May 24

Today, a guest post from Crystal -

Buying your first car is a major milestone, but it’s also a significant purchase that can have long-lasting financial repercussions. You’ll want to choose a vehicle that suits your lifestyle and budget, both in the short and long term. For first-time buyers, navigating the ins and outs of car ownership can seem like a daunting process. Fortunately, there are numerous options are your disposal, particularly when it comes to financing. Keep the following tips in mind to stay firmly on budget.

carimage

Image Source: Wikimedia Commons Public Domain

 

Check your credit rating.

If you’re fresh out of school and have just started your first real job, you may not have much of a credit history to speak of. Check your credit rating to find out if there are areas with room for improvement, because this factor will have a major impact on your ability to obtain sensible financing.

Set a budget in advance.

When you’re comparing cars, you probably are already looking at sticker prices on sites like Carsales that fit within your budget. You also need to look not only at the bigger picture but at the monthly breakdown of car ownership, and stick to your guns when the time comes for negotiation. A good general rule is not to agree to monthly repayments that cost over 20% of your disposable income. This figure should include the car repayments, fuel, and insurance. Look at your finances carefully and choose a maximum figure that you’ll be able to afford.

Stay away from dealer financing.

There’s a definite appeal to obtaining your financing from the car dealership, as this allows you to walk out the same day with the keys to a new car. However, you’ll usually pay extra for this convenience, because financial institutions may offer you more advantageous rates. Before you visit the dealer, at the very least you should obtain quotes from other sources so that you know what your options are. This gives you more room for negotiation with the dealer, and can spare you the extra financing charges that dealers would charge.

Compare loan terms and interest rates carefully.

Whether you approach banks or auto dealers to obtain quotes, you’ll be faced with a variety of loan options. Two areas to look at are interest rates and loan terms. A common mistake for first-time buyers is to agree to a longer term in order to cut monthly repayments, but you’ll pay a lot more in the long term if you go this route. Ideally, your loan term should fall within the 3-5 year range. Similarly, interest rates could vary quite a bit between lenders so try to source several different options to get the best rates. The higher the deposit you’re able to pay, the lower your interest rates will be.

Read the fine print.

When you agree to a car financing plan, you’ll be offered additional services such as payment protection insurance or gap coverage. Be sure to read the loan terms and conditions carefully to avoid paying for these without your consent, however. Lenders may also slip in additional charges such as early repayment or administrative fees. Read the contract from beginning to end, and always ask if you see terms you don’t understand.

By taking the time to set a budget, search outside the dealership for a loan, and read all terms and conditions carefully, you can set yourself up for a better deal on your first car.

written by Joe \\ tags: ,

Apr 19

For as long as I could remember, a cancelled debt came with a tax bill. If you defaulted on a loan, the discharged debt amount was treated as income and taxed at your marginal rate, i.e. simply added on top of your income and taxed. Soon after the housing crisis of 2004-5, congress passed a waiver so those who lost their homes didn’t find insult after injury, and were not taxed on their discharged debt.

The new proposed code will extend this rule until the end of 2017, presumably long enough for those in difficult economic times to get back on track.

In theory, I think this forgiveness is admirable. In reality, it creates the ongoing risk of moral hazard. Banks should use proper criteria to qualify mortgages conservatively, and borrowers should bear some responsibility to not get in over their heads, walking away scot-free is getting off a bit too easy, in my opinion.

That’s it, the last of my Government Budget 2015 series. I hope you found a few bits of code that were of interest, or better still, might benefit you.

written by Joe \\ tags:

Apr 18

The American Opportunity Tax Credit is a College Tuition benefit. Specifically, Taxpayers may claim an AOTC for 100 percent of the first $2,000 plus 25 percent of the next $2,000 of qualified tuition and related expenses (for a maximum credit of $2,500) per student.

This is not a deduction, but a credit, in effect, you are being handed $2500 towards the first $4000 in college expenses. As with many such benefits, this one is phased out for singles with AGI from $80K to $90K and for joint filers with AGI from $160K to $180K.

The AOTC overlapped with the Hope credit and Lifetime Learning Credit, each of which comes with its own set of rules.

This proposal eliminates the sunset rule, making the AOTC ‘permanent.’

A good change, if it passes. Come back tomorrow, time to put a close to this series.

written by Joe \\ tags:

Apr 17

There are times that you can deduct the cost of operating your car, and more specifically, write off the mileage you’ve driven for particular reasons.

mileagerates14

From the IRS site, above is a brief summary. You can see the disparity between what you can deduct for miles driven for business vs medical, moving, and charity. Strangely, the deduction for charity is not currently indexed to inflation, and requires a specific change authorized by congress. It’s been stuck at 14 cents per mile for a very long time.  The budget proposal would change the rate for charitable driving to the same rate as medical and moving. That’s over a 50% increase, but still barely enough to cover gas. I’m disappointed the business miles rate wasn’t chosen. If you volunteer at a charity, your time is not a deduction, only the mileage and actual cost you incur if you have any unreimbursed purchases for the charity. Given the high cost of gas and car maintenance, this change is an improvement, but not enough of an increase, in my opinion.

We’re nearing the end of this series, two more budget proposals to look at, and that’s it.

written by Joe \\ tags:

Apr 16

This proposed change to the tax code is a simplification, but at what cost? One bit of the proposal offers to eliminate RMDs on retirement account that are worth less than $100K. A good thing, I suppose, although those with a low IRA balance are also likely to be in such a low tax bracket that the withdrawal wont be a burden. The next part of this change is add RMD requirements to the Roth IRA. I have mixed feelings about this. One view is that retirement accounts are meant for just that, retirement. These accounts have morphed into estate planning tools, especially for those of modest means. The IRA offers a great way to pass your assets on to a loved one, bypassing probate, and in the case of the Roth IRA, doing so with no tax bill on withdrawal.

I’m neutral on this proposal. Of course the government sees it as way to raise money.

written by Joe \\ tags: