC Oil Embargo, we’re more tied to oil from unstable sources than at any time in history. The current rumblings in the Middle East and the gas price spikes they’re causing make our inability to deal with our energy problems on a collective basis painfully obvious.

That means we’re on our own folks!

Here’s my thought on a constructive long term energy outlook: assume the worst with gas prices and be prepared—even if they seem to be behaving, assume it will get worse.

The evidence of that assumption is playing out right now at a gas station near you! We aren’t powerless though, not if we if we have a plan or two. But just understand that options are harder to come by as gas prices move higher, and make a commitment to do something. Here are some ideas to get you started.

Saving Gas on Transportion

Get a bicycle. You did it as a kid, why not do it as an adult? A bicycle won’t replace a car, but depending on where you live it might enable you to eliminate a few short car trips each week. Get a bike with a large basket for local runs to the store, the bank, the pharmacy or any place within a couple of miles of home. Not only will this cut back on gas, but it’s also great exercise.

Invest in a moped. OK, let’s say that riding a bicycle even for local errands sounds like too much work—let’s put a motor on the bike. Also known as a moped! If you’re interested, Matt Jabs at Debt Free Adventure has a great post chronicling his moped purchase. If you think it might work for you, Matt says you can get over 100 miles per gallon, and you can buy a late model used version for well under $1000. By the way, if you think the weather in your area might be a problem, consider that Matt lives in Michigan!

Sell your gas guzzler now! I know, this sounds radical. But it’s a fact that a gas guzzler will be a liability without redemption if gas prices go much higher from here. You’ll pay through the preverbal nose every time you take it on the road and worse, no one will want to buy it from you. Conversely, the price of economy cars will soar. Bad trade off? Sure, but that’s why you want to do something about this before things get out of hand.

Saving Gas Getting to Work

Bring your lunch to work. Kay Akers came up with this brilliant idea in a post she wrote on the same topic at Couple Money a few days ago. Most of us are well aware of the amount of gas we use commuting to and from work, but few of us ever consider how much added fuel we use driving out for lunch every day. The trips may be short, but lunch hour traffic can be brutally heavy in and around many office parks, and that kind of driving is particularly hard on gas mileage.

Set up a work-at-home arrangement with your employer. High gas prices function like a pay cut at work. The only way to offset this is by cutting back on commuting. And the most effective way to do this is through work at home arrangements. As I see it, there are at least three ways to approach this and how far you go with it will depend on how high gas prices go.

1. Ask your employer to allow you to move your job to full time work at home. If they agree, higher gas prices will have only the slightest effect on your lifestyle. And even if they say no, it may open up the negotiations.
2. If your employer won’t agree to full time at home, ask for one or two days per week. Each day of work at home will reduce gas consumption from commuting by 20%. That’s worth negotiating for.
3. If your employer says no to work-at-home, and you’re sufficiently concerned with high gas prices, it may be time to start looking for new job that will.

One light at the end of the tunnel here is that even if you aren’t successful in getting a work at home concession during a period of low or stable gas prices, the arrangement may become more popular if gas prices take off. Still, I’d rather have that lined up before it gets to that point.

Start your own home business. One of the underappreciated aspects of gasoline spikes is the economic impact, and that has a way of translating to the job front. Everything in the economy is tied to the price of a gallon of gas, and when fuel prices rise, the economy usually weakens and layoffs follow. One of the best preparations for that possibility is having your own business, one you can operate from home. Even if you only do it part time for now, it may be something to expand in the event you lose your job—which if history is any indication, is far more likely the higher gas prices go. If nothing else, the extra income will help you handle higher fuel bills. Call it your Plan B.

What do you think? Can you come up with ways we can deal with higher gas prices? Simple ideas, radical ones—we’re looking for ideas here…

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By Kevin M

If you get a repair estimate of $1000 on your car, do you sense desperation, turn the car over to the mechanic and tell him to do what needs to be done? If you do you could be making a mistake that will cost you hundreds of dollars.

Most of us, I think, are a bit intimidated by car malfunctions, especially major ones. We don’t know a whole lot about cars—especially what makes them tick on the inside—and that makes us vulnerable not only to high charges, but even to repairs that are completely unnecessary.

For those of us who aren’t car experts, the solution may be to play one mechanic shop off against another.

Use several different shops—your own “panel” of car repair experts—and you increase the potential for savings.

We might like the idea of having a single shop to bring the car to when ever there’s a problem, but most repair shops these days are national chains run by business managers who know more about sales than they do about car repairs.

Why shopping between repair shops works

If you were facing major surgery, wouldn’t you get a second opinion to be sure you aren’t doing something unnecessary? Why wouldn’t you do the same for a major repair on your car?

If it sounds like it might be a hassle, consider what you get for your effort:

• You can select the repair shop with the lowest price an any job at any time
• You gain knowledge from talking to different mechanics about your car’s problem—you’ll learn and sound more intelligent, gaining the respect of the mechanics and the bargaining power that goes with it
• After a few repairs, you can find that one shop is consistently more reasonable than the others
• If the shops realize that they’re competing with one another, they may give you better pricing

The Car Computer Crap-out Caper

I’ve recently had a successful experience consulting with multiple shops. The onboard computer in my car had a “minor issue”—it stopped recognizing the code in my keys and wouldn’t allow the car to start. Initial action: get the keys reprogrammed.

Cheap and effective—but only for 30 days! The computer was “de-programming” the keys! In every other respect, it was functioning properly, but you can’t drive a car if the keys won’t start it, so I had a “complication”. The whole computer needed to be replaced.

$1200. That’s what the dealer wanted for a new computer. Due to the complexity of reprogramming the new computer for the car, my backyard mechanic wouldn’t tackle it, and neither would local repair shops. It looked like the dealer had me.

Yes, it looked that way, but I had my panel of experts! I called around to different shops, and dug to find out what I could. One morning, while having the oil changed at the quick oil change shop I go to, I asked the staff there if they could replace the computer (I didn’t think so, but I was there so I thought I’d ask).

They didn’t, but they knew a tire dealer who did!

I called the tire dealer and asked for the car computer expert I’d heard about and got him on the first try. Sure enough, he could handle the job and for a lot less than the $1200 the dealer shop wanted. The tire shop didn’t actually replace the computer, but they had an out of state facility that could reprogram the existing computer, rather than replacing it. (I had asked the dealer about this very thing, and they said it couldn’t be done.)

$765 was what I paid. That’s a savings of $435—just for asking a question! But the important thing was that I had multiple shops that I dealt with where I could ask the questions.

Building your own panel of car repair experts

You can build your own panel of car repair experts by enlisting one or more of the following:

Learn basic car repairs. If you have the time and motivation, take a course on car tune ups so you can handle routine maintenance yourself. Not only will this save you money, but it will also give you a greater understanding of cars and help you to navigate the car mechanics jungle to get the best repair deals.

Backyard mechanic. If, like me, you’re not a car repair type do some asking around and see if you can find someone who does car repairs on the side. They can do routine work like brakes, mufflers, belts and hoses and the like. And since they don’t have expensive shops to pay for, they’re a lot cheaper. You may even be able to work out a barter arrangement if you have a service to provide.

A reliable oil change shop. If you can’t find a reliable backyard mechanic, or if the backyard mechanic is slow to respond (which is a typical issue), an oil change shop can provide much the same function. Oil change shops do more than just oil these days. They’re reasonably priced, offer quick service, and as you see from my computer situation, they can be a good starting point to get information on where to go for the best deals.

Multiple full service repair shops. We need full service shops for the heavier jobs. But work with two or three, rather than relying on just one. If you have more than one shop to work with, not only can you shop them for the best repair prices, but you can use them to get a second opinion on a major repair bill. It may turn out that the repair recommended by one shop is totally unnecessary. Not only will that save you an entire repair bill, but it may expose a shop that’s less than honest.

Dealer repair shops. Sometimes there’s no way around going back to the dealer for a certain repair. But dealer repair shops are at the very top of my “use only when there’s no other option” list. If you have to go to a dealer and pay the highest price for a repair, make sure you’ve tried five or six other options before you go that route. The more you can avoid the dealer shop, the more money you’ll save.

Car repairs are a major expense, and we need to find ways to save money on them. There’s no need to go to a dealer shop and pay $100 for an oil change that you can have done at an oil change shop for $30. There’s no reason to pay a full service repair shop $300 for a brake job that a backyard mechanic can do for $150. But the only way you can avoid paying the higher prices is to have your own panel of car repair experts to shop between.

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With high cost cars, expect to pay twice!

By Kevin M

Most of us dream of cars. Like the home we own and the clothes we wear, cars aren’t just something we drive—they seem to define us. If you are what you drive, then driving something better somehow makes us better. The nicer the car, the better. But nicer comes at a price, and usually a much bigger one than we imagine based on surface factors. High priced cars are even more expensive than we generally think.

When people shop for cars, the single most important affordability factor is usually the monthly payment. ”How much payment can I fit into my budget? is the question that dominates the numbers. For most us, if the monthly payment is a good fit, we just may have bought ourselves a car, what ever the total price may be.

But the cost of a car is more than a monthly payment. It’s even more than the total price.

Beyond price and payment are carrying costs—the ongoing expenses of keeping the car. The higher the price of the car up front, the higher the carrying costs. And it never gets better.

Before buying that high priced dream car, consider the costs that you’ll carry, over and above the higher price, down payment and monthly debt service…

Insurance. The value of your car has a pronounced affect on the amount you pay for car insurance. While your driving record may be the single biggest factor in determining your premiums, a close second is the cost of collision coverage, and that’s where the value of your car figures prominently.

And speaking of collision, if you’re looking to save money, it may be advisable to drop the coverage on a vehicle once it reaches a certain age. With a late model, high end car, that isn’t an option.

Repairs. The more expensive your car, the more it will cost to repair it. Some of it may be the greater complexity of high priced cars—maybe—but equally likely is the fact that you’ll pay more because the automobile repair world fully expect that people who can afford high priced cars can just as easily afford higher repair bills. I call that the “soak the Yuppie premium”. Expect to pay it for a high priced car.

Replacement costs. The first cousin of repair costs is replacement parts. Just as with a house or any other major asset, sooner or later, you’ll need start replacing components, and the more expensive the car, the more you can expect to pay for parts. Tires, damaged body parts, mechanical components—all will cost disproportionately more in a 2010 Mercedes than in a 2000 Toyota Camry.

Ad valorem taxes. This isn’t a universal cost, but here in Georgia, we have ad valorem taxes on our cars, and we’re not the only state. The tax is like an annual sales tax on the depreciated value of your vehicle. Since the value of your car drops every year, the tax declines each year. However, the cumulative affect of the tax is to add thousands of dollars to the cost of owning your car over its life. Obviously, the more expensive your vehicle at purchase, the more you’ll pay for the tax.

Not all of the higher costs of high end cars are financial. In fact, some of the heaviest burdens may have little to do with money.

Theft. Higher priced cars are generally greater targets for theft—and not just theft of the car itself either. A person getting out of a luxury car is a more prominent target as well. Even if your car is never stolen, or you’re never robbed getting out of it, you’ll carry a bigger burden just on the potential of what can happen. Is that something you want to worry about?

Dings and dents. High end cars don’t seem to wear dings and dents quite as well as less pricey models. If you’re driving a ten year old beater, one more ding probably won’t bother you much. But if your car is a $50,000 late model special, any scratch is likely to be deeply traumatic.

Parking. You have to worry where you park a high end car. You probably have to garage it at home, denying the true purpose of the 21st Century garage–extra storage space. (You may even be forced to pay real money to rent remote storage space, but I digress!)

Away from home, you may find yourself being more particular about where you park it. People with less costly vehicles can park anywhere they choose, but with a high cost car, you might find yourself parking far away from entrances (to avoid the aforementioned potential for dings and dents), double parking to avoid contact with other vehicles, or avoiding street parking or other unprotected spaces. Translation: loss of freedom.

Worry. While most of us like to celebrate our success by rewarding ourselves with bigger, nicer toys, it’s a point of fact that the more we have, the more we have to worry about. What’s the cost of worry? It’ll be different for each of us, but it’s a real cost in more ways than one.

Replacement. Without going into the monetary costs involved in replacement of a high end vehicle, few people can trade down on their cars. In fact, as with houses, most of us fully expect to trade up to something even better. Once you buy on the high end, you’re emotionally—if not financially—locked into that realm, and all the costs associated with it.

So with all this in mind, is a lower priced car—or even a used car—looking like the way to go?

By Kevin M

Comedian Jeff Dunham says people who buy new cars for their kids have it all wrong. 16 or 17 year old kids, he emphasizes, don’t need a new car–they need a bumper car. And he was talking about his own daughter!

I agree!

The closest thing to a legitimate sounding opinion I’ve heard for buying a brand new car for a kid is for safety, that new cars incorporate the latest and best safety features and it’s worth paying the extra money for better survivability in the event of a crash.

Maybe. But maybe not. I’m not convinced that the newness of a car has as much to do with safety as the make of a car. Think Volvo here—historically one of the safest cars available irrespective of age. I’m also equally certain that when human beings are feeling the itch to spend money, nearly any decent sounding justification can and will be used to support the decision, reason and logic be damned.

What are some compelling reasons for not buying a brand new car for your kid?

Cost. OK, I admit that I didn’t even have to think about this one—but we should never overlook the obvious. Unless you’re searching for ways to spend money, this is absolutely one of the very best ways to waste a whole bunch. Cars, after all, cost a lot of money, and not all of it in the purchase price.

A new car will require greater outlays for insurance, ad valorem taxes (if you have them in your state), as well as maintenance and repairs. After all, you can’t put less expensive used parts in a new car, nor can you use a friend or backyard mechanic to maintain or repair it.

A good quality used car will save you money on all of these recurring expenses, in addition to the price of the car.

Humility. Most of us consider humility to be a valuable personal characteristic in a person, especially in our own children. But how is that quality imparted in a kid who’s about to get a brand new car?

A brand new car is virtually a counter teaching on humility; if it’s a trait we’re trying to instill on our kids, this is close to the worst way to make it happen. It would be difficult indeed for a teenager to not get a big head when showing up to his high school parking lot with a brand new car.

Future rewards and merit. A new car is one of life’s financial rewards. They’re something we buy for ourselves as a way of compensating ourselves for hard work, accomplishment and thrift. What has your high school child accomplished that warrants such a bonus? By giving them a new car, you’re separating rewards from merit.

Maybe this is old fashioned, but I think kids shouldn’t have a new car until they’re in a position to contribute to it financially.

Personal responsibility. This might be an expansion of future rewards and merit, but by giving a kid something for nothing, no lesson of personal responsibility is being conveyed by the parents. It’s one of the best examples of something-for-nothing—a message no teenager needs to learn.

In my experience (I have teenagers myself), I think most people tend to overrate their kids’ levels of maturity and responsibility. A car is one of the best—and last—opportunities you will have to teach them this lesson before they head out into the world.

Damage control. Now let’s get back to that bumper car thing! Jeff Dunham may have made this suggestion in jest (watch his Jeff Dunham’s Very Special Christmas DVD, it’s a real hoot!) but it’s really a serious point.

Kids WILL get into fender benders—many without rational or cohesive explanation—it’s part of the whole learning to drive experience. Do you remember what it was like when you first learned to drive? It’s part of the whole teenage thing! Would you rather that happen in a $30,000 new car, or a $3000 “beater”? And which do you think will cost less to fix???

Let kids cut their teeth on a beater, then let them have the joy of trading up as they gain more experience, responsibility and financial capabilities. Not only will you save a ton of money, but you’ll also be giving your teenager a chance to learn the satisfaction of personal accomplishment as he moves through life.

Can you think of other reasons why buying a new car for a kid isn’t a good idea? Or am I all wet on this subject?

(For more thoughts on this topic, check out Teenage driving: Should you buy a car for your kid? over at Car Negotiation Coach; it’s well worth a read!)

By Kevin M

A friend of mine spent several years working for a prominent local car dealership in the area, and though I’m not a “car guy”, I got a chance to learn about some of the inner workings of the business from a guy who was living it. And that’s what they do in the car business, by the way—they live it.

If they’re in sales or financing, they’re on the job from the moment the store opens until past closing (there’s always a lagging customer or paper work that needs to be cleaned up). If they’re serious about the business, they work at least six days a week, and rarely take vacations.

Looking at the schedule this guy kept, the first thing I learned about the business was that I didn’t want to work in it. I had a life, and I wanted to keep it.

But the second thing I learned was a curious phrase he often referred to: upside down. If you’re not familiar with the term, it refers to a customer who owes more on his or her car than the vehicle is worth.

Now in my simple mind, this customer looks to be the worst type of prospect a salesman or finance manager can run into. It looks like a clear case of customer-dead-on-arrival, right?

Hardly. The car dealerships LOVE these people!

Why the upside down customer is the BEST customer

If you’re over the age of 18 you probably already know that things aren’t always what they seem, and such is the case with the car buying prospect who’s underwater on his car.

Now I’d look at such a person and say “negative equity—pass—next victim, er, customer”, but that’s yet another reason why I’m not in the car selling business, and would have no hope of surviving if I ever decided to take a shot at it.

In the car selling universe, this kind of prospect is one of the ones they like best and for the simple reason that this customer doesn’t know what he’s getting into. After all, if he did, he’d have no interest in buying another new car until he’s right side up on the one he has. But that takes patience, which is another key quality the upside down buyer lacks, making him still more desirable as a customer.

The car buyer who’s upside down on his car is an uninformed buyer; he’s making his buying decision based purely on emotion. A new car. The new car smell. “Wait until my friends see my new wheels”. Dollars and cents be damned, I’m getting a new car!

Have you ever known someone like this? Have you ever been someone like this?

Part of what get’s this buyer into trouble in the first place is the singular obsession with the monthly payment. This is another tidbit I learned from my new car dealer friend. The customer doesn’t care what the car costs in total, isn’t terribly concerned with the interest rate he’s paying or the value of his trade in, all he wants to know is “what’s my payment?” He figures that if he can manage that, the other details will take care of themselves.

In a way, he’s right—the other details do take care of themselves, only not in the way the buyer thinks.

All the salesman and finance manager need to do with this customer is get the monthly payment right, and they have another sale. What’s not to love about this guy?

Double jeopardy: upside down Part II

But the worst of all for this buyer is what happens next: he buys another new car and the hole gets even deeper.

Being a non-car guy, I never imagined that there’s a place for an upside down customer in a dealership but there is. The dealer is able to take the deficiency the buyer has on his current vehicle and “roll it over” onto the loan on the new car. In short, the dealer will accept the buyers’ current vehicle as a trade in for the new car, negative equity and all, and the buyer will drive out of the showroom with a new car—one he’s already upside down on!

It’s easy to see why upside down buyers are such great customers, they come back again and again for the same deal.

How do you know if you’re upside down? Compare the loan balance on your car with the value of the car, which you can get from Kelly Blue Book; if the loan is higher than the car is worth, you’re upside down.

What should you do if you are?

1. Don’t even think about buying a new car!
2. If you have the cash available, pay the loan balance down to an amount equal to the car value
3. Make and/or accelerate the loan payments on your car until it’s fully paid

#3 is especially important; by paying the car off completely, you break the cycle of being upside down once and for all, and restore yourself to a position of bargaining power on your next purchase.

If you’re the type who gets bit by the new car bug more often than most others, think of this as a valuable time-out period when you get the opportunity to wipe the slate clean and restore sanity to your finances—at least the part that involves your car.

Do you know if you’re upside down on your car right now? Would you consider buying a new car, if the dealer could work something out for you?

By Kevin M

What does energy use in China have to do with your personal financial situation here in the Western World?

Many of us prefer to believe this is an issue best left to politicians or economists, but hardly worthy of serious analysis or concern by the rest of us. After all, things will play out the way they will right?

Maybe not. We spend time and money planning for any number of future outcomes—our retirement, our health, our careers, paying off our mortgages, our children’s futures—why not map out and plan a viable energy future? World leadership hasn’t done such a good job of this so far, and if energy follows the pattern of the last few years with steadily rising prices over the long term, it won’t be politicians and economists who will suffer the brunt of the problem—it’ll be us.

Energy is an issue that’s gaining greater attention on my radar screen, but since my first attempt to tackle its impact on our personal financial well-being this past spring, more news of significance continues to pour in. The BP oil leak in the Gulf of Mexico is one such development, but there’s more.

Last week, the International Energy Agency released a report indicating that China surpassed the United States as the worlds leading energy consumer in 2009 (“China rejects world’s number one energy user title”). The agency reported that:

“According to the IEA, China consumed 2.252 billion tons of oil equivalent of energy in 2009, from sources that included coal, nuclear power, natural gas and hydroelectric power — about four percent more than the United States…The Financial Times quoted IEA chief economist Fatih Birol as saying: “In the year 2000, the US consumed twice as much energy as China; now, China consumes more than the US.”

This report isn’t merely interesting—it could be downright cataclysmic! The United States is a mature economy and yet it continues to increase energy consumption. Despite its size, China is a developing economy–an economic baby if you will—and it’s growing rapidly. It has more than four times the population of the US and its economy is growing several times faster. All of this means increasing energy consumption. If China’s energy demand doubled in the past decade, what will it be a decade from now? What impact might it have on prices we pay for energy?

Less than two decades ago China was an energy surplus nation, now it’s a big time importer competing with the US and the rest of the industrialized world for new energy sources. In fact the world’s four largest economies—the US, China, Japan and Germany—are all massively dependent on imported energy. And that demand is rising throughout the developing world, including the oil producing nations themselves. Oil demand is rising in virtually every corner of the globe.

What if the world isn’t running out of oil?

Let’s ignore for a moment that fact that major oil producing countries, including the US, Britain, Mexico and others, are experiencing long term oil production declines, and focus instead on promising new sources.

Canada is one of the very few industrialized nations in the world that still exports energy, but about half of it’s oil production comes not from wells of free-flowing oil, but from the Athabasca oil sands in Alberta. The field is extremely large and production is expected to grow considerably in the next few decades, however much of the projected increase in production will depend on continued high oil prices. The field may be the largest reservoir of crude oil in the world, but mining the tar sands and converting it to useable oil is substantially more costly than the favored sweet crude coming out of the Texas, the Middle East and elsewhere.

Brazil is another promising oil source. Just a few years ago it was a net energy importer, but is now rapidly transitioning to the coveted status of exporter, especially with oil. But most of major new oil fields in Brazil are offshore in the Atlantic Ocean, and much of the production is “heavy oil”—a thicker type of oil that doesn’t flow as well or process as easily.

The Arctic Ocean is believed to contain substantial oil reserves and if prices remain high enough some of that oil could be flowing into a gas station near you. Beyond the fact that the region is super cold and hostile to human existence is the related fact that there are no population centers available in the area. All operations will have to be established and serviced from great distances, which will add to the cost of production—once it gets rolling in any volume.

Tar sands, heavy oil, offshore drilling…in the Arctic Ocean…all point to one thing: higher energy prices. No business entity or government authority would even consider investing the capital and labor necessary to bring oil out of the ground under such difficult circumstances or in such hostile environments unless they had a clear vision of higher—perhaps much higher—price levels. Are we willing to bet against the people with the capital?

Until the BP oil leak, we tended to believe that geopolitical disturbances were the primary threat to energy flow and price stability. But as more oil flows out of offshore fields in the worlds oceans—rather than the relatively calm waters of the bodies like the Gulf of Mexico—disruptions related to storms and equipment damage may become more common but less preventable than the political instability of many oil producing regions that we’ve become so familiar with.

The world might not be running out of oil, but it’s clear that demand is powering ahead sufficiently that higher risk sources need to be brought into production. The oil may keep flowing in the future, but it will cost more and come at greater risk as it does.

What can little, ole me do about it?

OK, let’s try connecting the dots and bringing this discussion down to practical application. Is there anything we can do about it, and when should we do it?

As individuals, there’s little any of us can do to change the big picture, but that shouldn’t stop us from working purposefully to develop practical micro strategies to prepare for a future that’s completely predictable. Some steps you can take right now:

• Make fuel efficiency a central issue in the decision of the next car you buy, be it new or used. This doesn’t mean you need to buy an electric car or even a hybrid, but rather a vehicle that gets above average fuel economy.
• Consider the impact of $5/gallon gas on any vehicles you own now. The time to sell a gas guzzler is before the next price spike; once prices rise, the value of the vehicle will plunge by thousands of dollars.
• Consider your daily commute for work; if moving closer to employment isn’t possible, begin to develop a long term plan to work from home. Your job may not be suited to home basing right now, but with some advance planning, you may be able to either work your current job from home two or three days per week at some point in the future, or gear up for a different job or career altogether—one where home basing is part of the package.
• Begin investigating the potential of solar, wind and any other alternative energy sources for your home or business. We always hear that these sources are either expensive, unreliable or technologically flawed, but advances are being made all the time. As energy prices rise over time, those advances will only accelerate–be open to the possibilities. As we continue to drink in the negative news on renewable energy, Denmark produces about 20% of it’s electricity from wind power—most of if from wind mills owned by private individuals and small cooperatives. Somebody somewhere is doing this, and so can we!
• Invest some retirement money in renewable energy enterprises. As growing world energy demand bumps up against production limits on cheap fossil fuels, renewables could be the long term investment play of the century.

Note that every one of these strategies will take time to implement, which is why it’s important that we consider implementing our own energy changes now, while circumstances are relatively calm. Once prices begin to rise, the cost of making changes—be it buying a more energy efficient car, selling a gas guzzler or installing a useable renewable energy system of one sort or another—will likely rise to the point that we can’t afford to do them.

When it comes to energy, should we leave it to the “experts”? Or should we take matters into our own hands and see if we can’t work out our own best solutions?

By Kevin M

Last week in New Car or Used Car – Which is the Better Deal? we talked about the many virtues and monetary advantages of buying a used car.

One of the common objections to buying a used car is the higher cost of repairs and maintenance. Well, we may have at least a partial solution to that problem.

Car-Part.com–“Used Auto Parts Market”—provides access to salvage dealers across the United States and Canada. Car-Part.com isn’t a salvage dealer itself, but a database of hundreds of dealers in nearly every state and province across North America. Per the site “about us” description, they’ve been operating since 1998, so they’ve had time to work out any system bugs.

Quick, simple and very user friendly

All you need to do is enter relevant information in the main page search box—year, make/model, the part needed, your state or province and zip code—and you’ll have access to salvage yards all over the area. You can choose the closest yard or the least expensive, but you’ll have that choice. If none of the providers are close by, you can have the parts shipped to you. I didn’t venture this far, but you could also buy a part from an out of state dealer if the price is right and you have time to wait for delivery.

Many prices are listed, so you know what you’re paying before you place an order, but some do require that you call for a price. Each provider lists its name, address and phone number with the part so you know who you’re dealing with at all times.

One of the real advantages to the system is that there are multiple dealers listed. They’re independent businesses, providing the advantage of competition. If you don’t like the location or price of one dealer, you can shop for another.

I didn’t try it, but they also have a “Live Chat button” where you can “instantly connect to the recycler and ask any more questions or arrange a purchase”; that’s a feature that could come in handy in a pinch.

My experience with Car Part.com

I learned about this site completely by accident. Just last week, I broke the tail light on our 1998 van. It’s an embarrassing story, but yes, I broke it with a run in with…our garbage can.

Our garbage pick up occurs every Wednesday morning. We put the dumpster out on Tuesday nights, and when we do, we put it on the lawn to the right of our driveway, just behind our car so we can see where the garbage men leave it after they’ve emptied it.

Well, on this day, they put it behind the van, and a van isn’t as easy to see around as a car. When I backed out I heard a thud, stopped the van, and saw that I had pushed the empty dumpster about 10 feet. Now curiously, even though I had moved it, the dumpster was still on the driveway, which would indicate that the garbage men most likely put it just a few feet behind the van as opposed to on the street or at the edge of the driveway where they usually leave it. Maybe it was a trainee, but I’m speculating. Anyway, as bad luck would have it, the handle of the dumpster—the one part of it that could actually do any real damage—hit square on the tail light and snapped it open.

Now in a previous life, I would have grumbled, hollered at my kids and my dog, but ultimately I’d have paid the going rate to get it fixed, what ever it was. But that’s not my life now. Experience has taught me, what ever the expense, to stop, take a deep breath and spend some time seeing if there’s a less expensive way to handle it.

I don’t know much about a lot of things, and cars are one of them, so I’ve come to rely on the opinions of people I trust to provide direction. Fortunately, I have a couple of friends who do know a good deal about cars, and they both heard from me that day. In fact they hear from me anytime I have a car problem. Both recommended looking into a salvage yard; one recommended Car-part.com.

Everyone should have a panel of experts.

Saving a small fortune

I don’t know how other people handle it, but when ever anything goes wrong with one of our cars, I get a sharp shooting pain deep in my gut, knowing that it will cost, and probably cost big. The car world just seems wired that way.

But not this time.

The last time I had to replace a tail light, the cost to replace it was close to $200—and that was over 15 years ago. Surely it must have doubled since then, maybe tripled. Thankfully, I never had to find out.

$25 through a dealer on Car-part.com. That was what it cost. Two screws and a sticky socket were all it took. I probably saved several hundred dollars just for asking a question!

Car repairs can bleed you dry, especially if your car is more than five years old. But Car-part.com offers a way to trim those repair bills. If you know someone who is skilled in car repair, and you can get parts cheap, you won’t need to go to the mechanic and pay the $500-$1000 charges that seem typical every time you bring your car to the shop.

How do you handle car repairs? Have you ever done anything like this? Car repairs are one of the biggest variable expenses we deal with and they seem to hit us at the worth possible times. Can you offer other ways to save money on car repairs?