One rule to protect your assets from financial loss is to avoid making bad financial decisions.
It’s a rather odd observation (which many may find unsettling), but some people claim that there must be some hidden meaning behind the word transposition between “Santa” and “Satan”. I bring this up because I’d like to use the metaphor of good and evil to describe some aspects of personal finance. Let’s face it, man or woman is capable of the best and of the worst, and that has never been as true as in the mysterious world of finances.
Watch out for financial vultures! Image by Hans S
Avoid Making Bad Financial Decisions
Being able to avoid making the wrong financial decisions is easier said than done — just ask the many investors who got bilked by Bernie Madoff. On many occasions, it seems like the recognition of our financial mistakes occur in hindsight.
The Ponzi scheme also known as the Madoff scandal that reached the staggering sum of $50 billion has affected millions of investors who forgot the holy mantra of “If it’s too good to be true, it’s too good to be true.” I readily confess that I have let my greed overcome my reasoning a couple of times, with disastrous results. Now that I am considered a senior citizen (I see myself as mature), I want to alert all on the various tricks, legal or not, that very smart and unscrupulous people keep designing constantly (there is a sucker born every day, according to Groucho Marx).
Extended Warranties and The Upsell
For example, my 2005 van has reached the end of its 3-year warranty, and presto, the mailbox keeps ringing with dire warnings of imminent catastrophe: “Buy our extended warranty NOW, don’t WAIT! Do you know how much a new transmission will cost you? Hurry, don’t miss this last opportunity to protect your investment!” They conveniently forgot to mention that the transmission has a much longer original warranty than the chassis. Do not fall for these doomsday warnings; all they want is your money. When the time comes to actually pay for a repair under warranty, these companies find all kinds of excuses not to pay you: “You did not perform regular maintenance on the vehicle, sorry!”
You are much better off saving that premium and putting it in a separate high yield savings account (like EverBank’s Money Market Account). When and if the time comes to pay for repairs, you’ll then have the cash to cover it.
Beware The Bait and Switch
The same applies to the extended warranty for your house; when you consider the deductible, the minor repairs do not justify a special warranty. Regulation of these products is spotty. Some states hardly supervise home warranty companies at all. Others, like California, regulate them more closely. Home warranty companies in some states have shut down abruptly, leaving homeowners with nothing to show for their premiums. You may want to check on your state’s regulations before signing a contract.
Do evaluate very carefully those things that you’re thinking of placing under extended warranty. Take for instance your air-conditioning unit; it has a 5 year original warranty on the compressor, which is its most expensive part (around $1,200). The others are quite affordable if you remember to have an expert inspect the unit every year ($100 where I live). Maybe you can get away without a warranty if you instead focus on proper and regular maintenance of your expensive items.
Again, prevention is the mother of all expensive gadgets, including your car and your house. Don’t forget that central A/C and major appliances should last you years in the double digits, some as much as 20 years.
Protect Your Assets From Financial Loss: Don’t Spend For Stuff You Don’t Need
There are expensive things you may not need or necessarily want, but which salespeople try to persuade you into thinking that you should buy or own.
For instance, travel clubs and timeshare companies can be especially dangerous, for they prey on gullible customers by using strong-arm tactics to convince their victims. I was once invited with my wife to attend a timeshare event with the appealing lure of a free cruise, which was promised if we attended. We sat there for almost an hour listening to the “extraordinary” value of investing in timeshares and traveling anywhere in the world. And then came the real pressure; for a measly $6,000, we would become members of this glorious, sophisticated club that would deliver wondrous benefits, including the cruise. Aha! Sounds too good to be true….! Needless to say, we escaped from the trap as fast as we could, but several couples fell for the scheme and signed a check, only to regret it the next morning.
My tip: Make sure you perform extensive due diligence before purchasing a product, and that it’s something you want to buy and not something somebody says you ought to buy. When it comes to your money, make sure you keep a close watch on it; be aware of the sharks and financial vultures in your vicinity that may want a piece of your net worth.
Along the same lines, you must watch out for fraud — as get rich quick schemes are a dime a dozen. My parting thoughts? Avoid scams and watch out for false advertising to avoid becoming a scam victim!