By Gwendolyn Riase (pictured), Contributing Writer (Editor's note: The below article is that of Gwendolyn Riase and not necessarily the opinion or position of Cleveland Urban News.Com or the Kathy Wray Coleman Online News.Com. Her comments are her opinion and are not meant to serve as any legal, financial or other advice)
CLEVELAND, Ohio-Most of us keep a sharp eye out for potholes on the road. It can really cost you big bucks to replace your tires, rims and hubcaps. These are literal potholes. But there are also financial “potholes” that will devour you and all your money without a watchful eye for them, as well. Here are two to consider:
Lump Sum Settlements – Let’s say you sued someone and won a sum of money that is to be paid monthly or yearly until it is paid to you in full. Or you have an inheritance or win the lottery. You may have a large sum of money coming to you, but you’ll only be paid in small amounts (yearly or monthly) over a number of years. Some companies are willing to offer you a large lump sum of money now so you don’t have to wait before you’re paid in full. Of course, the lump sum is a much smaller amount than what is due to you.
Some people submit to the temptation of having less now instead of getting every penny, even if it takes some time. I have clients who come to me after they have spent all of the money they received as a lump sum. Yes, they may have paid off a few bills, but not all of the bills. Or they spent most of the money on new clothes, vacations, cars and friends without paying down their mortgage or saving for a rainy day.
What’s great about taking the payments over time is that you get every penny that is supposed to be coming to you. Another reason: if you go “hog wild” and spend every dollar from this payment, you still have more payments coming. The “damage” will be minimal. You can calm down and begin to make a plan for the extra money and work toward your dreams.
Lump sum settlements are financial “potholes” because someone is taking advantage of you. They are willing to wait the full amount of time because their payoff for the investment is huge.
Here’s an example. You have a total of $100,000 coming to you after a car accident. But you will only get $20,000 a year for 5 years. You begin to get phone calls and postcards with offers of cash now, if you simply sign over your rights to the whole amount to those “friends who just want to help you get cash now.” You are considering an offer of $65,000.
This “friend” spends $65,000 and will receive $100,000. They profit $35,000 or a whopping 53.85%! That’s a better return than any bank in the world offers!!!
You, on the other hand, lost 35% or $35,000! Some people don’t make that much in a year on their jobs. And you just gave that much away!! You got “taken” and you probably felt good while it happened.
If you jump at immediate gratification, you will lose almost every time. I have yet to have a client give me a good reason to take a lump sum.
Leasing versus Buying a Car – If you have ever wondered whether you should buy or lease a car, here are some details to consider.
Leasing was created for businesses that buy 1 or more cars for their employees to drive to perform their duties or serve their customers. Businesses can write off the expenses on their tax returns as a cost of doing business. There is no tax benefit to an individual leasing a car.
If you lease a car, you never own it. It’s really an extended rental. You pay monthly, but at the end of two or three years, you must turn in the car, pay a high price for each mile over the amount agreed upon and then, and even pay the difference between the present value of the car and it’s Blue Book value based on its present condition.
And after all that, you don’t have a car to drive. You either buy or lease another car or the one you just returned.
You pay monthly for the privilege of driving a car, but you are never paid up with a lease.
When you buy a car, you eventually finish paying for it and you then own it. You can sell it for its current value or drive it without payments until you want or need to replace it.
Your dollar takes you farther if you maximize your “mileage” from each and every dollar. Don’t waste your money. More of your money should stay in your pocket! So keep a watchful eye out for financial potholes so they don’t swallow you or your money.
To reach Gwen Riase call her at 216-577-5621 or e-mail her at WealthSchool@att.net.
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