6/16/2008

Personal Finance: As Taught By Automotive Magazines

In my formative years, I spent a lot of time pouring over car magazines. I was absolutely fascinated with the genre. Despite those years of subscriptions, I know surprisingly little about cars - functionally that is. I'm fine making repairs so long as they don't involve popping the hood or crawling underneath. I can also pretty accurately call out the era, make and model of most cars on the road. Always fun to take a guess just based on the approaching headlights. And in an unexpected way, this fascination led me to what would later become my career of choice - which has nothing to do with cars.

Through all of those issues of Motor Trend, Road & Track, Car and Driver, and AutoWeek, I was gleaning more than just automotive jibber-jabber, engine displacements, gear ratios, trends, and styling cues. There was actually some great writing and sound insights in there - from time to time. A few of those articles and concepts have stuck with me as they really have more meaning and application than just the automotive world, as intended. No, some of it translates quite well into the world of personal finance. We now proudly present, 6 personal finance concepts as taught by automotive magazines: (mind the gap)

  1. Head in the middle. The author of this article (an avid sports car driver), was talking with a friend who was a professional driver. They were discussing the varied rules of the road in various countries. Specifically, when to drive on the left and when to drive on the right. His friend told him his way to remember was, "Head in the middle" - meaning that the drivers' heads are always (or at least usually) in the middle, with the passengers on the outsides. That phase stuck with the writer and he never struggled with the concept again. This may seem insignificant, but this is a very useful, vary basic rule-of-thumb for driving. Getting stuff like this right is most of the battle. Same with personal finance. "Spend less than you make." "Avoid debt like the plague." "Tell your money what to do (budget)". "Pay yourself first." "Save money for a rainy day." If you have those down (and actually do them), then you're most of the way there. They are simple but important, and will keep you from inadvertently driving on the wrong side of the road.
  2. Special instructions. This was a fun read and one of my favorite pieces. The author talked about how everything seemingly has special instructions. If someone were to borrow your Great Uncle Fred, they couldn't just head off for the day. "He's a little klepto, so if you take him into any stores, be sure to keep an eye on him." Special instructions. A friend's car trailer he was borrowing wasn't as simple as you might think. "The ramps (which were separate from each other and stored on the sides) only store one way - as they are. But they also only assemble one way when you go to use them - opposite from the way they store. Right goes on the left, and left goes on the right." Special instructions. The point is that you need to understand what you are getting into, as it may not be so simple as it appears. Credit cardholders need to fully understand the agreement they are signing as well as the implications for when it doesn't all go according to plan. 'The rate is fixed* at 4.99% APR, but if you are late, even once, we will jack it up to our default rate of 34.99% APR and apply it to the entire balance, plus we'll hit you with fees and charge you interest on those too'. Special instructions. This goes for any personal finance product - investments, mortgages... Investigate it and be clear on all the nuances (special instructions) before signing up.
  3. Go-fast tape isn't always the answer. I specifically recall a rather insightful and deep cover story, though a tad vaguely. The premise was to take a bunch of hot, new production cars and see how many they could get above 150mph with no modifications. Real deep, right? Hey, I was young and male - I was attracted to fast cars like a magnet. There were the usual suspects that you knew would easily eclipse their arbitrary threshold - Corvette, Porsche, Viper. Child's play. Then there were a few others that you weren't quite as sure about - Camero, Mustang, BMW. The then newly-styled Mustang struggled greatly to reach the target. Persistent as they were, they tried and tried and tried, finally resorting to tricks like 'go fast' tape. Duct tape to you and I. They covered the wiper blade area (after removing the blade assemblies), they covered the head lights and grille - anywhere they thought was causing drag. Still shy. Some things aren't meant to be, like big returns out of an emergency fund. I've read about ladder CD concepts, mutual fund schemes, leveraged this and that.... It's not meant to be a big earner! It's a rainy day fund - It is meant to be there when you need it, all of it, and readily available. You don't know when you'll need it or how much you'll need. Stock market dips, penalties for early withdrawal, and debt are not what you need to add to the craziness of an emergency. Just like that Mustang wasn't meant to win any races, but maybe look like it could. So quit trying to force it, and accept it for what it is!
  4. There is such a thing as 'too much'. Another cover story about a Mustang, though this one could easily reach 150mph - on purpose. It was a 1994 Ford SVT concept '10 Liter Mustang' (actually 9.9, but who's counting at that point) . To put that in perspective, the new, red-hot 2008 Corvette Z06 is sporting a 7.0L 505-hp engine, which is huge. A 2008 Honda Civic has a 140-hp, 1.8L engine. Now maybe you can fathom the idea of a 10L engine and the raw power that comes with it. It was so powerful that the test drivers had a hard time taking off and not spinning the tires. It had such traction problems that they let the air out of the tires 'til they had about 9psi at which point the tires had to be held onto the wheels with screws. Even then, the shear power of the engine destroyed the rest of the drivetrain and I think the manual transmission version even caught fire. Just because they'll approve you for a zero-down, interest-only, jumbo loan for a $800,000 3/2 in LA, or DC, or SF, doesn't mean that you should take it. This train could go off of the tracks and take you with it (nah, never). Besides, what's the point? Just so you can say that you have an $800,000 house? Be reasonable, and try playing it safe with something so important as your home. Don't sacrifice everything just to own a home in a certain geographic area.
  5. Long-term road tests. Besides the standard, quick road tests performed on new cars, there were also 1-year and 3-year road tests performed and reported for selected models. There were some interesting findings from these longer-term tests. Sometimes the stated EPA mileage was not not what it was cracked up to be. Some models were riddled with interior craftsmanship issues - rattles, troublesome mechanisms, controls in inconvenient areas. Some models held true to their claims despite the rigors of the testing. But these things are more than you could find out in an afternoon, 'kick-the-tires and go-for-a-spin' review. It took a long-term mindset to flush those items out. It takes a long-term mindset to succeed at personal finance. Living in the moment, taking your brother-in-law at his word, trusting the salesman, picking an investment because it sounds cool. It will likely get you in trouble. Take your time. Slow down. Take a breath. Do your research. Maybe gold is way up. Maybe it was way down two weeks ago. Maybe it's long-term returns aren't worth spit. Maybe the latest gadget just came out and you Must. Have. It. Maybe you'll find there is an opportunity cost there when you need that money after being laid-off. Think long-term and you'll make better decisions.
  6. Speed is nothing without control. Another drool worthy cover story: 0-100-0 Shootout! 17 or so vehicles put to the ultimate acceleration and braking test. After running countless rounds of 0-60mph tests and plenty of 0-100mph tests over the years, they decided that they were really only looking at one side of the coin. Here, they would take each vehicle and put the power-train to the test by running it up to 100mph as fast as they could, then test the braking system by taking it back down to a dead stop as quickly as possible. Which cars offered the best combination of acceleration and stopping power? After all, "speed is nothing without control". How true that is. All the money in the world won't ensure financial success. A fat, 6-figure income won't keep you out of debt. Controlling the person in the mirror will. Personal finance is more about behavior than fancy math. Money is nothing with out restraint.
Unfortunately, my old stash of car mags are long gone, and these articles are not found online. Thus, I cannot credit the authors as I would like to. Whoever you are, wherever you are, thanks for the memories!

1 comments:

Kimberly said...

Just a quick note to let you know your article will be included in the 66th Money Stories Carnival.

The post will go live midnightish PST at http://mygoodcents.net

Thanks!

Blog Widget by LinkWithin