 Personal finance, PowerPoint presentation, large purchase process of something like a car overview. Get ready to get financially fit by practicing personal finance. Remember the common theme that we have seen in finance in general is that when we're making the short-term decisions, we'll often have different strategies involved than making the long-term decisions, those decisions that are gonna have an impact for multiple periods into the future. When we're making the short-term decisions, we can apply a tinkering type of method, a trial and error, a testing type of method. When we're making large purchase items, items that are gonna have an impact for multiple periods into the future, we don't have that same kind of tinkering kind of capability. That's where we have to use the adage of we want to measure twice and cut once. We gotta kinda separate those two types of decision processes in our mind. Oftentimes, many people are very good at making one or other types of decisions. Some people are often quite good at the day-to-day kind of decision processes, and they really like and enjoy being immersed in the problems that are coming up from day-to-day, and they can kinda trust their gut and the habits that they've put together for those types of decisions, but possibly aren't as long-term oriented and don't have the kind of systems down to make those long-term decisions, and other people are quite long-term focused, and they're always trying to think about these kind of long-term decisions, and they measure them out so that they can make one decision quite well, and in that case, of course, they're not dependent so much on the tinkering, but with their calculations, their measurements for those long-term types of decisions. So on the short term, we're typically trying to fine-tune our habits so that we can have habits that are going to be beneficial over the long-term as we make those kind of day-to-day type of decisions for the long-term decisions. We gotta put together a process that we can have a more formal decision-making process so that we have that one-time decision that hopefully we do better, which will have an impact longer into the future. We're gonna be breaking the process down into four categories that we'll be talking about for these long-term types of decisions, and the big example on the personal side of things is gonna be a car. So a car is gonna be a long-term kind of process decision, even longer term for the personal side of things will be a home. So we'll talk about the home purchase later. Those are usually like the big ones that we have in place, but anything that's over a dollar amount that is material to you is gonna be a longer-term type of decision. That could be things like appliances and that kind of stuff as well. You wanna apply the similar kind of models for the longer-term term decision models. So number one, we got the pre-shopping activities that we'll put into place. Those will be the categories we'll talk about. Number two, we'll talk about evaluating alternatives. And then three, determining the purchase price. And then four, we got the post-purchase activities. These are the four categories we're gonna group the activities into once again. Number one, the pre-shopping activities that we're gonna put together and we're gonna put some time into it because they're gonna be the longer-term types of activities. They're gonna have a longer-term impact. Number two, evaluating the alternatives. So we're probably gonna do more evaluation for those big-ticket items but then we would, on the day-to-day types of items where we might be reliant more on kind of the habits and decisions that we have made in the past, continuing on with those habits possibly going forward, possibly reviewing them from time to time. Number three, determining the purchase price. So clearly, we wanna think about the purchase price, do some comparisons of the purchase price, have an understanding of it, especially if we're going into a situation where there's a negotiation kind of process and or a financing kind of process that has to be involved. We wanna think about those ahead of time. We don't wanna be dependent on the salesperson or the finance department of the area that we are going to in order to help us out with those things. We're going in there to negotiate the price and that includes like the financing component as well. And then number four, we've got the post-purchase activities when we think about how long something is going to last. Then of course we have a plan in place on how well we're gonna take care of it and that kind of stuff. So we wanna make sure that we're following through post-purchase to take care of the item and do what we need to do for it to last for a long-term type of purchase. So number one, we've got the pre-shopping activities. Define your needs and relevant product information, problem identification. So whenever we're purchasing something, we are doing so in order to solve a particular problem or at least a perceived problem. And note it's useful if you've ever been on the other side of the table, selling something or advertising for something and you're looking up how to do that, the common rule or strategy or advice would be, you want to identify the needs of the customer and show how your product or service addresses those particular needs. That's how advertisements are typically focused. It's useful to be thinking about when you're on the purchasing side of things, how the other side of the table is thinking too, how they're going to be addressing things that will hopefully make the communication and negotiation a little bit easier. So of course, we want to specifically define our problem. So if it's something like a car purchase, clearly we have the problem, the issue that we're trying to solve of trying to get from A to B, but we might have other things that we want to identify too, such as I want to get from A to B and some standard of luxury, I want to be comfortable from here to there. And so notice whenever we're looking at these long-term types of decisions that are personal in nature, then we got to look at it not solely from a utilitarian type of purpose. In other words, I just need the cheapest thing that's going to get me from A to B. That's the easiest thing to measure in terms of how much the cost versus reward is from a dollar standpoint. But of course, we also have these other needs that these products are going to be addressing as well. And we want to put them into the calculation somehow and we've got to measure them somehow. That's where the difficulty often lies because we need to quantify. We would like to quantify in some way how much it's worth to us, the added level of value, for example, or comfort and so on within the purchase price so that we can quantify it and still measure how much we're willing to pay for that kind of luxury type of item in it. So more difficult to quantify, but we still want to try to quantify it in some ways so that we can have a more formal kind of approach to make it a long-term type of purchasing type of decision. So we got to identify the problem, what are we making the purchase for, and then focus the purchase activities based around that more focused problem. We're not just kind of floating around from item to item. I'm just kind of browsing and whatever catches my eye. I'm kind of floating. I wanna be looking at stuff that's tying towards and identified to the particular needs that I have in mind so I could focus my problem identification or my research towards those particular problems, right? So information gathering. So once I've got my problem, we can have personal contact. Clearly you could talk to friends and relatives or clearly people that you get information that you can trust on that. So that's one business organizations that you can talk to. Media information is clearly gonna be a source that you can take a look at independent testing organizations. So anytime you're talking about a large product, especially like a car, but appliances to any large type of item, there's typically going to be records out there for testing. And so you can look at those third-party sources because those are usually not done by the organization. Remember the purpose here is when you're trying to gather information, you are gonna go to the organizations themselves. I'm gonna go, if I'm buying a car, I'm going to the dealerships. If I'm buying some kind of appliance, I'm going to the appliance manufacturer probably, if not the store that sells those manufactured items. And they have good advice to have very knowledgeable people there, but they clearly have an objective to sell the product. That doesn't mean that they lie per se, but it does mean that you gotta assume that their advice is somewhat biased. If you talk to a person, like a friend, then you gotta assume they probably don't have the in-depth knowledge on the particular items and the ins and outs of something, but the point is they're not invested in the sales items. So you're looking at a third-party decision. You're trying to get someone who's independent from the decision-making or the actual sale. They're not benefiting from the sale. And so when you're talking to an independent third party, someone that tests these items or you're looking at third-party reviews, possibly you're looking on YouTube for third-party reviews, it's hugely different if the person that's giving the review, for example, is getting paid by the product that they're giving the review for. Again, it doesn't mean they're bad. It doesn't mean you shouldn't look at that, but it does mean that you gotta take it with a pretty large grain of salt. Given that, I mean, if someone paid you to do the review, it's gonna be a whole lot more difficult to give a negative review than if you were an independent reviewer. So what you were looking for is those independent reviewer information. If you can get that, and that's usually gonna be a lot more helpful for that independent decision. So government agencies could be a useful tool as well. And then of course you've got the online resource. And again, you gotta be really careful with the online resources because there's a lot of them out there and you get a lot of good information, but you still have this question of independence. Are they really independent? Oftentimes they're kind of anonymous. There's just like one person that's just giving a review. It could be informative, but you don't really know if they've been paid by the organization itself and so on and so on. So you gotta take those kind of with a grain of salt, what you're looking for usually is an independent review, someone that you can trust to give an independent review. So evaluating number two step, evaluating the alternatives. So if we're talking about a vehicle, then of course we can then think about our vehicle options, what are the options for the vehicle? If it was gonna be something like an appliance, then we can think about the different kinds of appliances that might be applicable for us. We can also compare the used items. This applies to vehicle purchases, also applies to other types of things like appliances and whatnot that we might be purchasing. Is it possible to get the used items in there that adds a whole another level of complexity in terms of should we buy used or should we buy new? How long is the item going to last and so on? And so then we can do our comparative analysis to try to think of buying something new, how long it's gonna last, what's the risk of it not performing up to that point? What's the warranties and whatnot versus buying something used, how long is it gonna last? What's the risk of it not performing up to that standpoint? And are there any warranties and whatnot guarantees with regards to the used items? And then of course we've got the leasing options, which again, we can kind of think of that most clearly with a car, but it could be applicable in other things too. We might be able to lease certain pieces of equipment for a certain timeframe. And so that opens up a whole another kind of basket of questions, do I wanna purchase the car? Would I have, how long would I have the car for that? What happens at the end of the purchase period? Or at the, what's the life of the car? When do I plan on selling the car or the appliance? How long do I expect it to last? How long would the leasing period for example be? Is there an option to purchase the vehicle or the equipment or so on after the lease period? And so you've got those questions with the leasing. So you've got the new vehicle versus of course the used item, vehicle or item, and then you've got the leasing options that we can consider. Now when you're thinking leases, you could have a capitalized cost, a capital lease versus kind of like an operating lease. And sometimes this is more like a business, like it comes into, if it was something that's gonna be a business type of item, because you have to account for it if it's gonna be something for your taxes, for example, that you're gonna be putting on the books or if it's a business item, then sometimes things are structured in the form of a lease. But in actuality, it's more of a purchase. So for example, if you were to lease something, it's structured as a lease. So you're giving them a lease payment, but you're pretty much guaranteed to buy it. You got like a bargain purchase price at the end, like you're gonna buy it for a dollar. Well, then there's no way that you're not gonna buy it for the dollar at the end. So even though they structured it as a lease in form, it's actually a purchase in actuality. So for accounting purposes and for when you're thinking about taxes and business type of allocation of it, you might have to capitalize it. So that's one thing that you wanna keep into consideration, and oftentimes that's gonna be applicable if it's gonna be a business-related item. Are you using the car or the appliance or whatnot in the business? And then if you need to think about the residual value at the end of the leasing term, and you can kind of compare that to what the residual value would be at the end of a purchase of a used or a new vehicle. And so those complications in terms of if you bought it, you'd still have it at the end of the lease term versus at the lease term, you'd have to give the car back or purchase it at that point in time, makes the comparison a little bit tricky. And we'll talk about some practice problems to look at that in a bit more depth. Continuing on with the evaluating alternatives, price analysis, so clearly that's gonna be one of the big alternatives. Prices can vary for all types of products. So clearly what we're gonna do is assess or try to assess the differences and the quality relative to the price. So as the price goes up, we wanna say, okay, what are we getting for the increase in the price? We're trying to determine if the increase price is worth the increase. And as we determine that, we might look at factors in terms of is it gonna be extending the useful life for example, and or is it extending my enjoyment, my use of the items such as like a more luxurious car and so on that I might want for the commute. We'd like to quantize in some way the added benefits even if they're like the personal benefits, a nicer car just for use when it's not a utilitarian type of thing. So price and quality are not always closely related. Comparisons shopping can be beneficial when, so obviously we would want to be comparing and contrasting. And just note this last point by the way, price and quality are not always closely related. You would think that if you were to make a gut kind of choice on types of things, oftentimes you look on say, you look on whatever online shop there is or something and you'd say, okay, here's the high price, here's the low price. I'm gonna choose the one in the middle or something like that because you would expect that one to be the higher the price, you would expect the quality to go up with relation to the price. It kind of depends on the product though, in that instance and more and more these days you've got the online kind of validation with people writing reviews and so on. So you can check out those reviews and get a better idea if the added price is actually adding to the value of it but you can't really just assume that that is indeed the case. Sometimes people increase the price just because it adds perceived value to it without actual value. That's more difficult to do these days though again with the internet because you can look at those reviews and try to see those comparisons. So comparison shopping can be beneficial when buying expensive or complex items. So clearly when you're buying something that's gonna be expensive, you wanna do some comparisons. There's a couple of things that are gonna make something like a car more difficult. One is that you're buying an expensive item so clearly that's gonna increase your level of difficulty right there and then they're gonna be more complex in that they're gonna have different features. So you're not comparing just like apples to apples even when you're talking about two fairly similar types of vehicles for example because they got a whole set of differences between them. So you gotta kind of compare and contrast and get the best idea you can. Buying items that you purchase often so you can obviously when you're buying them often you can compare to easily done with ads catalogs or online. Clearly online shopping is very useful for these kind of items. You can get a lot more detail than you could in the past for the side-by-side comparisons. Different sellers offer different prices and services, product quality or prices very greatly. So number two evaluating alternatives continued vehicle options, performance options. So we got the mechanical devices, the engine size, transmission, power steering, cruise control, anti-lock brakes. These are just some options that you might want if you're looking at the car specifically think about more specifically comfort and convenience options. So these are the ones that are less utilitarian but are ones that we kind of want to quantify. We want to determine how much is am I trying to solve the problem of just getting from A to B or if I'm getting from A to B every day and I'm trying to do so comfortably and relieve some stress possibly in a commute or something like that, how much is that value to us? We got power seats, air conditioning, stereo system, power locks. So clearly these, when you start to add in things like the stereo systems and whatnot then depending on your style and whatnot these things can start to get significant in dollar amount and then again, you gotta compare how much is that worth to me specifically. So we got the aesthetic features, metallic paint. So then clearly something like the paint and whatnot isn't something that's gonna get you simply from A to B but some paint jobs are gonna be more expensive than others, what's the value of that paint job to you when you do your comparison, special trim, leather interior and then the sunroof. So clearly these are gonna be more kind of on the luxurious side of things, not gonna stop you from getting from A to B if you didn't have a sunroof or anything but the sunroof is nice. So evaluating alternatives continued, new car dealers, you could be going to or common sources would of course be the new car dealerships that you can go to, you go to the used car dealers, they go to the private sales, you can go to auctions and dealers that sell previously owned cars, used cars, super stores such as CarMax and the CPO certified pre-owned. So these are just things to consider especially with regards specifically to the car. So clearly if you're purchasing a car, you'd be thinking, okay, I've got the dealerships, I got the new car dealership and then I could go to the used cars dealerships, I could go to private sales and try to look into an actual private sale kind of component. We can go to auctions and dealers, sell previously owned cars. We can go to the used cars, super stores. This would include things like CarMax and then we've got this certified pre-owned that we might wanna dive into in a bit more detail if that's the category that we are shooting for. Continuing on with the evaluating alternatives, vehicle options leasing. So we got now leasing versus purchasing, we're talking about leasing. What's the advantages of leasing? Small cash outflow. So of course if you're more limited on the cash flow then you might not have the cash flow to put down all the money up front to purchase the car. You could finance the car but the financing comes with its own kind of issues. So you still typically have to put a significant amount down up front to get the financing. And then of course the financing is its own sales process that you gotta deal with. So lower monthly payments than buying oftentimes. Lease provides detailed records, helps if you use your car for business purposes so that you might have more records for the leasing actually and that could actually be, make your business a little bit easier possibly able to obtain a more expensive car more often. So if you're leasing maybe you can get more car more on the luxury side. Disadvantages, no ownership interest. So clearly you don't own the car. Maybe that would be good or bad to you. You could, some people get a sense of satisfaction of the ownership of the car just to say that this is my car. Some people like not owning the car and basically like the idea that they don't have, you don't have to worry about the car I guess so much. Although you still have to take care of it because you're gonna give the car back and if you don't you might hit you with penalties or something like that. Must meet requirements. So clearly there's gonna be often limitations on the lease like you gotta be under a certain mileage level or something like that. They might have limits in terms of damage or something to the car and so on. But you wanna make sure that you're in compliance with. May have additional costs for extra miles turning the car in early or for certain repairs. So you may not be able to cancel the lease, the lease term kind of like if you rent a place or something you can't just cancel the lease or shorten the lease. So you got a little bit more flexibility with the purchase of the car because you could sell the car if you purchase it but that's still not an easy process. With a lease you could adjust the lease mostly on a shorter term timeframe but once you're locked into the lease you're typically somewhat locked into the lease. Observing the car outside of the car. So when you're looking over the car and you're trying to think about is it the quality of the car? You wanna look for dents and signs of accidents. So if you're especially if you're leasing a car you wanna make sure that you're looking at all of it so when you turn it back in they're not gonna say, hey there's a dent here and you're like, well that dent was there before I got the car. So inspect the trunk and spare tire so make sure that that is applicable and checked off. Check tire tread wearer. So observe smoothness of springs and shocks when pushing down on the car. Check operation of doors and windows. Make sure those locks and stuff are operating especially if they're electric. Look for leaky fluids under the vehicle. So observing the car inside of the car when you're looking inside of the car you might look for wear on pedals and steering columns. That can give you an idea of how used the car is if there's a lot of wear and tear on those items. Check for operations of dash lights and accessories. Make sure everything's blinking that should blink and turn it on that should turn on. Check instrument panel for operation of gauges. So make sure that those gauges are popping up especially now that they're all kind of electric. Start engine and check operation of power accessories. Radio, wiper and heater for example. Observing the car, the engine. So you first wanna say is there one, right? There should be an engine there. So you might wanna make sure that's the case. Check the leakage of fluids and overheating. Check oil level and the signs of leaks. Check radiator cap, radiator for cracks and repairs and for oil and coolant. Check battery and cables and then expect a smooth, clean start. Observing the car, the road test. When driving, let the vehicle warm up clearly before driving it. Test drive car on a road with which you are familiar so you don't wanna be distracted if possible with the road itself just with simply driving on it. So you would like to have more of your attention on the workings of the car. So listen for smoothness of acceleration and transmission both forward and in reverse. So make sure you're checking out reverse. Go backwards, make sure it has a reverse to it. You're gonna have to reverse sometimes. So check brakes at the different speeds. Check areas of steering and vehicle control.