The House Always Wins & Why Cash is King

 

 

 

 

 

 

A few posts back I talked about the two types of emergency funds – Short-term and long-term. Those funds keep you out of temporary poverty when bad things happen, allowing you to borrow at zero interest from yourself.

There is another arrangement that will save you dollars and headaches over time.

 

That is to become your own insurance company – with the smaller stuff.

I am talking about extended warranties, care/maintenance plans, and insurance for various gadgets and products: Your car, home appliances, TV, Printer, smartphone, laptop – you name it.

❌ Because the house always wins. If this weren’t the case, there would be no offer.

These offers are preying on your irrational fears of “what if”, and sold under the disguise of making life easy – “Just call and we will take care of it”.

In reality though – it is not easy. There is always fine print and 1-800 numbers with menus and wait times. They will wear you out – we’ve all been there.

Instead, categorically say no thanks. Instead, use the money you would have sunk into those pits to fund your own warranty fund. Here you can bolster your existing emergency fund or open another high-yield online account dedicated to the purpose.

You can scale this strategy up.

For instance, you can consider lower insurance premiums by accepting higher deductibles for your car or home insurance. For car insurance, you may consider skipping the collision part altogether on an older high-mileage car that has little dollar value.

You can also extend this strategy to deductibles on your health insurance, but this is an area of more caution and consideration and is best when implemented alongside an HSA (Health Savings Account). Check the library for post on that topic).

In essence, you simply become your own insurance company on the smaller stuff. The risk does not change (who knows what will happen…it’s all statistics), but the cost of insuring against that risk is lowered because you are managing your own insurance on a non-profit basis with no middleman, paperwork, or 1-800 numbers to kill your soul.

 

A little side bonus is that as your fund grows it will also yield interest.  

❌ Dealing with warranty and insurance companies complicates life.

✔ Half of financial coaching is about simplifying life.

✔ Cash makes life simple.