Tag Archives: automobiles

Coping with the Unexpected: 4 surprise costs and how to deal with them

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Image by Michael Longmire/Unsplash

By Nat Juchems

Special to the Financial Independence Hub

Our finances can be a source of stress and frustration at the best of times. For many of us, our budgets account for our expenses for the month, with perhaps a little left over for savings and disposable income. Which can make it particularly difficult when the unexpected occurs.

There are, of course, a variety of solutions to emergency situations. However, in the heat of the moment these can lead us to the financial band-aids that solve the problem in the short term, but perhaps put us at a long-term financial disadvantage. Credit card payments, loans, and financing may well be quick fixes to stressful issues, but you may find it difficult to cope as time progresses and your circumstances change.

We’ll take a look at a handful of the most common unexpected expenses that may arise. What are some useful, intelligent financial responses to these? Are there low-cost preparatory steps you can take to fend off larger-scale consequences?

1.) Medical Expenses

There’s certainly an element of injustice in the fact that people so often go into debt as a result of illness. However, the current US health system isn’t always well designed to provide adequate care without incurring huge bills. So, in the absence of complete systemic overhaul, what are your options for unexpected healthcare?

Of course, the simple preventative answer is to take out adequate health insurance. It can be tempting to just select the plan with the lowest monthly premium, but this could find you seriously out of pocket; particularly as lower premiums are usually leveraged by higher deductibles. That said, if you can mitigate this effect by investing a little from each paycheck into a Healthcare Flexible Spending Account (FSA). The funds paid into these accounts [in the United States] are deducted from your paycheck, but are not subject to tax. The amount accumulated can then be used to help pay for deductibles, co-pays, and indeed anything not covered by insurance in the event of an emergency.

If you have been involved in an accident that was the fault of a third party, it is certainly advisable to seek assistance from personal injury lawyers. While we all want to avoid unnecessary litigation, fair compensation may be obtained in order to cover your emergency and ongoing medical expenses. This may not be an adequate short term solution, so it can also be useful to find ways to minimize your initial outlay. Attend walk-in clinics in place of large hospital emergency rooms if appropriate, look into prescriptions of generic drugs rather than brand names.

2.) Funeral Expenses

None of us like to think about the passing of ourselves or those closest to us. However, we have to accept that death is one of the few guarantees we have in life. That said, for all its inevitability, death can take us by surprise; with the costs associated with it adding additional stress to our emotional pain.

Funerals are notoriously expensive affairs. When an unexpected death occurs, we can understandably tend to opt for solutions that place the responsibilities of organization on third parties such as funeral directors. It’s worth noting that these are usually the most expensive options, and don’t usually provide us with the opportunity to do our due diligence in investigating the necessity of services which drive prices even higher.

The fact is, there is no legal requirement in any U.S. state for a funeral director to take charge of planning and executing a funeral. It is perfectly possible for you to undertake a low-priced, meaningful ceremony. Cremation is usually one of the most cost-effective methods of handling the remains of a loved one, with the cost of cremation urns certainly tending to be lower than caskets. In fact, if you donate the body to scientific study, the remains are usually cremated and returned to you free of charge.

If you are set on burying a loved one, there are certainly options which can keep costs low. Direct burial — a process which forgoes a viewing in favor of almost immediate interment — can be around the same price as cremation, and does not require the additional expenses associated with preparation of the body. Also be wary of “extras,” such as gaskets on caskets; these are ostensibly to protect the remains after burial, and can raise the price of the casket by as much as $800.

3.) Vehicle Problems

Vehicles can represent one of our more substantial investments. Not simply in the material cost of the vehicle itself, but also its maintenance and ancillary charges such as insurance and road tax. It’s no shock, then, that when something goes wrong with our vehicles, it can be a costly affair. Continue Reading…

When $70 Crude Oil doesn’t feel Like $70 Crude Oil

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By Jeff Weniger, CFA, WisdomTree Investments

Special to the Financial Independence Hub

“Judging by the oil market in the pre-OPEC era, a ‘normal’ market price might now be in the $5-10 range  … Last week Algeria’s energy minister declared, with only slight exaggeration, that prices might conceivably tumble ‘to $2 or $3 a barrel.’”

—The Economist, March 4, 1999

That quote feels like it was from a million years ago. A decade later, straight-faced economists would be talking about US$200 or US$300 per barrel. Times change.

With oil two years along in a bull rally that has witnessed its price triple from  lows in the first quarter of 2016, it may be just a matter of time before the purported list of stock market obstacles starts to include retail gasoline pain. With West Texas Intermediate (WTI) crude oil changing hands at US$67.44 and Brent crude at US$73.26, it’s hard not to be scared off by our collective ups and downs at the gas station.1

After regular unleaded challenged US$4 a gallon — $3.695, to be precise2 — in the summer of 2014, many strategists began to fear the worst. Gasoline would once again deal the death blow to the American middle and lower classes, as it had a half-decade prior.

But 2014 marked the worst of it, at least for now. WTI crude oil collapsed from triple digits to less than $30 in early 2016. Retail gas followed along, to levels south of $1.80.

But it has quietly chipped back, closing the first quarter at $2.57, and $3 looms in the American psyche. Unlike in Canada, where expensive fossil fuel prices tend to benefit the federal budget, Alberta employment and so forth, Americans historically have had no similar solace outside of petroleum-rich Texas and Alaska, perhaps. It’s just a different economy. People remember the first time they saw a gas station post a price of $1, then $2, then $3. And at $4, that memory strikes the gut: the insolvency years.

Regular Canadians feel pain from expensive gasoline, for sure, but not quite like the pain that hits Americans.

Tie the threat of a national average of $3 per gallon south of the border, maybe during the Labor Day road trip, with the possibility that U.S. Fed Chairman Jay Powell may bring two or three more rate hikes of 25 basis points by this year’s close, and it is not much of a leap to be sympathetic to a thesis of a gasoline-induced blow to American consumer confidence. But be careful, because that thesis is flawed.

Whispers

The “whisper number” on Saudi aspirations for Brent crude is $80 to $100 per barrel. But Donald Trump was already tweeting angrily at $70 per barrel, so it is reasonable to assume that another $20 to $30 would unwind much progress on recently fruitful U.S.-Saudi relations. But suppose ROPEC — Russia plus OPEC — marks oil up to $100 anyway. Gasoline could be closer to $4 than $3 in that circumstance. Does that break the American consumer? A half-generation or a generation ago, yes — certainly. But psychological anchoring on round numbers like $100 or $3.00 deceives. Consider our analysis below.

Our 2018 Reality

Figure 1 places unleaded gasoline costs in context. The U.S. population of some 322 million people consists of 126 million households driving more than 3 trillion miles per year. But because millennials do not drive as much as their predecessors, the number of auto miles driven per household has fallen to less than 25,000 from a peak of 26,413 in 2004.

Additionally, today’s cars are essentially computers on wheels, and fuel efficiency is notably higher than it was in prior years.

Twenty years ago, the American new car fleet got 23.4 miles to the gallon.3 By 2008, it was virtually unchanged, at 24.3. But the U.S. got burned on triple-digit oil, making it somewhat politically palpable when the Obama administration pushed forward with mandated 54.5 mpg fuel economy targets for model year 2025. In pursuit of such efficiency, the new car fleet’s efficiency rose to 30.0 mpg for the 2017 crop. Continue Reading…