I've previously described a gift card as the gift that keeps on taking, but other gifts can take from the recipient as well. This doesn't necessarily make them bad gifts, but the point should be taken into consideration when choosing what to give someone. We may have survived the holiday gift-giving season, but now we have a whole new year of gift giving in a tight economy, so these considerations are especially worth repeating.

Gift cards take from the recipient in the form of a multitude of fees and limitations as to where and when they can be redeemed. Many other gifts take by obligating the recipient to spend money. Obvious examples include any gift that requires a maintained subscription or service contract, such as a cell phone, satellite radio, TiVo, etc. Other, less obvious examples include a digital camera, which typically need accessories to operate and cause the user to incur costs to have prints made.

When giving such gifts, consider whether the recipient will see it more as a gift or a burden. Take the person’s ability to pay for the add-ons into account as well. Adding all necessary accessories to the gift or prepaying for a few months of service will help. That way, the recipient can truly enjoy the gift and make a rational decision about whether or not to continue its use and incur its associated costs.

The goal of most gift givers is to bring joy to the recipient on a whole host of occasions throughout the year. Some of the best gifts do have additional expenses and shouldn't be dismissed. I have certainly enjoyed such gifts. It's just that adding expenses is often an unforeseen consequence and might be particularly burdensome on the recipient in the current economic crisis. Think about those expenses when giving gifts to ensure that they do not reduce the benefit of the gift beyond the level you intend.

Have you received a gift that was more trouble than it was worth?

Even though now is an excellent time to buy a car, my wife didn’t get one wrapped in a bow on Christmas morning. Each of the adjectives in the title of this post give an indication of why buying a new luxury car as a surprise gift is such a bad idea. Looking at each of them in more detail will make this even clearer.

New

One of the first rules of personal finance when it comes to buying a car is to always buy used. Some people take this to mean buying certified pre-owned (or like new), while others go for the truly used car. Even if you are planning to pay cash and drive your car for a very long time, buying new almost never works out in your favor.

Luxury

There is nothing inherently wrong with buying a luxury car. Higher quality may lead to reduced maintenance, longer vehicle life, etc. If such factors are your motivation, that’s fine. If the status and prestige of driving a luxury vehicle are your motivation, such a mindset probably enters other aspects of your finances as well. The appearance of wealth is often one of the many hindrances to actual wealth.

Surprise

I cannot imagine spending enough to buy a car without consulting my wife first. We typically discuss any purchase that isn’t part of our yearly budget, regardless of the amount. Even if we had the money saved for a new car, spending such a large amount without her evaluation of the costs and benefits of a particular car seems to belittle her importance in financial decisions.

Gift

Even if you know the recipient’s tastes very well, you probably won’t make all of the same choices he or she would have made when choosing the car’s options and features (including color). Along with providing for his or her transportation needs, you’re also burdening the recipient with the choices you make for as long as he or she owns the car. Such action may also suggest that you do not value the recipient’s opinion or that you know what the other person should like.

If buying a new car for your spouse seems like a good idea, make the decision together and consider a used car appropriate for your lifestyle. If you fall for the advertising that a new luxury car makes the perfect surprise gift, I’ll caution you to carefully reconsider. I always wonder what people who give new luxury cars as surprise gifts do to follow that up. Topping such a gift is an accelerating path towards financial ruin and anything less will likely be seen as a letdown.

What’s the most expensive surprise gift you’ve even given or received and how did it work out for you?

To show the effects of lifestyle decisions on the state of your personal finances, I’d like to discuss two people I know who had many of the same opportunities. Both were excellent baseball players whom I played against in Little League and high school.

Both players were drafted by professional teams in the mid-1990s and received signing bonuses of about $300,000. The first player, Bob (names changed), handed the money over to his father to manage his finances for him. The second player, Dave, decided to manage the money himself. Bob’s father, a banker, allowed Bob to spend a small portion of the bonus on a new car and invested the rest. Dave showed no such restraint and started living the life of a high-profile player.

Bob’s salary started at $250,000 and went as high as $800,000 during his 7 years in and out of the major leagues. Dave’s salary and tenure were in the same range. Though neither player was a star, both had respectable professional careers and lasted longer than many other prospects, who often see little time in the majors.

Bob’s conservative spending and heavy investing has left him with more than enough money to continue his spending habits for the rest of his lifetime. Dave, on the other hand, basically lived from gigantic paycheck to gigantic paycheck during his entire career. As a result, he has two strikes against him. Not only is he used to spending considerably more than Bob, but he also has little in the way of savings to live off of, now that his career is winding down. Dave never was a great two-strike hitter and I fear that he will have trouble in his current financial situation as well.

You might have little sympathy for people making many hundreds of thousands of dollars per year, but remember that careers in professional sports are often limited to just a few years. By forgoing college to pursue their careers, many players must rely on their career earnings to provide for a lifetime’s worth of expenses. Players do receive retirement medical benefits with just one day of service and a pension with 43 days of service. According to Cash Money Life, the minimum a player, eligible for a pension, will receive is $1,000/mo, and it maxes out at $180,000 for players with 10+ years of service time. Pensions begin at age 62.

It isn’t just the opportunities that we are presented with in life that dictate our finances; it’s also what we do with them. It would be easy to assume that someone playing professional baseball at the highest level would have few financial concerns. In reality, the rule that it’s cash flow, not income that dictates financial success holds true in all cases. Those with short careers should try to live not only within their means, but also to spend like someone making the equivalent amount of career earnings over a full lifetime of work. If you work half as long for twice the money as someone else, your spending should be roughly the same if you want to achieve similar results. Saving large amounts throughout a short career would almost certainly increase your chances of success.

With the steady stream of bad news coming at us from all directions, it’s clear that the financial crisis is taking its toll on the economy. That being said, many of us are no worse off and may be able to take advantage of the current situation.

In many areas, prices have declined significantly. From car dealerships to retailers, there are certainly some great deals out there. A sagging economy may raise your risk of job loss, but if your job remains secure and your rent or mortgage payment is unchanged, declining expenses should actually place you in a stronger financial position. The rapid decline in gas prices has also had a significant positive effect on many household budgets as well.

Just like falling home prices only affected those trying to sell their homes, or perhaps those with large home equity lines of credit, so too do many of the negative attributes of the crisis only affect a small percentage of the population. The major declines in the stock market are disconcerting, but mainly for those who were preparing to sell soon. Buy and hold investors with a longer investment timeframe are gleefully buying up as much stock as they can get their hands on while prices remain low.

The negative effects of the economic crisis are significant and will hurt many families’ financial situations. I certainly don’t mean to downplay these effects. Rather, I ask you to consider whether you are actually any worse off. A surprisingly large percentage of the population will likely find themselves in the same, or better, financial situation despite the current crisis. Taking a look at the numbers and determining what, if anything, has changed in your life will help you determine the personal effect of the crisis. Discovering that you’re actually in a stronger position will help to balance the bad news that, though inapplicable to you, still seems to come from all angles.

Have you been affected positively or negatively by the current financial crisis?

It can be frustrating when you do everything right and still don’t get the results you expect. This experience can be largely attributed to the fact that there are influential factors beyond your control. Identifying those factors will help you to prepare for the possibility of plans going awry despite your best efforts.

Here are a few types of factors that may affect your personal finances that you can do little about:

Market Forces

Even those who thoroughly believe in efficient market theory will concede that markets often behave in irrational ways. All of your assumptions about an investment can be correct and the market may still not react as expected. Factors like interest rates, consumer confidence, state of the economy, and job cuts can also throw off your plans.

Birth Factors

The family you grow up in and the financial habits of those around you can significantly define your sense of normal behavior. The country in which you are born, your religion, and your citizenship are also influential. Studies have even shown that your birth order within your family can have a large effect on your career.

Acts of God and Man

Even if you survive market forces and birth factors, you are still at the mercy of acts of God and man. Everything from natural disasters to terrorist attacks, car accidents and failing health can have a major impact on your finances and investments.

As much as we might like to convince ourselves that we control our own financial destiny, there are simply too many external factors to allow that to be the case. Being in control of those aspects of our personal finances that we can influence puts us in the best possible position to weather unfavorable changes in those aspects we cannot. Separating these two types of factors will allow you to focus your energy in the right areas and worry less about things beyond your control.

What other factors beyond your control have influenced your finances?