The Financial Planners Plan: Save Money On Your Car

For most Americans, owning a car remains a part of everyday life. For the car enthusiast, frequent maintenance, as well as knowledge of how the car works, become part of regular conversations. For the non-car enthusiast, finding a trusted mechanic is like becoming a treasure hunter searching for gold on the seafloor with no boat. Frequent “trust me” conversations result in the spending of extra money while the owner does not even know what exactly the money is going toward.

Background

I have been fortunate in that my background allowed me to build a small and useful mechanical skill set. My family had a trucking company and my dad often worked on cars. working-on-carsThis is how we spent a good portion of our time together. We built a show truck that won a few awards and appeared on a magazine cover. These skills have not been used much over the past 16 years as my professional career and family matured.

The Situation

For many years, my family—probably like yours—has been taking our cars to the mechanic to get the oil changed and for general maintenance. After all, we are busy going to soccer practice and traveling to see grandparents, friends, and relatives. Who wants to spend their limited time pulling a car apart or changing the oil in their own garage? Tools would need to be bought, oil disposed of… the list goes on and on.

My family was getting ready for a weekend getaway, the last one before school started. My wife took the car in for an oil change, as usual. We dropped the car off the night before and assumed that we would receive a call to pick it up once the oil was changed.

The News

As expected, my wife received the call, but much to her dismay the service person on the other end proceeded to describe a car in need of an immediate brake job. The cost for the brake job: $680. The representative discussed turning some rotors, replacing others, and new brake pads. Feeling pressured to make a decision and hearing me ask multiple brake-rotorquestions at the same time, Yvonne willingly gave the phone to me. (I could hear some of the conversation from the service representative.)

The conversation quickly changed as I asked questions about the brake job. When we had taken the car in, it had not displayed any warning signs of needing brake maintenance. How could it need an immediate brake job? Don’t brakes wear down slowly? During the last oil change, why hadn’t we been told that the car would soon need a brake job?

As you can imagine, not going on a trip already paid for was not an answer the family wanted. I asked the representative directly if the maintenance had to be done right away and if the safety of the car was at risk. He paused for a moment and stated, “Well, no. They can last for a little while longer.” I thanked him for the call and explained that we would be discussing his proposition to have the brake maintenance completed.

I completed the brake job myself, saving $350. The cost of the parts was $330, which included new pads, rotors, brake cleaner, and hardware.

Throw it in Reverse

Mechanics may try pressuring you into car maintenance; however, you need to watch out for neglect as well. My brother-in-law came to visit us on a business trip last year. His car had been to the shop for an oil change. Part of the maintenance involved a routine brake check. He was told the brakes were good for another year.

Yet when the car entered our street, a choir of screaming banshees strolled down the street with my brother-in-law. I immediately went on a short test-drive. The car ended apart in my garage that evening while we completed a brake job. (My brother-in-law was in for an evening and had to leave for business the next morning.) The car was unsafe to drive. He could have been in an accident with someone getting hurt.

Pump Your Brakes

I share these stories not to point fingers or claim to be a mechanic. Rather, I do so to share pump-your-brakesinformation about saving money on car maintenance and not feeling pressured to purchase a service. Take your time; ask as many questions as required about the service needed to uphold your car. Ask the service manager to speak to the mechanic directly and to see the parts so that you better understand the car and the maintenance proposed.

Planners Financial Plan: Car Insurance

THE TEXT

My insurance agent sent me a text a few weeks ago. (We are friends and used to work together.) Like most people who are busy, I failed to reply in a timely matter.  The nature of his communication was a notice of our annual review and an opportunity to shoot the breeze to discuss life, family, and business.

A few weeks later, I noticed the bill for our car insurance sitting on my kitchen table. While visiting with Yvonne one evening, I opened the bill only to have my jaw hit the floor.  At that moment, I did not remember 2015’s premium, but I was positive it had been lower than the hefty number listed on the paper. Perhaps out of frustration, the bill found its way to the bottom of my mail pile.  The urge to examine, review, or even think about the premium upset me.  Eventually, I had to pick up the bill and review it, so I put our coverage under the microscope as well.

Basic Terms and Provisions of Auto Policies

First, here is a simple a review of policy terminology. (Your policy language may be different. Please see your agent with specific questions about your policy.)

Bodily Injury Liability: This is the medical portion of the policy and pays for expenses for cases in which you are at fault.  Often the policy will have numbers that display a “100/300.”  The numbers describe the maximum payout for a single person’s injury or the maximum payout for all occupants of the other auto (1.)

Property Damage Liability: This portion of the policy will pay for damage to the other auto in an accident for which you are deemed at fault (1.)

Medical Coverage: This portion of your auto policy will cover medical costs after an accident with your personal injury.  Coverage requirements are different for each state and benefits from insurers vary.

Comprehensive: Comprehensive coverage addresses costs pertaining to a car if it is stolen or damaged by something other than an accident (3.)

Underinsured Motorist: This helps provide coverage if the owner of the other car in an accident is uninsured or underinsured (3.)

Coverage Pricing

Below is a comparison of my coverage from 2015 to 2016 and the change in price. (My policy has added items not listed in the terms above.  Categories are listed as noted on my policy.)

2016-car-insurance-analysis

As you can see from the table, the increase is credited mainly to bodily injury, uninsured motorist bodily injury, and underinsured motorist.  After creating the table and knowing which categories increased, I was still perplexed. No one in my family had been in an accident, no claims had been filed, and we owned the same cars, which were now a year older.

The Question

Finally, I called my agent to inquire about why the premiums had increased.  First we talked about families, friends, and business. Then the time came for me to ask about the increase.  Interesting enough, a bad feeling came over me for wanting to understand.  It seemed like I was questioning his integrity (I am lucky enough to have a good agent) or implying that he was personally pulling one over on us.  So I paused for a moment, realizing this must be similar to how many couples feel when they sit down with a “financial advisor.” Still, the question would not come out.

After regaining my exposure, I did ask.  My agent took the time to explain general trends in driving and how the technology in cars has been adding to the cost of fixing them after an accident.  (Here is an article he shared with me to help explain these trends (4.) While no one can expect to be happy about seeing a premium increase, at least I now understood why.

My next question focused on ways we could better manage the premium.

Coverage

In preparation for my call, I examined my current coverage limits and even used a calculator to see what it recommends for insurance coverage. The recommendation from the Geico calculator is listed below, while my current coverage can be found in the previous table. My current coverage and what the calculator recommended are similar.*

geico-reccs-for-insurance-coverage-traverse

While knowing that I had proper coverage felt good, my issue of increased premiums had not been solved.  My agent and I explored changes in coverage and deductibles, and looked at comparable cars.  The one likely alternative would have saved me $131 with a payback that would have taken me 3.8 years to achieve.

So after all the personal analysis and discussion with my agent, Yvonne and I decided to just write the check. The payback period was too long and we felt comfortable with the coverage we have.

Why not get another quote from a competitor?

As I mentioned before, an unpleasant feeling arose when I started asking why the premium had increased.  My friend, without hesitation, acknowledged my concern, discussed how he was not happy about it either, and moved into his own search for an explanation.  He stayed calm and listened to my monologue of personal analysis.  I suspect he knew the correct answer was to stay with my current policies as is, yet he helped guide me to the correct solution with great questions.

As a learner, this is important to me.  He exercised great patience and empathy: two qualities I have yet to encounter in other agents.  So if this means paying a premium, I will write the check as long as there is personal value.

Important takeaways from this experience:

  1. Take the time to understand your car insurance policies before you have an accident.
  2. Make sure you have an agent who is willing to take the time and educate you.
  3. Some things that directly affect you are out of your control.
  4. Complete an annual review of your policies. Through this review, we discovered that my motorcycle was not insured. I thought it had been for a few years, but we did not catch the lack of coverage because a review had not been completed. (This is a story for another day.)

Sources:

  1. “How Much Car Insurance Do You Need?” Personal Finance RSS. Wall Street Journal, 17 Dec. 2008. Web. 14 Oct. 2016. <http://guides.wsj.com/personal-finance/insurance/how-much-car-insurance-do-you-need/>
  2. “Medical Payments Insurance Coverage | DMV.org.” DMV.org. Dmv.org, 2016. Web. 14 Oct. 2016. <http://www.dmv.org/insurance/medical-payments-coverage.php>
  3. “How Much Car Insurance Do You Need?” Personal Finance RSS. Wall Street Journal, 17 Dec. 2008. Web. 14 Oct. 2016. <http://guides.wsj.com/personal-finance/insurance/how-much-car-insurance-do-you-need/>
  1. http://www.cnbc.com/2016/05/27/auto-insurance-rates-rising-at-fastest-rate-in-almost-13-years.html
  2. https://www.geico.com/landingpage/coverage.htm#set8

*use of the Geico calculator is neither an endorsement nor recommendation of the company or calculator

The Financial Planners Plan: Emergency Funds

If I received a nickel every time someone asked me for financial advice, I would be rich. Around the cooler, in the grocery store, and at family gatherings are just a few of the places where people seek information. “What should I buy?” or “What is hot in the markets these days?” When I explain that financial planning yields better results than just managing an investment portfolio, people quickly agree and follow up with “What is the outlook for the economy?” Most advisors enjoy these conversations because of exciting gains or “knowing the most about capital markets.”

I, however, think it is time for a different post. This blog post outlines the realities of the Carmany household and how we deal with the challenge facing us. Now we must rebuild our emergency fund.

Basics of an emergency fund

While studying for the Certified Financial Planner designation, potential certificants learn about the importance of an emergency fund. “Save three to six months’ worth of expensesEmergency fund in case an emergency happens.” This cornerstone is usually one of the first steps in a financial plan. Often, I find people misusing the fund for nonemergency conveniences. What is an emergency? The web defines an emergency as “a serious, unexpected, and often dangerous situation requiring immediate action.” Buying a TV or taking a last-minute trip to get away from stress are not emergencies.

I will admit, my own past demonstrates abuse of earmarked emergency funds. For example, we bought our last car out of convenience rather than to meet a need. See, my family was getting ready for one of our annual trips to visit family. Our normal hustle was under way for our departure the next morning. The yard needed to be mowed, and our SUV needed to be pulled out of the garage so that we could access the mower. As soon as I started the car, I noticed it was running funny. My first thought was to deal with it after mowing the lawn. Once I looked over the SUV and completed my research, I found two bad sensors to replace. (We were going to take the SUV on our trip.) I had no idea how to deal with this riddle. I thought about it as we closed up the house for the evening. Amazed at the string of bad luck (the washer and window also broke the same evening), I quickly went out and bought a new SUV for my wife (one she likes) on credit the next day using part of our emergency fund as a down payment, all because I did not want to slow down and deal with the situation.

We recovered and have since moved on from the car buy.

My current situation

Currently, as I write this, my family faces our second and much larger emergency fund depletion. This time, however, it is real, as in “not having water turns the household upside down.”

We moved three years ago to a bigger house as our family expanded with my youngest daughter. I did not plan to move at first, but a couple of months after my wife, Yvonne, found out she was pregnant, she set a hard date. July 15 became our deadline and we had four short months to find a home, get our current home ready to sell, and move.

We made the deadline with time to spare and have been happy with the choice we made. There have been large outlays. The largest one so far is getting 85 percent of the house Billreplumbed. The water pressure from our well had been slowly dropping, so a plumber suggested that we replace our well pump and a few other items. The total cost: roughly one month’s expenses. After getting the work done, the plumber took the time to discuss with us the problems present in our current plumbing. He explained that his current fix may last a short while or longer. Guess which one it was? Two weeks later, here we are, getting the home refitted with new plumbing. The original pipes were not up to code and cheap material had been used. (I experienced personally how cheap it was, as one of the pipes cracked in the wall.) Total cost: several months’ worth of expenses.

The good news is, the house will be updated and our family will be able to get back to business as usual. Or will we?

Now what?

I now remember starting the emergency fund a long time ago. “Saving at $XX/ month, it will take T months to get back to the correct reserve amount” runs constantly through my mind. Additionally, the time taken away from funding other luxuries for the family will be put on hold. “Why did we buy THIS house? Why do WE have to wait to fund these other goals (which are luxuries)?” Sound familiar? It feels like starting at square one.

But I am not starting at the beginning. We now have the experience of dealing with a real emergency (having no water for the family). No credit card debt, no hassle over how to pay for it.

Transparency

I hope sharing this post shows: 1. Financial planners are subject to the same pitfalls and challenges as the families we help. In many cases, the planner does not practice the sameTransparency techniques he preaches. 2. Many articles discuss the importance of an emergency fund, but do not discuss the next step after it has been used.

In my family’s case, the second family trip for 2016 will be placed on hold. We will get back to the practice of building the fund to a suitable level by cutting costs. In the back of my mind, I do wonder about another emergency taking place. What will we do with no emergency fund?

In this case, we will start moving down the line of liquidity. We have additional investments in taxable accounts which are accessible.

As we make progress in building our emergency fund, I will share updates. When you meet with your advisor, ask him about emergencies he has experienced and how they were addressed.

If he does not practice the same techniques he teaches, you may need to look for another advisor. I believe a great advisor practices the same techniques that his client does. In this case, I know firsthand how the process works (the bucketing system) and I help people maneuver through the emotional turbulence of the situation.

If you have questions about building an emergency fund or about the bucketing system, or if you just want to share your story, please feel free to contact me at ncarmany@thewatermarkgrp.com or 317-805-0840.

 

Sources

  1.        https://www.google.com/webhp?sourceid=chrome-instant&rlz=1C1AVNE_enUS679US679&ion=1&espv=2&ie=UTF-8#q=emergency%20definition