June 19, 2009
When people hear the word "contract," some start daydreaming about signing a multimillion dollar deal with the NFL while others recall how their knees shook the day they signed that first car loan. If you think about it, though, many of our day-to-day decisions involve contracts.
Broadly defined, contracts are mutually binding agreements between two or more parties to do – or not do – something. It could be as simple as buying coffee (you agree to pay $2.50 and the restaurant agrees to serve you a drinkable beverage); or as complex as signing a mortgage to which you'll be tied financially for the next 30 years.
Here are a few considerations to bear in mind before entering any agreement:
Sometimes contracts are formal, signed documents that outline specific conditions and penalties if those conditions are not met: For example, if you don't make your mortgage payments, the lender can foreclose on your house. Other times they are verbal or implied agreements: If the coffee is cold, you can ask for a refund.
It's important to anticipate things that might possibly go wrong, such as:
Financially inexperienced teenagers and young adults often get into this type of trouble, so make sure you discuss the implications of signing contracts with your kids well before they turn 18.
Here are a few additional tips:
Remember, contracts are designed to protect both parties. Just make sure you fully understand all details before signing on the dotted line.
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