Teaching and coaching involve sharing knowledge on how to do certain things. In the case of personal finances I usually focus on the method for doing something with your money like how to do a budget or how to get out of debt.
But it is also important to share what not to do with your money so you can keep more of it! So today’s coaching post is devoted to what products to avoid in your financial plan.
Here are 5 Financial Products That I Avoid:
1. The Single Stock
I believe investing in the market it’s a great idea. Once you have your financial household in good shape, you should be investing for long term goals such as retirement/college savings and also to build wealth. However, I do stay away from the single stock purchase and focus instead on diversification by investing in mutual funds.
A mutual fund is an investment where thousands of people combine their money to purchase a wide diversity of stocks, bonds or other types of investment. I invest in 4 types of stock mutual funds, so that’s diversification on top of diversification. If all your money is one single stock or only in one type of investment fund, your risk is too high.
2. The 30-year Mortgage
30 years has been the standard length for a mortgage loan. There is not much rhyme or reason to it except that someone a long time ago decided it was the right length of time. However, you can save a lot of interest by using a 15-year or 20-year mortgage instead. With interest rates as low as they are today, the difference in the monthly payment is not that significant but the savings in interest are.
We chose a 15-year mortgage for our home and we are paying extra so we are planning to pay it off early.
3. Extended Warranties
When you purchase a home appliance or a piece of home electronics, you will be met at the register with the offer for an extended warranty for 2-3 years on top of the standard warranty. The sales pitch is that the warranty will cover the costs of replacing or fixing if the item breaks. However, you are better off using your emergency fund to cover the replacement costs in the eventuality that something does break down. There is no need to pay extra for the “protection”.
And frankly, if the equipment is that fragile that it could break inside of 2-3 years, maybe you should be looking at a different brand.
4. The Home Warranty
Here the sales pitch is to address a “major” item such as the furnace or a major plumbing/electrical repair. When we purchased our home about 2 years ago, the previous owners had an existing home warranty so it came with the house. We tried to use it one time and on top of the annual fee of about $500, we had to a pay a service call fee of $75 for someone (of their choosing) to just come and look at the problem.
We canceled the home warranty the next year because it was not worth it. Instead plan for home repairs with with an emergency fund.
5. Whole Life/Universal Insurance
If you have anyone depending on your income, you need to make sure they will be taken care of in case something happens to you. However, the whole life/universal type of policy it’s too expensive.
Your best value is to have 20 to 30 year Term Life insurance. You can get better coverage for less money. The monthly savings can be used for paying down on debt, savings, or investing.
What do you think? Have you used any of these products? What has been your experience? Are there any other financial products you avoid?