Simple Answers For Difficult Financial Questions
SIOUX CITY, IA —
Making personal finance decisions can be a giant headache.
The Executive Editor for CBSMoneywatch.com, Jack Otter, set out to find easy answers to complicated questions.
Otter's book is called "Worth It... Not Worth It?"
He researched big financial questions and boiled them each down to a one page answer. We asked him about his findings on four sometimes difficult questions when deciding what to do with your money.
Our first question: Banks, or credit unions?
Otter says in general, credit unions do more for your money.
"When you give the credit union your money to save in a savings account, all the rates were a little bit higher than the banks would pay you. So not only does it cost less to borrow, but you get paid more in interest. So credit unions are really a much better deal," he said.
Question 2: When it's time to swipe that card, should you go credit, or debit?
Otter says reach for your credit card. Debit cards can lead to an unpleasant surprise.
"One of the interesting things is that if you go into a gas station and say you only get a couple gallons gas, maybe what $30 worth, the gas station might actually put a hold on your card for as much as $80-100 until it reconciles its books and realizes, oh you didn't spend that much money, but in the meantime, you could overdraft from your account even though you've got the money in there because there's a hold on it. And where this is really dangerous is people will say put a deposit down on a hotel room with a debit card and then they'll pay with a credit card. And so again, until the hotel and the bank reconcile, you could have $500 on hold, overdraft your account, even though that money's in there just because it's being held."
Thinking about buying a new car?
Otter says you'll be happier driving an old one - and taking a vacation every year instead.
"Whenever we buy something new like a car, you know, at first it's great and then you kind of get used to it because you're commuting to work in it everyday and the new car smell goes away and just becomes our ride. And then sooner rather than later, you're looking at the neighbor's car and wishing you had one as nice as he does. Whereas with a vacation, you never get used it because it only lasts a week. So everyday is exciting and importantly, the memory actually stays in your brain and your brain goes back to that. And of course, you forget about the difficulty with baggage claim and you only remember the wonderful parts and it actually makes you happier in the long run, even though it's long over than a car will even though you still have it."
And when it comes to investing, watching basic cable will tell you gold is hot right now, but Otter says timber is better in the long run, because your investment in gold may not be protected for long.
"Maybe the most important point in this book is that people should not be chasing things like that. I think by far, the best way to invest is to own what's called index funds that own the entire stock market, the entire bond market, have a little of each and you'll be much safer in the long run than trying to figure out that stock or that asset like gold that's gonna go up or the next few years cause it's very tough to outsmart the market, even most professionals can't do it."
Otter says the biggest surprise he found when he wrote the book was what a difference fees make to your retirement account.
A half-percent difference in fees can mean an extra half million dollars over 35 years of investing.