MONEY

Is Living with Mom and Dad Starting to Cramp Your Style? Take These Steps to Independence

You promised yourself the situation would be temporary. But now six months has rolled into a year, and the free rent, home-cooked meals, and regular laundry service make it tough to say goodbye. According to Pew Research, 36% of young adults (to age 31) were living with their parents last year—the highest percentage in at least four decades.

How do you cut the cord? View your time at home as an opportunity for a practice round of managing your money. Then get ready to ditch the training wheels.

Pay Part of Your Way

Living at home enables you to save money, but that doesn’t mean you’re entitled to a totally free ride. Once you find a job, start contributing a portion of your salary toward household expenses. It will help you get in the habit of setting aside money for rent. Plus, kicking in a little cash is only fair: Your parents are probably saving for retirement and may not have factored the cost of your coming home for an extended stay into their budget.

How much is reasonable? First, get an estimate of their household bills, from groceries to the mortgage. “Ask how much they pay for car and home insurance instead of just having a vague sense it’s all being taken care of,” says Vivian Diller, a family psychologist. Then figure out a fair percentage you can afford to pay. This exercise will give you a better idea of the costs involved with living on your own. Bonus: Having to pitch in for their bills might motivate you to move out sooner rather than later.

Get Your Finances in Order

Take advantage of your lower cost of living to build an emergency fund and pay down debt, especially credit cards (average balance of recent grads: $4,100). In addition to freeing up cash, paying off the plastic will help boost your credit score, says Gerri Detweiler, director of consumer education at Credit.com, “so you’ll be in a better position to get good rates on mortgages and car loans later on.”

Plan an Exit Strategy

Set a deadline for your departure, then plot out the interim steps needed to meet it, suggests Elina Furman, author of Boomerang Nation. Say you’re aiming to be out in six months. Calculate how much to save each month so that you’ll have enough for furniture costs and the security deposit on an apartment. Then, three to four months in, start scouting for rentals.

Budget feeling tight? Maybe your parents can help with a short-term loan to pay some initial bills. If they’re amenable, draft an agreement stating the terms, including when you’ll start to repay and how much each month. It’s good practice. “Once you’re on your own, you’ll deal with due dates and contracts all the time,” says Detweiler. “Real-life creditors aren’t as forgiving as Mom and Dad.”

 

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MONEY Autos

5 Things to Know About Car Leases

Toyota cars for sale at a Toyota dealer
Toyota cars for sale at a Toyota dealer in Hollywood, California on February 24, 2011. Japanese automaker Toyota recalled another 2.17 million vehicles to fix floor mat and carpet defects that could jam the accelerator, the latest in a spate of recalls to hit the firm. Pressed by US authorities, Toyota announced the recall to fix flaws in its Lexus GS, RX and LX models as well as Toyota's sports Highlander, 4Runner and RAV4 sports utility vehicles. AFP PHOTO/Mark RALSTON (Photo credit should read MARK RALSTON/AFP/Getty Images) MARK RALSTON—AFP/Getty Images

Buy vs. lease? The choice can be tricky.

You can get great deals on car leases these days, but a few wrong turns will cost you. Here’s what you need to know.

1. Leasing is especially attractive today

The cost of a lease is the difference between what a vehicle is worth now and what it’s expected to be worth when you return it (the residual value), plus interest and fees. The more a car is forecast to hold its value, the less you pay.

“Manufacturers believe the supply of used cars is on the low side, so they’ve priced residual values higher,” says Jesse Toprak of TrueCar.com.

You can lease some new cars for less than the loan payments on a gently used model.

2. You can negotiate any lease offer

A dealer will typically drop the sticker price (called the capitalized cost) by at least 5% if you haggle, says Alec Gutierrez at Kelley Blue Book.

Even the “money factor” — the number that determines your interest rate — is up for grabs. But you’ll have to scour the fine print to find it so you can compare offers (lower is better).

With today’s low rates, though, agreeing to put more money down in exchange for a price break may not be a good deal.

3. Long-term leases can cost you more in the end

Leases often last three years, but some car makers let you stretch payments out longer.

Toyota has five-year deals on the Yaris, Corolla, and Camry. Steer clear. Most comprehensive warranties last three years, which could leave you with costly repairs, says Ronald Montoya, consumer advice editor at Edmunds.com.

Related: Best resale value cars

Plus, car makers want you back for new wheels, so short leases are more likely to be subsidized.

4. You need to dodge a few costly traps

Leases cap the miles you can drive — typically 10,000 or 12,000 a year. Travel more, and you’ll owe as much as 20¢ a mile later. Heavy drivers can save by paying $10 or so more a month for a higher mileage cap.

Also, you may have to pay extra for gap insurance, which covers the difference between the insured value and the higher amount you may owe the leasing company if you total the car. Dealers typically include it for free, but banks don’t always.

5. An early exit is easier than ever

Assuming the car maker lets you transfer the lease (Honda allows you to do so only under special circumstances; BMW bans it in the final six months), you can find a new owner at sites like LeaseTrader.com and Swapalease.com.

With used-car prices high now, you have another option, says Toprak. Make the remaining lease payments, buy the car for its residual value, and then resell it. In today’s market, says Gutierrez, “you might be able to end up with a profit.”

MONEY

Amazon: Buying Growth at a Price

Amazon's Kindle Fire is sold virtually at cost. Courtesy: Amazon

Ever since it was founded in 1994, Amazon.com has been all about transformation.

The Seattle-based online retailer started off by reinventing the way books were sold. Then it redefined itself by hawking everything from furniture to electronics — in the process challenging giant retailers such as Wal-Mart head-on.

More recently, the company doubled down on its dotcom roots through tablets, streaming video, and cloud computing. Transformation, though, comes at a steep price.

Can Amazon AMAZON.COM INC. AMZN 2.9783% afford to keep being so daring?

Tech 2.0

Amazon is re-embracing its inner nerd. The company struck a blow against Netflix by signing an agreement with Epix, giving Amazon Prime subscribers access to thousands of additional streaming videos.

EC2, the firm’s cloud-computing unit, leads Google and Microsoft in market share. And with the Kindle Fire, which controls 22% of the U.S. tablet market, Amazon is taking direct aim at the iPad and Apple’s iTunes platform.

Related: Contrarian Fund Bets on Europe – and Wins Big

The stock is already reaping benefits — investors are valuing it like an Internet startup circa 1999.

Morningstar analyst R.J. Hottovy says, “Amazon’s P/E shouldn’t scare investors off because its profitability is still being sacrificed for investments in rapid expansion.” Of course, you’ve probably heard that one before.

Reinventing retail

The e-tailer, which accounts for almost 2% of retail industry sales, is growing rapidly and poses a threat to traditional big-box stores. To keep up with the company’s expansion, Amazon is building 18 new fulfillment centers, which will further speed up delivery times.

“Amazon is already testing out pilot programs in certain cities which would allow for same-day delivery service,” says Wells Fargo analyst Matt Nemer. “If successful, the online behemoth could pose an even greater threat to brick-and-mortar stores.”

The threat could be slightly muted, though, by new laws forcing Amazon to collect sales tax on behalf of states where it previously hadn’t, shrinking the online seller’s price advantage.

Big sales, little profits

While revenues are thriving, reaching $48 billion last year, profits have seen better days, as the company is in spending mode.

Amazon recently paid $775 million for Kiva Systems, makers of warehouse robots. That followed last year’s acquisition of U.K.- based LOVEFiLM to help compete against Netflix NETFLIX INC. NFLX 1.8846% globally.

And in an effort to gain market share, Amazon’s new Kindle Fire 2 will be sold virtually at cost.

“Amazon isn’t trying to make money on hardware,” says Morningstar’s Hottovy. “It’s using devices to lure consumers into spending more on e-books, digital content, and Prime subscriptions.”

The strategy is a gamble: Wal-Mart WAL-MART STORES INC. WMT 1.1711% and Target TARGET CORP. TGT 2.2392% have stopped selling Kindles for competitive reasons, potentially slowing Amazon’s plans.

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