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What you missed
In the last episode, we heard how to be Rich As A King – Using the principles of chess to become a grandmaster of investing from Certified Financial Planner Doug Goldstein.
Topics and your questions answered on the show
- Why auto leasing is bad for your wallet
- Help getting wife doing a budget
- Is it difficult to form an LLC
- Saving money on groceries
- Paying off financed car quickly
- Spending vs. paying off debt
- Overestimating your abilities
Links mentioned in the show
Read the Transcript
You can download a complete, word-for-word transcript of this episode here or click the toggle button to read online.
Why Leasing A Car Is A Terrible For Your Finances
[00:00:12] ST: Welcome Nation to the Financial Rock Star Show. I’m your host Scott Alan Turner, ready to help you get out of debt, save more money, and retire early. In the studio with me is producer Katie, who has the Master Chef skills required to keep this family fed. On the show today we’ll be answering your questions about money, business, and life. If you have a question you would like answered on the show, visit Goaskscott.com.
Last time on the show we chatted with certified financial planner Doug Goldstein, author of the book “Rich as a King: How the wisdom of chess can make you a grandmaster of investing.” Even if you’re not a fan of chess, you will become a fan of Doug’s words of wisdom. Please check that show out.
Now auto leasing is at an all-time high. The reason is because car prices are going up. The average car loan is approaching $500 a month, so people are turning to leasing to keep their monthly payments as low as they can. According to Experian Automotive, the difference between a monthly payment for those leasing a new vehicle versus those who buy new is almost $100 a month.
Exact numbers on monthly lease payments average $405 a month. An averaging auto loan $488 a month. The other one third of all vehicles financed are now leased. Five years ago it was just 25%, so more of you are leasing vehicles. Average vehicle prices, they’re up to $31,000 and almost $29,000 of that are being financed. So we’re buying $31,000 worth of car with a $2,000 payment.
Or if we are leasing, we’re renting $31,000 worth of car for $2,000 down. For used vehicles people are financing an average of $18,000. I shaketh my head Nation, I shaketh my head. I know you can’t see me, but I’m shaking my head. I’m not in agreement. Palm to face actually. It saddens me that people are destroying their finances like this. And how popular is leasing with millennials? Leasing has accounted for approximately 29% of all new car purchases of millennials from the age of 18 to 34 in the year 2015.
That’s a 46% jump in leasing by millennials over the past 15 years. We are heading in the wrong direction. This is simple, if you don’t have money, you have student loans, you have credit card debt, you have no retirement savings, you have no emergency fund, but you need a car to go to work so you can make some money, yeah get a car. But you should not be looking at a $31,000 car that you’re gonna finance $31,000 to buy. It’s actually gonna be more like $36,000 when you get done with all those payments.
But I digress. But you certainly shouldn’t be looking at leasing a $31,000 car, because you can’t afford it. You should be looking at a used car, a really used car. A really, really used car with a lot of miles on it. But that brand new car’s gonna depreciate 20-30% when you drive it off the lot. When you’ve got no money and something happens where you can’t make the payments, you now owe more than the car is worth. You’re upside down on the payments.
Nothing wrong with buying new cars, if you can afford it. But probably close to 99% of people can’t afford it. Between the people who have credit card debt, not having enough for retirement, having student loans, gotta be about 99% of people. But most of you are buying new cars anyway. If you choose to finance a car, okay how much is too much if you’re gonna go that route? You should be able to pay back the car in about 36 months. Finance a car for no longer than 36 months.
Now why 36 months? Well then you’re not wasting money on interest. And if you get used car, you don’t end up upside down in a loan. If you’re thinking of getting four, five, six, seven year loan on your car, you’re a moron and I know this to be true because I was a morony moron at one time too. So I can pick on you because I’ve been where you are. I bought multiple cars with five year loans, I bought new cars that I couldn’t afford, I had high monthly payments.
Listen very carefully, don’t do it. Take it from someone who’s been there. Now some of you are thinking, “But leasing is cheaper!” If you lease a car you will be leasing a car forever. You will be renting a car forever. You will never build wealth. Never. Because people who have built wealth didn’t lease cars to do it. People who have built wealth did it buy not wasting money on renting cars or buying new cars that depreciate 20 to 30% on day later.
Stop trying to act rich, become rich first, then you can act rich cause you’ll be rich and it won’t be an act. Let’s not act rich, let’s become rich and then you’ll be able to afford whatever you want. When it comes to buying a car, you should buy a used car, pay for it in cash if you can. But if you choose not to, finance it through a credit union for no more than 36 months. And then drive it till the wheels fall off. Keep it 10 or 12 years if you can.
I like to keep things simple, so let me give you some simple math, third grade math to prove my point. If you own and drive a car that long, it’s almost 10 years of not having a car payment. That’s an extra $500 a month on average for 10 years. Now do you know how much money you’ll have after 10 years of no car payments if you invest it? Almost $100,000. $100,000 if you get your car paid off in two to three years and drive it for 10 to 12 years.
So let me ask you, what kind of car could you buy with $100,000? Any car you wanted. You know how much money you’ll have if you lease a car for 10 years? Zero. So for you math wizards out there, and non math wizards alike, how much more is $100,000 than $0? I will give you a little hint, it’s not 0. This is what I’ve done, you can do it as well. This is wealth building 101.
You wanna change your financial future, buy used, never lease, finance for no more than 36 months. If you finance it all, drive your car for 10-12 years. Don’t be like I used to, be like I am now. Now, on to your questions.
[00:07:06] J: “I would like help getting my wife to understand that doing a budget is necessary and can bring us together instead of cause problems. Money and finances are not her thing. She feels parented by me because she won’t be involved in our budget and I have to tell her her what we can and can’t afford to do since she doesn’t know by just following the budget. I’m considering paying for Every Dollar so that she can easily follow the budget on her phone. Every Dollar being an online budgeting tool with an app.”
[00:07:33] ST: So I know several people who would like it if their spouse would exercise a little more. Now sometimes our motivation is just for them to be heart healthy, a perfectly fine reason. Right? We all want our significant others to be healthy and live a long time. Sometimes the motivation might be because they put on few a pounds, but you can’t come out and say, “Put down the donuts,” because that doesn’t work. And please don’t try it.
Your motivation is not their motivation, and it’s true when it comes to money as well. You might wanna retire at 50, your wife might want a Louis Vuitton purse for her birthday. Budgeting for budgeting’s sake is useless. You need to have some goals to aim for. More importantly, you need to have goals that motivate both of you. Is it a new car? Is it a vacation? Is it an awesome retirement?
Those are all great goals, but you need to get down into the weeds with the details to make it tangible and have power, the type of power that is gonna drive change in someone. What does that vacation look like? Where are you going? How long are you going to go for? Are we getting a new wardrobe and luggage too? Can I get a Louis Vuitton purse?
Get some excitement going and put a date on the calendar. Then use your budget as the plan to make it happen. Are we living paycheck to paycheck? Then we need to find some ways to save for that trip. Are we eating out too much? Then we need to eat out less or spend less on eating out to save for that trip. Are we just wasting money because we don’t even track our spending? Then we need to commit to a budget for those 90 days to help us save for that trip.
Have a conversation and learn about the things that will motivate them. Because it’s not budgeting; budgeting is a means to an end goal. Step one, you gotta find the goal. Then you can explain how the budget will get you there, just as important knowing what will motivate somebody is knowing what will not motivate them.
Installing a budgeting app on their smartphone. This is like buyings someone a gym membership as a present. You have to find out what’s gonna make someone want to go to the gym or workout. Doom and gloom. There are two driving factors and most of our decision, the need to avoid pain or the desire to gain pleasure. When it comes to retirement that can be decades away or a savings goal that might be years away, we need to focus on what’s most important to the other person.
Is it avoiding pain or is it gaining pleasures? Nagging and condemnation doesn’t work either. Alright, your wife just bought a $300 purse, now what? Return to why you started the journey to begin with. Ask the simple question, “Hey, nice purse.” Or if your husband is like this, “Hey, nice golf club. How does that affect our savings goal for the new car?” See now you’ve got the other person thinking without pointing how they blew the budget.
Now you and I know they blew the budget, but you’re not saying they blew the budget. You’re just asking questions. You had some shared goals to begin with, and it’s hard for someone to argue against what they already agreed to do. Or you can’t find common ground, you’re gonna have to do some compromising. And by “you” that means both of you. Quickest and easiest way to reach your common goals are to work together and make them happen.
Goals are just challenging problems. Budgeting doesn’t have to be boring, you can make budgeting fun by turning every little challenge into a game. You never know what the X-factor’s gonna be to cause that change in someone, but it will happen. Thanks Judd for the question.
[00:11:18] M: “Is it difficult to form an LLC?”
[00:11:21] ST: Now I am going to share with you how to save some money on your LLC, which most people don’t talk about. I don’t suggest anyone try to fill out the LLC paperwork yourself through the Secretary of State’s website in whatever state you live in. There’s a ton of legalese in the paperwork, it’t gonna look like it’s written in a foreign language, because it is. It’s written by lawyers and they’re from a different world, a different country.
You’re way better off using an online service or working directly with an attorney. Online services are gonna have those wizards that are gonna guide you through the process, give you informative help files you can use. Cheapest option out there is to use a service like Legal Zoom. My preference personally, spend a little more, find a local attorney to do the work for you.
Don’t forget, when you’re looking for an attorney, you can always negotiate with them and ask them for a better price. Just say, “Hey, Legal Zoom are charging $150, what can you do for me?” Now Legal Zoom’s listed prices do not include each state’s filing fee, which is gonna cost you more. It is not $150. So in Texas it’s another $300 for the filing fee. Now we’re up to $450. Attorney’s not looking so bad after all.
Next you’ve gotta pay someone to be your registered agent for your business. Now most states require corporations or LLC’s to maintain a registered agent. That’s the person who typically has to be available during business hours to be your recipient of any legal or government documents or processes that need to be delivered to you. Somebody wants to sue you, somebody needs to be around to serve the papers to. That’s it.
It’s a junk fee in my opinion, but many states require you to have a registered agent. Most of use who start a small business, what do we do? We get a P.O Box because we don’t want people to find where we live. We don’t want them showing up at the front door. Your registered agent, it’s got to be a physical address. It can’t be a P.O. Box and somebody’s gotta be there too.
You pay Legal Zoom $159 each year for the privilege of listing their address with the state filing office. And you keep paying that every year until you officially shut down your business somewhere down the road. Now you can Google for registered agent services, first one I found, $59 bucks a year. So it’s $100 less than using Legal Zoom.
Your cost for a registered agent becomes even more important if you have multiple LLC’s. If you want to generate wealth by owning rental properties, a lot of people set up a different LLC for each property. That keeps their liabilities separated in case a renter or another person sues us at a specific address. So if you own 10 properties and you have 10 LLC’s set up at Legal Zoom, you’re paying $1,600 a year in registered agent fees.
That’s $1,600 out of your wallet for 20 or 30 years as long as you own those properties. You are way better off going with a law firm that can act as your registered agent on your behalf and that doesn’t charge you a dime. If you go with Legal Zoom, when your one year renewal comes up, you can change registered agents. Again, Google for RegisteredAgents and it’ll show one for $59 bucks compared to Legal Zoom’s $159 a year. So you can save $100 or switching.
Best option for you, find a law firm that can register an LLC, and act as your registered agent for free. My law firm doesn’t charge majorly late fee, so even though it cost me $100,000’s more, to register my LLC with them, I’m not paying the extra $99 or $159 or $59 a year for as long as I own my business for the registered agent service.
So beware, you see that $150 price tag on Legal Zoom, it doesn’t include everything. It’s $159 for the registered agent service, which you must have depending on your state. It’s $300 for the state filing fee, at least in my state. So that’s $609, a lot more than the $150 advertised. Thanks for the question.
If you have a money related question you’d like answered, please visit Goaskscott.com to get in touch with me. Website has my email address, Twitter, you can also leave me a voicemail. Please contact me, I am here to help you.[BREAK]
[00:15:42] ST: Food prices are going up and up and have been for some time and manufacturers are getting sneaky to keep their profits up. instead of raising prices they are keeping package sizes the same but they are decreasing the contents. Just think about a bag of potato chips and all that air you’re buying. The claim is it’s caused by settling. Liars!
Ice cream vendors, they’ve been shrinking the size of containers for quite some time because the price of milk and eggs has gone up. You used to be able to a half gallon, it’s not a half gallon anymore. Ben & Jerry’s, still a pint, they’re okay. $2 for, or two for $5, it doesn’t mean you’re getting a deal. Those tiny cans of mini cokes, they cost twice as much per ounce as a regular size can.
We think we’re being healthy or not wasting a whole can if we don’t actually finish it, but it’s cheaper to buy a 12 ounce can and just dump out the extra. So where you get ripped off the most is on those super sized products. Why? People see more, they want more, they think they’re getting more for the best price, it’s not always the case. When you shop you have to look at the price per ounce on the label.
And that goes for every thing! Your chips, your soda, even your cat litter, yes the cat litter too! 40 pound box isn’t always cheaper than the 28 pound box. Now, back to your questions. How many other personal finance shows talk about cat litter?
[00:17:12] G: “If there are any advantages to finance a car to get a better deal and then paying off the car loan the next day?”
[00:17:18] ST: Well what you need to do is some research and find out what the car is selling for, what the invoice price is, and you can get those numbers at Edmunds.com, Kellybluebook.com. Now you’ll have cars on the lot that have options and higher prices, the trouble is you never, ever find and apples to apple comparison unless you get down into the $15,000 range with new cars.
l like the Honda Fit, those cars don’t have any options. You have base model which comes with nothing, no upgrades, and then you have a higher end model which has all the higher end components, and that’s it. The more expensive the car, the more different configurations you’ll find and the more varied the price. Leather seats, leather steering wheels, all weather floor mats, regular air in the tires, or nitrogen in the tires.
What else? Heated rearview mirrors. Prices go up with all of these, so you have to factor that in unless you’re ordering a car from the assembly line exactly how you want it, and nobody does that so that’s really not a concern. Once you know the price you can make an educated offer as your starting point. Now a dealer, they make money three ways: selling the car, financing, and trade ins.
With financing the dealer’s gonna make much more profit. They do that by marking up the loan. Say the dealer has a financing partner, they’re offering the car loan at 4% interest. The dealer’s gonna offer it to you at 6% and they’re gonna pocket that 2% difference. Now if you wanna go this route you can play the negotiating game until the very end until the finance guy is ready for you to sign.
Then you tell them, “Oops, I changed my mind. I wanna pay in cash.” Then you can watching him or her get all red in the face. They could just turn around and tell you, “Well we can’t sell you that car at that price because we have to make some money on the car.” Or maybe they get a bonus from the manufacturer if you finance. Then you either have to pay more, or take out financing and do exactly what you mentioned, pay it off the next day.
It’s hard to say unless you go in there and do the old switcheroo at the end. Tell them you’re financing and then switch to cash at the last minute. But if you’re paying in cash, the dealer’s still gonna get their kickbacks from the manufacturer for selling that car even if the dealer tells you, “I’m only making $100 on this care salesman.”
He might be telling you the truth, but at the end of the quarter, end of the year, that dealer’s gonna get a bunch of money back from the manufacturer on the number of units they moved. Average profit to a dealer on a new car is less than $100, but they get reimbursed by their manufacturer through what’s known as a hold back.
Don’t have a pity party for them when they tell you they aren’t making any profit. That is completely false. If you don’t think they are making money, how the are they paying that building loan on that giant show room, right? If you have the cash, I’d just stick with the cash. Then you’re the one in charge of the negotiations.
Trying to be tricky, piddle around with financing, no financing – I dunno? It just seems silly to me. Make an offer, if they don’t accept it, leave. Go shop somewhere else. Thanks for the question Greg and happy car hunting.
[00:20:23] A: “I have a budget started, mainly just running a total of income and bills in Excel. My issues seems to be paying off debt. I always make more than the minimum payment, but if I see extra on the spreadsheet, I’ll spend it rather than putting it towards the debt.”
[00:20:37] ST: So if you’re making more than the minimum payments, you’re doing a great job in working towards getting out of the debt. So good job on that. If you’re in debt, you’re number one goal should be to get out of debt. Every dollar that doesn’t go towards paying down that debt becomes worth less than the value printed on the money.
If you have a credit card balance at 20% interest and you have a choice between paying an extra $100 towards the debt or spending, if you spend it you not only miss paying down the debt by $100, you’re losing money to the interest payments. And over time that is gonna cost you 100’s to thousands of dollars. Every extra penny that comes in, put it towards the debt. You should put it towards the debt.
The average tax refund is $3,500. So let’s say you have $3,500 left in debt to pay off and the minimum payment each month was $100, would you take the tax refund and pay off the debt? Or would you pay the minimum and blow the tax refund? Well you’d pay off the debt, we all would. Anyone who is committed to changing their financial future would do that.
Now let’s say your tax refund is $35, what do you do then? “Cause it’s only $35, it is not a lot. It is not very significant. It won’t make a dent in the $3,500 debt.” And that’s the type of thing that’ll drag out debt forever and a day. But the $35, it makes a difference. It will change your financial future. Every extra penny will. You’ll be able to afford anything you want when you’re out of debt.
The best time to spend the money on our wants – clothes, travel, toys – is when the debt mess has been cleaned up. In fact, that’s the only time we should be buying that stuff. Otherwise we’ll keep living in debt, which isn’t living at all. It’s just existing in a bad situation. Fix the situation first, then experience real life. I’d commit to throwing everything extra to knocking off your debt.
That’s what I did – printer’s going off, awesome. Should we edit that out? No. [Laughs] Where are we? Yes! Throw everything else at debt. That’s what I did to get rid of my student loans in two and a half year’s time. If you write down how much money you’re wasting on interest payments each month and how much you’ve wasted totally, since you first got into debt, I bet the outrage will be enough to motivate you to put any extra money towards your debts.
When you don’t have any payments except a house payment, you’ll have something half of all people don’t have – money! thanks Amy for the question. Okay quick break. Back in 30 seconds and I’ll be answering more of your questions. You’re listening to Scott Alan Turner.[BREAK]
[00:23:31] ST: Hey Nation, Scott Alan Turner here. Now for those of you that are my long time listeners, you know I’m not one of those guys on the radio who promotes every product that shows up on their desk. You’re never gonna hear me trying to get you to buy snow plowing services from some company in Florida, or recommending you buy neckties from some company in Little Rock, Arkansas.
No! I have a name to uphold to you, my wonderful listeners. But if I were, if I were to recommend something to you I would tell you about helium. Helium, if you don’t remember from high school chemistry class, is a rare Earth element, and we’re running out of it. Which means the price of helium is set to take off like a hot air balloon.
Helium is gonna be worth more per ounce than the price of gold. You can buy helium today at any flower shop or grocery store. Store them in the attic in those balloons they give you, and watch your investments rise. Tell them Scott Alan Turner sent you.[CONTINUED]
[00:24:25] ST: Welcome back Nation. Katie was over there printing out the workout schedule. Printer’s off now, we don’t have to worry about that coming back on. You know what the rate of return is on your investments? Or how about how much money you’ll need to retire? What about the total of all your debts, or how much you paid in interest payments the past five years?
Nearly all of us overestimate or underestimate our abilities. We overestimate our ability to negotiate a good deal with an experienced car salesman. We think we can buy a home without a broker and come out ahead. We certainly believe we’re better stock pickers than the professionals on Wall Street. We remember our big wins, but forget about or explain away our losses.
We think packaged deals like vacations are a better deal than piecing together our own trips. We buy without doing research or comparing prices because we know this is a good product or a good deal. And we believe we’re doing a good job saving for retirement. And we think we’re doing a good job at work.
Overconfidence can cost us money, and one of the best ways to avoid ourselves believing we’re smarter than we really are is to get advice. Advice from an expert or someone you trust. But don’t just ask them if they think you’re making a good decision. They might be just as bad at picking stocks as you are. Ask them what they think of your though process that you use to decide. Does that make sense?
How did you decide that new car is such a good deal? Because you talked the salesperson down $1,000 on the sticker price? Well what if the car was overpriced by $3,000 to begin with? You just overpaid $2,000, so now it’s not such a good deal anymore. How did you decide you shouldn’t use a real estate broker? Because your brother in law didn’t use one and he thought he got a good deal?
I’d rather hear you say you spend over 50 hours doing your research on how to buy a home without a realtor. When you start asking better questions, you will get better answers. Those are the words.
Hey can you do me a favor please? Take 30 seconds right now and text three of your friends the link GetFR.com and tell them to check out the show. I really appreciate you listening and would love it if you could help me spread the word. Just text GetFR.com, tell them how awesome my cats are and the advice is okay too.
Next time on the show I get to spend the afternoon with Phil Collen, lead guitarist of the band Def Leppard, one of five bands to have sold over $100 million albums. Hear Phil’s outlook on life, health, and business. That’s it for this episode. I’m your host Scott Alan Turner, rockstar Katie is my producer.
Special bumper music today provided by the Don Armada. Thanks Johnny and the band for the audio tracks. Find out more about them and all the links mentioned in the show in the show notes on Scottalanturner.com. Today’s episode is powered by Ben & Jerry’s ice cream. Thanks for listening.
[00:27:38] ANNOUNCER: Okay nation, for your free copy of the guide, “How to save $1,000 in one week”, simply subscribe to the podcast right now on iTunes and text “with saving” to the number 33444 to prove that you did it. Subscribe now to get out of debt, save more money and retire early. See you next time.[END]
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