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Ask Dave

Save up, self insure

Shelby asks Dave if she should buy coverage offered by the gas and phone companies to cover lines running to her house from the street. Dave says no, and he tells Shelby the best plan for something like this is an emergency fund.

QUESTION: Shelby wonders if it’s a good idea to pay for the coverage offered by gas and phone companies to cover the lines that run from her house to the street. She says she’s not in a financial position to cover any repairs if something were to happen. Dave doesn’t like this idea. He explains why, and offers advice on how to remedy the situation.

ANSWER: No, I would not pay for that sort of thing. And if you’re not in a position to cover it, I would get into a financial position to cover it as quickly as possible. It’s called saving up, and having an emergency fund.

Work your way out of debt, paying off everything except your house, using the debt snowball. That’s Baby Step 2 in what I teach. Once that’s done, you should save up an emergency fund of three to six months of expenses.

I don’t have any insurance on the things that run from the street to my houses. If something breaks, I pay someone to come out and fix it. I so that by using my emergency fund. How did I get an emergency fund? I didn’t give money to people who are looking to sell things like this. Now, are you taking a risk in the meantime? Sure. Something could happen between now and the time you build up your emergency fund. The point is to get your financial act together.

The weird thing is doing this causes you to have more money in the long run. Did you ever hear someone say the rich get richer, and the poor get poorer? There are several reasons for that, and it’s not oppression or that capitalism is evil. Poor people, who do rich people stuff with money, become rich people over time. Rich people who do rich people stuff with money, stay rich people. Rich people who do poor people stuff with money, become poor people. In other words, it’s a behavior thing. It’s a set of habits, values, and choices.

When you get your head above water, you have more margin in your life. And the weird thing is when you have more margin in your life, you make more money. When you have an emergency fund in place, you can raise the deductibles on your insurance safely. What happens to the premiums? They go down! You shouldn’t pay for “gotcha” insurance, like the stuff you’re talking about. Self-insure for these kinds of things.