Cheat Sheet Q&A:
Topic: Considerations of co-signing a loan
My long time secretary asked for my opinion on a situation that arose last night for her. She is a single person who has excellent credit and manages her finances extremely well. Her sister recently is a teacher and recently finished her Masters program but incurred student loans in the meantime. They have made a couple of financial mistakes in the past that I am aware of.
Her sister asked my secretary to co-sign a loan for around $15,000 to consolidate her student loans. My secretary told her that she would get back to her, but told her sister that she did not want to hurt her own excellent credit score. So, she sort of told her no, but my secretary wanted to think about it and get further advice before rendering a final decision.
I advised her to absolutely NOT co-sign the loan. She does not know what lies down that road, maybe years down the road.
Bottom Line: My view is that you shouldn’t co-sign for any loan in which you aren’t willing to pay for in its entirety for the individual you’ve signed for. The reason? The enormous impact of the negative consequences of a default – especially in this era of tighter credit.
Earlier this year I provided the analysis of the true cost of poor credit. Simply put even if you can obtain financing with poor credit, the average cost of that credit is 40%-60% higher than having excellent credit. That’s not factoring in the higher cost of insurance products, deposits for rent, products, services, etc. The net result is the value of one’s credit over the course of a lifetime is literally hundreds of thousands of dollars (aprox. $300k in today’s money to the average person). If we viewed our credit as being that valuable we’d like treat it differently. Here’s what I’d suggest.
If she really wants to help personally lend her the $15,000 (if she has it). Get it in writing and work out a structured payment plan and hold her to it. That way the worst case scenario costs her $15,000 rather than potentially hundreds of thousands over her lifetime.
If you have a topic or question you’d like me to address email me: email@example.com
Apparently we're all about self-driving cars if they'll save us money:
Bottom Line: So how do you feel about self-driving cars? If you’re the average existing car owner you’re skeptical. According to new research from Insurance.com:
- 60% of existing car owners are skeptical of self-driving cars
Now what if the self-driving cars were to save you money on your auto insurance?
- 86% of existing car owners approve of the auto-cars in that scenario
So it’s clear that most aren’t so into their driving experience after all. Cost savings on auto insurance and we’re good to go. This is effectual because it likely will play out to be much cheaper to own self-driving cars in the future. From the onset of self-driving tech a few years ago I’ve mentioned that at whatever point the technology has been vetted thoroughly, the incident rate will likely be significantly lower than human error behind the wheel. When that times arrives the auto insurance industry would likely make it a huge cost consideration to still drive yourself. More to come…
Has the tide finally turned? The largest airline is going to offer freebies starting Friday:
Bottom Line: When you think of airlines changing policies what do you think of? New fees right? Maybe the pendulum will finally start to swing the other way. The airline industry is currently as healthy (profitable) as I can ever recall. Delta’s new policy that begins Friday could be the net result of a healthier industry.
As of Friday, Delta is offering the following for free on all US flights of 90 minutes or more:
- TV Shows
- Video Games
They had charged 99 cents to $3.99 on those items. Maybe this will be the start of a much more positive consumer trend.
How much the average household spends vs. how much they earn & how we spend it:
Bottom Line: So how much income (gross) do you think the average household pulled in during the most recent year?
How much do you think the average household spent during the most recent year?:
Now keep in mind that household income was pretax. So in other words the average household has resumed the trend of progressively taking on an increasing debt load. That might be good for consumer spending but not for you over the long run. If you don’t know how much came in and went out last year, you likely don’t have an effective budget in place. That may be in indication its time to start.
The biggest disadvantage of small companies to attract & retain talent may actually save money & attract & retain talent
Bottom Line: First let’s look at the size of a company and how that pertains to a retirement plan offering:
- 89% of companies with 100 or more employees offer a company sponsored retirement plan (401k, pension, etc.)
- Only 14% of companies with fewer than 100 employees offer a retirement plan
Now it’s completely understandable that smaller companies struggle to offer the retirement plan. As a former small business owner I get it – and we weren’t able to provide a retirement plan either. But here’s the next piece… The most difficult challenge for smaller companies is to attract and retain high quality people. Enter this information:
Towers Watson identified the following:
- 63% of job seekers strongly consider a retirement plan when accepting a job
- 73% of employees who are using an employer sponsored plan strongly consider it as a reason to stay with a company
Earlier in the year I shared research demonstrating that the biggest hidden expense of business operation is turnover. The average cost of turnover is about 20% of the annual salary of that position. In other words it may provide net ROI to offer a retirement plan & it may significantly aide your ability to attract and retain key talent.