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Why You Should Consider an Extended Warranty as a Financial Budgeting Move

 

October 27, 2020 (Investorideas.com Newswire) There is no such thing as a free lunch unless you take someone else's lunch. But without condoning theft, what are some of the best financial budgeting moves you can make in this age of uncertainty? Well, it turns out the taking steps to reduce risk in your life is the best bet.

This could include wearing a mask and steering clear of crowds. It could also involve spending a little bit to cover the cost of potential repairs in the future. This might sound counterintuitive as the time-value of money says that the money you have today is worth more than the money you may have in the future.

But, if that were always the case, then you would never pay for insurance or other forms of coverage. This includes getting an extended warranty for your car. Strictly speaking, now might not be the best time to buy a new car - unless automakers give you a zero-interest loan for 84-months. If that is the case, then it might make sense as long as you do not mind being locked into a monthly car payment for what will seem like forever.

If you are considering keeping your car longer, then you also need to be concerned about the potential ramifications of that car. After all, every day you drive your vehicle, the chance that a mechanical failure will happen increases.

Granted, cars are so well built these days that most people rarely have to change their engine or transmission, but if you could insure yourself against that risk for a fractional cost, then why wouldn't you?

Still not convinced. Well, are some additional points to take into consideration when thinking about an extended warranty as a financial budgeting move.

1. If the Cost Will Create Financial Stress, Then Shift the Risk

The old side-step, there is no better way to make sure that any "unnecessary" financial losses do not impact you. If you are actively trading, then you do this all of the time by placing some of your money in hedges to make sure any losses are covered.

If you are investing in property, then you get insurance. While this move is less liquid, in theory than a hedge, it will keep you from getting wiped out by a financial loss.

So, why not do the same thing when it comes to your finances? Keep in mind, you can get an extended warranty at almost any time, though in many cases, the coverage only starts after a waiting period.

2. The More It Cost, the More You Have at Risk

Are you sensing a theme? Yes, considering an extended warranty is all about measuring your risk appetite. For many people, their car is the second most expensive item they will acquire - assuming they don't have a second house, a boat, a plane, or a Rolex Day-Date President.

If this is the case, you might want to consider protecting the item against any financial loss. Notice, I did not label this expense an asset. Yes, cars are considered "assets," and they do have some value if you decide to sell it.  Most cars, just like homes, are not assets - especially if you need to finance the purchase as it will probably be worth little to nothing by the time the loan is paid off.

3. Do Not Get Caught Empty-Handed

Cash is king, and while there is an argument for saving the money you would spend on an extended warranty, this strategy only works if you never have to pay for a repair. As such, getting the right amount of coverage could ensure that you do not get caught empty-handed.

The idea would be to get the coverage that does not impact your savings plan while paying for the bulk of a major repair. This would protect your cash from getting wiped out, or given we are in a negative interest rate environment, give you the extra money you want to invest while making sure you will not face a liquidity crunch due to a car issue down the road.

4. Take Your Time and Make A Decision That Is Right for You

As mentioned, the decision to get an extended warranty comes down to risk. How much cash do you have at stake in your car, how much of your savings would be risked if you needed to make a significant repair, and what is your tolerance for these risks?

However, we live with risk every day. As such, you have time to make a decision that is right for you. If you want to know more about what an extended warranty would cost, you could visit this website for a free quote. Again, the decision is yours, but you need the information to make sure you have taken all of the consideration into account.

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