CHICAGO — Life would be easier if you didn’t have to make so many tough business management decisions—ones that only you can make. Fortunately, most decisions involving money management are less difficult. Here are six important money scenarios that you may encounter, along with advice to help you make the best choice:
USE A DEBIT CARD?
Possibly, but you need to be aware of how debit and credit cards differ and the unique risks of debit cards.
Unlike credit cards, debit cards give you no grace period for paying your bill. The money will be deducted from your account immediately each time you use it.
Unless you’re a fastidious record-keeper, keeping your account in balance can be a problem. It’s easy to misplace a receipt and forget to notate the transaction in your check register, resulting in overdrawn accounts and heavy financial penalties.
Total liability for fraudulent use of a credit card is limited to $50, and credit card issuers often waive that amount. With a debit card, unless you notify the bank within 48 hours after learning your debit card was lost or stolen, your liability for fraudulent use could be much higher. Fail to notify the bank within 60 days, and your entire account could be wiped out.
With credit cards, you may dispute errors or unauthorized charges and withhold payment until the matter is resolved. With a debit card, your money is spent the moment you complete the transaction.
LEASE OR BUY MY NEW VEHICLE?
Most experts agree; it all depends.
When you lease a vehicle, you’re paying for its use over a specified period of time. When you buy one, you’re paying for its entire cost regardless of how long you keep it or how many miles you drive it. What’s best for you depends on your situation and personal preferences.
If your primary interest is driving the vehicle of your choice at the lowest possible cost, buying is for you. On a straight financial comparison, buying is almost always the lower cost option over the long term. For the ultimate in penny-pinching, you should buy your car and drive it for as long as it will get you where you want to go.
But economic considerations are not at the top of every driver’s priority list. If you like the idea of lower monthly payments, driving a vehicle that’s always under warranty, and tooling around in a model that’s never more than two or three years old, then leasing may be the right choice for you.
For more information, visit leaseguide.com.
ALLOW A MATURING BANK CD TO ROLL OVER AUTOMATICALLY?
Absolutely not. When a CD matures, always call or visit the bank and ask to review all current interest rates, especially any promotional rates that may be available. Many banks regularly offer temporary promotional rates at substantially higher interest than their regular rates, but you probably won’t hear about them unless you ask. An automatic renewal is practically guaranteed to get you something less than the bank’s best available interest rate.
SIGN UP FOR A SERVICE CONTRACT ON MY NEW FLAT-SCREEN TV?
Most insiders say that you’re most likely to come out ahead by passing up the salesman’s pitch to sell you a service contract, not only on TVs, but other electronics as well.
Service contracts are the most profitable items sold by many appliance stores. Sellers of contracts have a big advantage over buyers. By using repair history records, sellers simply add a substantial markup to the average cost for maintaining a given product, thus guaranteeing themselves a nice profit. That’s why only buyers who consistently require substantially more than the average amount of repair service can hope to come out ahead.
(Hint: If you’re one of those people whose products collapse 24 hours after the warranty expires, you may be a good candidate for service contracts.)
INCREASE PAYROLL WITHHOLDING OR QUARTERLY TAX ESTIMATES?
It may give you emotional satisfaction to know that Uncle Sam owes you money at tax time, but don’t be fooled. The IRS gets the last laugh on this one because you’ve given them an interest-free loan at your expense.
The least expensive way for you to pay your tax liability is to try to have your withholding and estimated payments come out as close as possible to the amount owed.
PREPAY FOR MY OWN FUNERAL?
Since the idea was first promoted, Americans have spent billions of dollars on prepaid funeral expenses. Proponents cite several advantages, perhaps the most important of which is the comfort of knowing that your loved ones will not be burdened with making arrangements and financial decisions at a sensitive time.
But some consumer advocates say that there is no shortage of complaints, ranging from funeral homes that skimped on the quality of caskets, to funeral homes that went out of business, to outright fraud on the part of disreputable operators.
Prepaying for a funeral is a large financial commitment, so it shouldn’t be made on the spur of the moment. A traditional funeral costs about $6,000, according to the Federal Trade Commission. And that doesn’t include extras like flowers, obituary notices, and cemetery costs.
If you’re concerned about the risks of prepaid funerals, but want to protect your loved ones from being burdened with the costs and responsibilities of your final arrangements, there is a simple alternative. You can prearrange your funeral without paying for it in advance. Some experts suggest that you set the necessary money aside in a special account, write out your wishes, and give the information to a trusted friend or relative.
Earning money these days is hard enough, but keeping it can be even harder. That’s why, when it comes to money decisions like these, it pays to think twice and act once.
Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult an accountant or tax adviser for advice regarding your particular situation.