“What’s up?” I asked. His response: “Can I pick your brain for a minute?”
So I said pick away!
He was just gifted $25,000 from his wife’s parents. He went on to ask me about the purchase of a car. I could tell he seemed nervous about asking me about this. Maybe he was concerned I would tell him it’s a bad idea. Maybe it was just financial uncertainty on his part. I think he was really just looking for some confirmation.
So I went through my normal line of questions. Yep, You guessed right. This is a financial planning scenario!
Here’s the series of questions I put him through to decide if he was I a position to buy a new car:
1. Do you have any debt? The reason I asked about debt, specifically credit cards, was that a potential better use of the $25,000 could be to reduce consumer credit card debt. So often we want what we want. Running up debt in the plastic devils as a result. A nice windfall like this could be used to significantly reduce or eliminate this debt.
His response: “I don’t have any debt other than my mortgage.”
He passes with flying colors! Moving on to question 2.
His response: “We could use a new car and have a good trade in.”
He passes on this question because there is a need. Question 3 up next.
3. Do you have a cash reserve? How much? I’ve always been a big pusher of the emergency fund. I usually call it the cash reserve. Most planners, including myself, recommend 3-6 months expenses stashed away in a savings account. This will cover emergency car repairs or a job loss.
His response: “We have $15,000 in savings for emergencies.”
He gets a major green light on this one!
4. Are you saving for retirement? There will always be a need for transportation. In fact, one could argue that a car will get you to your job location. I knew this client was saving for retirement through the company 401(k). I then asked if his spouse was contributing at work.
His response: “We both are.”
Outstanding my man! Hitting on all cylinders!
All the questions were to make sure my client made best use if this windfall. There are so many ways to use it. The natural inclination is to use it for something fun, otherwise know as mental accounting. I wanted to give him the very best advice I could. He passed on all the questions, and you could hear the relief in his voice!
This is a great example of how financial planning can make a huge difference and it doesn’t have to be a long, boring process. Sometimes if you have the right information a good decision can be made. Plus good advice can be given. Don’t hesitate to “pick your advisor’s brain” from time to time. You might hear some good news for a change!
If you could use some good financial advice, why not give me a call or email me? Or start by just subscribing to my blog right here.