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Extended Warranty Fund – Let’s Insure Ourselves

11.13.2009 by Matt Jabs //

Instead of paying “warranty money” that may or may not be used for the intended purpose – set it aside in an interest bearing savings account and “pay yourself to insure yourself!”

I originally stumbled upon the concept of an extended warranty fund on FiveCentNickel.com.  A short while later I saw that Flexo of ConsumerismCommentary.com was also writing about how extended warranties are almost always a bad deal.

When guys in their financial position talk… I listen.

The traditional Extended Warranty

The traditional mindset – the one stores want us to have – is to make your purchase, say “yes” to their offer of an extended warranty, pay them for that extended warranty, then hope that you never have to use it but feel good about the fact that it is there if you need it.

Sounds smart right?  It may be, but there is a smarter way… one that involves you keeping your money and only using it if you have to!  I love concepts that challenge me to think and live outside the box!  This is no exception

The smart alternative to the traditional Extended Warranty

Wouldn’t it be nice if you didn’t have to pay extra for that extended warranty unless you had to?  Good news friend… we can.

All we need to do is change the way we think a little – not always so easy to do right?  Well… this one doesn’t hurt so bad, there is very little change involved.

Rather than agreeing to pay the store to protect our purchase, we are going to pay ourselves to protect our purchase!

It’s that simple really.  When the salesperson offers the extended warranty purchase, gracefully decline but make sure you note the cost.  Now take that amount of money and put it aside into an Extended Warranty Fund that you create and maintain, so that your money stays in your bank earning you interest and is there if you ever need it.

Brilliant right?  I thought so too.

How I used Capital One 360 to create my Extended Warranty Fund

A few months ago we started banking with Capital One 360 and have never been happier.  Because Capital One 360 does not have brick & mortar locations they have much lower overhead costs and thus need to charge MUCH less in fees in order to run their operations.  In fact they are not fee based at all, but follow the old-school banking model of earning interest of loaned money.  What a concept right?

Assuming you already have an Capital One 360 account… follow these simple steps to create a new savings fund:

  • Click “Open an Account”
  • Next to “Capital One 360 Savings Account” click “OPEN NOW”
  • In the drop down list select the desired account type, I chose “Capital One 360 Savings Account – Joint”
  • If opening a joint account, enter the joint owners security information
  • Give your account a nickname (I used “Extended Warranty Fund”) and fund the account from the desired source.
  • Check the necessary boxes and click “Open Account”

Don’t have an Capital One 360 account?  I highly recommend getting one – they are the best bank I have ever dealt with… by far.  Did I mention that I love banking with Capital One 360?

Why the concept may be hard for some to grasp

In America we are so used to paying other people for things that it is hard to break free and choose instead to pay ourselves.

The average American spends the majority of their lives in repayment on borrowed money.  This thought process is a conditioned behavior that has been formed through years of marketing mastery.  If we do something over and over and over and over and over, it will condition our response to similar stimuli.  Paying ourselves to insure ourselves is a similar stimuli that, given a chance, will form within us a healthier financial mindset.

To the skeptical… consider this a challenge.

Start paying yourself to insure yourself today!

If you do not already have one, open an Capital One 360 savings account, create your own Extended Warranty Fund and prove that you are not a conditioned to pay others before paying yourself.

Categories // Money Management, Tips Tags // banking, ing direct, pay yourself

Debt Reduction – Emergency Fund Savings – The Balanced 75/25 Method

07.30.2009 by Matt Jabs //

“The average millionaire can’t tell you who got thrown off the island last night.”  – Dave Ramsey

A little background on the 75/25 Rule…

Recently I have been receiving a lot of questions regarding my approach to paying off high interest debt versus contributing to emergency fund (and other) savings.  This topic has been an orbiter in many of my posts so I figured I would address it directly for everyone to read, analyze, critique, love, hate, smile about, cry over, and provide feedback to.

If you are immersed in debt reduction you are most likely following either the “debt snowball method” or the “high interest first method” of repayment.  Regardless of which method you choose you will almost immediately run into the following question:

Should I build my savings first or pay off more debt first?

The popular speaker, author, and fellow debt slayer Dave Ramsey would tell you to approach this question as follows:

  1. Start an Emergency Fund and focus on building it up to $1,000 – then…
  2. Shift 100% of your available funds toward high interest debt reduction using the debt snowball method – then…
  3. Resume contributions to your Emergency Fund until it can cover 3 – 6 months of living expenses.

As you read on remember the following Dave Ramsey quote, “You can’t go wrong getting out of debt.”  To that end, this post is not an attempt to exploit some “flaw” in Dave’s approach… because I do not see a flaw.  Personal finance is… PERSONAL.  Every situation is unique and each person/family will have their own intimate and unique approach that works for them.

So what works for me?

I am one of those people who likes to see my savings grow… no matter what!  I LOVE to see my debt decrease in HUGE numbers, but I also need to see my savings grow each week.  I feel this way for three main reasons:

  1. Always pay yourself – I do not like to see ALL my money go out each month without paying myself at lease some of it.
  2. $1,000 is not enough for us – we built our initial $1,000 EF and a few weeks later the transmission on our only vehicle died costing us $1,600.  Shortly after that we ran into another even larger unexpected expense.
  3. Balance is always good – when I see 100% of my money going out, but none staying home with me, I do not feel properly balanced.

Combining Dave’s great advice with the 2 statements from above, I set out to do what I always do… come up with a strategy that works for me.

I like to cook, and whenever I have a craving for a particular dish that I have never prepared, I find at least a couple highly rated recipes and combine them into a recipe that suits my own tastes.  For me, it is no different when it comes to debt reduction and emergency fund savings.

With this in mind I developed what I call The Balanced 75/25 Method.

Here is a detailed breakdown of how I balance my Emergency Fund savings contributions with my debt reduction contributions.

  1. Contribute 100% of my available monies to build a $1,000 Emergency Fund.
  2. Once the initial $1,000 is there, start attributing 75% of my available resources to high interest debt reduction and 25% to all my savings funds*.
  3. Once my high interest debt is gone, resume 100% contributions to EF until it reaches $20,000 (6 months worth of expenses for my family).
  4. Once that savings is fully funded we plan to fix all (or at least a vast majority) of our available funds on our low rate mortgage and student loans.

*My current Personal Saving Fund goal amounts:

  • Emergency Fund – $20,000 – (70% available resources go into this fund)
  • Auto Fund – $10,000 – (15% available resources go into this fund)
  • Vacation Fund – $2,000/year – (15% available resources go into this fund)

What about you?

Remember above all things… “You can’t go wrong getting out of debt!”

That said, what plan do you follow?  Do you follow the Dave Ramsey plan to the tee?  Do you follow some other popular debt reduction/personal savings plan to the tee?  Or do you create a personalized plan?

Like this article?  Here are 3 free ways to join the community and follow the progress – Sign up for email updates, Subscribe to my RSS feed, And/or follow me on Twitter.

DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

Categories // Debt, Money Management Tags // Debt, interest, Money Management, pay yourself, Savings

Sound Money Advice for You & Michael Jackson’s Kids – DFA Tip of the Week

07.08.2009 by Matt Jabs //

Michael Jackson's Orange Zipper Jacket

“And he said unto him, Well, thou good servant: because thou hast been faithful in a very little, have thou authority over ten cities.” Luke 19:17

There are many small ways to reduce costs in our every day lives, so to help do just that each week I post a money saving “Tip of the Week”.

This weeks tip involves…ways to boost your savings!

The King of Fads

Back in the 80’s Michael Jackson was not only The King of Pop — he was also The King of Fads.

If a company could get MJ to endorse their product, it would instantly blast off into the realm of over-night success.  Just consider for a moment his orange jacket with 100 zippers pictured.  What kid growing up in the 80’s didn’t have, or at least desparately want one of those?  Where they a necessity?  Was it practical?  Absolutely not… but it was “cool” and that is a testament to the power & influence of the infamous King of Pop!

A lot of fads come & go be it clothing, housewares, automobiles… there is always some new & exciting product that advertisers & culture dictate as “must haves”!  If you pay attention to these trends you will see that all of them come & go with the passing of time.  Most of them don’t even last an entire season… rushing into our lives, then fleeting away just like the passing of another day.

Today I wanted to offer up some tips that will NEVER go out of style! These are sound money tips that can be employed by you, or by Michael Jackson’s kids.  It doesn’t matter who you are or how much money you have, you still need to manage it wisely.

Instead of spending your money on the latest fads & trends, inventory your stuff to see what you already own then make it useful or give it to charity & write it off on your taxes.  Then take all the money you save by not buying loads of new toys, clothes, household items, etc… and establish an automated plan to save your money.  Focus on saving percentages of your money.  Even if you can only save 1%, then save that 1%.  Then establish progressive goals to save progressively higher percentages as time goes by.  It doesn’t matter if you are saving $5 a month, or $500,000 a month — just save whatever you can.  Trust me… you will never miss the difference!

My wife & I use Capital One 360 for our banking needs, which I highly recommend.  Capital One 360 has an awesome feature called their “Automatic Savings Plan” that allows you to automate your savings in whatever way you wish.  We are currently saving 5% of our money, but have progressive goals in place to increase that over time as we pay off more debt & inch closer & closer to financial freedom & independence!

So What’s The Answer?

mj4

Here are my tips for boosting your savings:

  1. Spend less than you earn! Michael Jackson’s kids are being left with a legacy and rumor has it, not a whole lot more.  Just like the rest of us, they need to learn how to properly manage their finances, and save their money!  Remember… no matter how much dough you have, you can only make so many cookies!
  2. Now matter how “little” it is… just make sure you save something every month! As I mentioned above, don’t worry about how much your are saving… just start saving.  You will be amazed how fast it adds up and how you will never even notice that small percentage of money no longer funding your bad spending habits!
  3. Set savings goals! Create both short-term & long-term savings goals… that way you know where you are heading, what you are trying to accomplish, & can receive encouragement as you reach your smaller goals enroute to your more long-term goals.  A few of my long-term goals include reaching $100,000 saved, and also saving 50% or more of my income.
  4. Automate your savings! Take the amount you decided on in tip #2 and set up a plan to automatically save that money every month.  The best advice I can give you is to set it up in some automatic format, so you do not have to think about doing it every month.  See if your bank offers an automated savings plan.  If they do not, consider opening an Capital One 360 savings account which allows for automatic & easy money distribution.  Remember… just set it & forget it.
  5. If nothing else – hide it well! If you’re one of those people who just wants to hide their money… just make sure you hide your money in a safe place.

Remember… saving your money never goes out of style!

Whether you are the ever-famous children of the late Michael Jackson, or if you are just a regular Joe… saving your money is something that will be fashionable until the end of time!

Click here to see all our past DFA Tips of the Week.

DFA is passionately dedicated to helping people break the bondage of debt & work toward financial freedom using biblical principles.

Categories // Money Management Tags // automate, Children, Finances, goals, kids, pay yourself, Savings, totw

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