January is Financial Wellness Month, the perfect time of year because we can start fresh when it comes to putting all of our finances on the table and making a resolution to get them in order and make them more manageable. We resolve to save more, spend less, be more frugal when it comes to spending, and work hard at sticking to a realistic budget. If your resolution this year is to improve your personal finances or you need to make some positive changes with your money, think about making smart automotive decisions which could have an immediate impact on your monthly budget and down the road when you learn how to properly manage your vehicle.

When it comes to making big purchases, a vehicle is often the biggest investment someone will make second to their home. Saving money towards a big purchase can come in handy. When it comes to buying a pricey item, it is important to think ahead and plan accordingly. Your best bet for large purchases is to use cash, not credit cards or loans. Obviously this is not always possible (or at least for the entire purchase), so planning out the future of the purchase is vital. When you don’t buy a large purchase with cash, it is a good idea to have money saved for a good down payment at the very least. Before you sign any paperwork, be sure that you can afford the loan payments. If you don’t have money for a down payment or you’re unsure if you can afford the payments, then you are not ready to make the purchase.

According to financial experts, a hypothetical situation could be as follows. You see a $20,000 vehicle that you are interested in, but you do not have the cash to buy it outright. You decide to take out a loan. The down payment should be about 20-25% of the total to make ends meet. That means you need to save up $4000-5000 for your down payment alone. Then, finance the rest and make sure you can afford the payments. When calculating what your payment will be, you need to take sales tax and interest rates into account as well as the term of the loan.

Smart financial decisions also come after the vehicle is actually purchased. Preventative maintenance and keeping a vehicle until after it is paid off is a great way to save money down the road, but getting there takes time, money and responsibility. With the cost of new cars rising yet again, buying a previously-owned (or used) car is a good decision for many people. New cars lose a large chunk of their value as soon as they’re driven off the lot; and many people find that used vehicles are a smart financial alternative. The good news is that vehicles are made better than ever, so a used vehicle could be not only a good value, but more affordable too.

If you’re in the market for a new vehicle, there are definitely some things that you should keep in the back of your mind when you are shopping around. For example, you can start by creating a list which states your wants, needs, expectations and things that you may be able to live without. You also need to consider the price range that you can afford. Narrow down your selection by researching makes and models and also check for different purchasing options. Be informed, and know the true value of the vehicle. When you find a specific vehicle, it is also important to obtain VIN numbers and check out the vehicle history. Online reports are often available to help with your decision-making.
When it comes to buying a new vehicle, you need to make sure that you can afford it first and foremost. How will you know? Well, whether you are a new buyer or experienced, it is always important to remember that when you finance, auto finance experts say that you should figure $25/month for every thousand dollars that you borrow for 48 months, and $20/month on 60-month financing. Furthermore, it is said that every $10,000 borrowed is about $250/month for four years, and $200/month for five. Remember, however, that this is just the baseline and it is imperative to also configure monthly financial responsibilities like insurance, gas, and routine preventative maintenance.

There are also many unknown and unforeseen financial burdens of owning a vehicle, both used and new. So, how much does it truly cost to own and drive your vehicle? The U.S. Department of Labor estimates that the average household spends almost as much on their vehicles as they do on food and healthcare for their entire family added together. Some of the common purchasing costs and fee include gas, motor oil, registration fees, sales tax, car insurance, and breakdown or extended insurance coverage, mechanical repairs, and much more. Of course, all of these fees and costs vary based on your state, region, vehicle, rates, and the type of coverage you choose. Gas totals are based on how much drive. No matter what, you should still expect to spend thousands of dollars in addition to the baseline price thanks to all of these variables.

Hybrid vehicles are taking over the market with almost all manufacturers presenting hybrid models in the next few years. But are they worth it in the long run? Can they really save you money? Hybrids will certainly save you money on gas, but it is still important to consider the list price and do some math before you sign the paperwork. For those who drive often and far enough, you should be able to make your money back quickly by investing up front and saving as you drive. Hybrids have the ability to positively affect both your finances and the environment.
Preventative, routine maintenance are common services that all vehicles require which could make a huge difference in the long run when it comes to financial wellness. A little preventative maintenance can go a long way – it is incredibly important to keep up with the necessary maintenance of your vehicle. It is the single most important thing you can do for your vehicle to ensure that it continues to run at its optimal performance and down the road, you will certainly save money on repairs.

The maintenance of your vehicle is a planned schedule of repair or routine actions aimed at the prevention of future breakdowns or mechanical failures. Preventative maintenance also aims at extending the life of your car; by reducing repairs, it can save you money and keep you safer in your vehicle. Automotive experts believe that say the key to keeping vehicles running well today and down the road, is routine preventive maintenance. Don’t put these routine services on the back burner, however! Too many people wait to have these routine services done because their car shows no signs of needing them.

A recent study from the Car Care Council found that 38% of vehicles had low or dirty engine oil, 54% had low tire pressure and 19% needed new belts. These basic services can turn into exponential costs when we wait to act on them. Preventative maintenance clearly saves money. In fact, one study showed that for every dollar you spend today on maintaining your vehicle it would be the equivalent of 4 or 5 dollars in repairs down the road. Unfortunately, the average cost of repairs has risen in recent years. According to CarMD, the total average repair cost in the U.S. is $305.56, including $202.28 for parts and $103.27 for labor. Replacing spark plugs can average $311, replacing a catalytic converter can cost upwards of $1001, and replacing the oxygen sensor can average around $239.4

Keeping a vehicle after it is paid off can also save money down the road. It requires taking a good look at your personal situation and a little more math. Even if you spend a couple hundred dollars every few months on routine maintenance, it would be less than a new car payment for either a new car or a used vehicle. The bottom line is that it is your budget and you need to find what works best for you. A vehicle properly maintained a few years after the payments have ended could save a person $20,000-30,000. That is a lot of money that could improve your financial wellness over a short amount of time. Not to mention that paying off a vehicle can feel great, too. Financial experts suggest that once your vehicle is paid off, you can save money by setting aside the amount of the payments. If you could afford it then, you can afford it now. As a benefit, today’s vehicles are made to last longer and go farther. Maintain your vehicle now so that you can maintain your finances later in life. Financial wellness starts with smart vehicle ownership and decision-making.

When choosing a financial advisor, it is very important to understand that financial advisors represent financial institutions. These institutions are the insurance companies, banks, mutual fund companies, stock brokerages, mortgage companies, etc. They are simply the companies that provide the product your financial advisor will be using in building your financial plan. Since financial advisors are heavily influenced by these institutions it is important to know the 4 basic rules by which they all operate. This information will help dramatically when you are choosing a financial advisor.

The 4 rules are:

1. Get Your Money

2. Get It Often

3. Keep It As Long As Possible

4. Give Back As Little As Possible

At first glance this list may seem offensive, like you are under attack by these institutions. In reality, they are simply running a business and trying to make a profit, and if you were in their shoes, you would follow the exact same list. So let’s look at each of these a little more closely and discuss how you can use this knowledge when choosing a financial advisor.

1. Get Your Money

Imagine you opened a bank today. What is the first thing you would need to do to get your bank up and running? You would need deposits, right? And how do you get those deposits? By offering your prospective clients something they want in return for their money.

All financial institutions rely on getting clients to place their money with the institution. All of their advertising and sales are based on attracting people’s money. The financial advisor is part of the sales arm of the institution and his primary role is to get money for the institution.

This is not a bad thing. Done properly, every party in the transaction wins. The institution gets your money to work and profit with, you get a higher interest rate or higher possibility of gain than you had previously, and the financial advisor makes a commission for finding a new client.

Just be aware of that dynamic when choosing a financial advisor. The advisor represents the financial institution and will get paid by them for bringing you in as a client, but he also must be truly acting in your best interests and do what is right for you. A good financial advisor understands that by doing what is truly right for you, he also is doing what is in his own and the financial institutions best interest.

2. Get It Often

Imagine again that you are the bank president. How often do you want people to deposit their money into your bank? As often as possible, and on a very regular basis, right? How do you accomplish this? What if you could create a way where people automatically deposited their money with you every single month on a regularly scheduled basis?

That is why direct deposit and automatic billing were created. It is also why the IRS has automatic withholding for your income taxes. And you thought it was simply created as a convenience for you.

Yes, these things are convenient, but their true intention is to get your money on a regular basis every month without you having to put a lot of thought into it.

Understanding this puts you more in control of the situation when choosing a financial advisor and when working with financial institutions. You do not have to blindly do what they tell you. You can use this convenience to your advantage when you understand its underlying philosophy and purpose.

3. Keep Your Money As Long As Possible

Think like the bank president again for a moment. Once clients have put their money in your bank, when do you want them to take it out? Never, if possible, correct? The longer you, the bank, keep their money the more opportunity you have to make a profit with it.

This is the reason all of your qualified plans (like the 401k and IRAs, as well as many Annuities, and Variable Life Insurance policies) have long withdrawal penalty periods. The qualified plans, with very few exceptions, cannot be touched without penalty until age 59 and a half. It is not uncommon to have 15 year withdrawal penalty periods in the Variable Life Insurance and Annuity contracts.

These long withdrawal penalty periods are in place simply so the financial institution can use your money longer.

Be aware of this rule when choosing a financial advisor. Make sure you know the exit provisions of any financial product you are discussing.

4. Give Back As Little As Possible

Think like the bank president again for a moment. When it comes time to actually return the money to your depositors, how much do you want to give back to them? As little as possible, right? What would you do to discourage them from withdrawing that money in one lump sum, or better yet, to leave the money in your bank even longer? Create rules for withdrawal? Tax it? Penalize it?

The way many of these plans are taxed is designed to keep the money inside the plan for as long as possible, thus allowing the financial institution to keep using that money indefinitely.

Financial Institutions want to keep your money as long as possible. Recently there has been a surge of new ideas and products about passing the money inside qualified plans on to succeeding generations to avoid paying the taxes on the money. Essentially, you leave the money locked inside the plan forever.

Great idea, but for whom?

There you have it, the 4 Rules of Financial Institutions. All financial institutions, and thus the financial advisors who represent them, operate on these rules. They are not necessarily bad rules. When you were thinking as the bank president in each of the examples, you too would have acted in the same manner and followed the same rules.

Choosing a financial advisor is no small matter. Interacting with the financial institutions behind the financial advisor is no small matter either.

If you understand the rules of financial institutions you can use them to your advantage because you know the game they play. You will also choose a financial advisor and products that are in line you’re your goals and ambitions for life.

You must understand and use the 4 Rules of Financial Institutions to create a financial model that truly benefits you.