With your personal finances, do this — not that

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Michelle Singletary
Columnist July 7, 2012

I rarely think in shades of gray when it comes to personal finance issues.

Yet because personal finance is so personal, some experts are leery of telling people, without any equivocation, what to do with their money. But offering a long list of pros and cons often leaves people unsure of what to do. My goal is to never leave you on the fence.

Michelle Singletary writes the nationally syndicated personal finance column, “The Color of Money.” View Archive

It’s for this reason that I’m recommending “Worth It . . . Not Worth It?: Simple & Profitable Answers to Life’s Tough Financial Questions” by Jack Otter as the July selection for the Color of Money Book Club.

Otter, the executive editor of CBS Moneywatch.com, shares my aversion to shades of financial gray. Everyday, he writes, we face questions about our money. Most of these questions, he believes, can easily be answered.

“I’m not suggesting it’s easy to get ahead financially,” Otter notes. “What I am telling you is that there are right and wrong answers to most of the financial decisions life throws at you, and given the necessary information it’s fairly simple to figure out which is the right call. Money is a very emotional subject, and we often get tied up in knots when wrestling with financial questions.”

I love how Otter tackles common financial decisions in a “do-this, not-this” format.

Save for retirement now or later? “I know that in your 20s you feel as if you have no money, but consider this: You have no mortgage, no children, and before you know it, neither of those things will be true. Last year I made 13 times the salary I was paid for my first job. And my disposable income? About the same. . . . Put a little cash away. Your 65-year-old self will thank your 25-year-old self.”

New or used car? “A car loses a whole lot of value in its first two years of life, and the smart-money move is to let someone else pay that depreciation.”

Buy or lease a car? “Buying a car is a better deal than leasing. . . .Leasing a car is like always going to the more expensive restaurant, or making sure you never, ever, pick up an item at the sale price.”

Stock or mutual fund? “It’s no contest: mutual fund. Reasons not to buy individual stocks: The deck is stacked against you. Institutional investors, with their human and computer armies, constitute about 70 percent of the volume of the New York Stock Exchange. That means the guy on the other side of the trade knows more than you do. (And even he usually can’t beat the market.)”

Take or decline the rental car insurance? “One word: Decline. If you want to be polite, make it, ‘Decline, thank you.’”

Term life insurance or permanent life insurance? “You need a term policy. The bottom line is this: Permanent life insurance is a lousy investment for 99 percent of the population.”

Allowance vs. pay for chore? “Don’t tie it to chores. Instead, teach your children that certain tasks are simply part of being a household; after all they won’t get paid for making their beds as adults.”

Cheat or stay faithful? “Stay faithful. Few events can torpedo your financial plan like a divorce. To all the other reasons that you stay faithful to your wife, add one more: a single night’s slip-up could easily cost you a million bucks over your lifetime.”

Otter lays out his advice in six chapters: Getting Started, Shelter, Automotive, Investing, Family Matters and Retirement. Each financial question within the chapters is quickly covered in two pages, often with great photos or smart graphics to make his point. His glossy-page hardback is crafted to read like a coffee-table book that you can flip through and read in an hour.

What’s also appealing is that the financial issues aren’t dealt with in the ad nauseam detail that typically befuddles people reading personal finance books. And although Otter gives straightforward answers, he still offers brief pros and cons of certain choices.

I don’t agree with all of Otter’s answers. But I’m with him on the majority of what he recommends. Whether you agree or disagree, he tidily answers the most common personal finance questions with refreshing clarity.

I’ll be hosting a live online discussion about “Worth It . . . Not Worth It?” at noon Eastern on July 26 at washingtonpost.com/conversations. Otter will be joining me to answer your questions.

Every month, I randomly select readers to receive a copy of the featured book, which is donated by the publisher. For a chance to win a copy of this month’s book club selection, send an e-mail to colorofmoney@washpost.com with your name and address.

Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071, or singletarym@washpost.com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to postbusiness.com.

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