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Renter’s Insurance and Why You Need It

If you’re like me, you own your home and have insurance on it.  It makes sense.  What if a tree falls on the house during a storm?  What if there’s a fire?  Insurance is something you never want to need but something you always want to have.

But what if you rent your place?  Is renters insurance really worth it?  After all, the stuff you own isn’t worth all that much.

I had this very conversation with a friend of mine recently.  She was moving into a new place and decided to not get renters insurance because nothing she had was of any great value.  Her tv and furniture is all on the older side.  Sure, she’s got a closet full of clothes (and then some), but she doesn’t have fancy tastes, so none of it is very expensive.  She’s not really into jewelry or fancy electronics or anything like that.  So why bother to get renters insurance?

It’s easy to understand where she’s coming from, and you will hear a lot of people say the same thing.

But just think – if your apartment building catches fire and burns to the ground along with everything in it, where will you be?  You will only have the clothes on your back and maybe the junk that you forgot to take out of your car.  All those clothes you had might not have been expensive when you bought them, but replacing them’s going to cost a pretty penny.  The value of your stuff adds up really quickly, no matter how expensive your tastes.  And even if you can replace your entire wardrobe for $500, do you have $500 to spend on a new wardrobe right now?  Not to mention everything else that you lost.

But you think “Okay, what are the odds of that happening?  Apartment buildings don’t burn down.  And I’m smart, so I won’t catch my place on fire.”  Okay, even if that rings true, you’re still not looking at the whole picture.

Total loss isn’t the only reason to get insurance.  Another friend had a fire in her building.  Her unit was fine, but was significantly smoke damaged.  The whole place had to be gutted, repainted, re-carpeted, and all of her stuff had to be professionally cleaned.  You know what paid for that?  Insurance.

Renters insurance also covers liability issues.  This is an example I gave to my friend.  Let’s say I come over and while I’m there, I slip and fall and get injured.  I have to go to the hospital and end up with a big bill.  Of course, this is all charged to my insurance.  But my insurance company says “Hey, wait, you were at a friend’s house?  Well, we’re going to go after her to cover this because we don’t want to pay it all.”  Doesn’t matter what I say to the insurance company, that’s how they roll.  If she has insurance, her insurance company takes care of the whole issue, deals with the other insurance company, and she doesn’t have to worry.  If she doesn’t… that could be a big headache.

Finally, renters insurance can also cover your stuff when you’re not in your home.  Taking two big suitcases to the airport, only to never see them again?  Renters insurance may be able to help you recoup some costs, depending on your policy.

I’ve had renters insurance or homeowners insurance for well over ten years.  I’ve never had to file a claim.  But that doesn’t mean that I don’t still recommend it to everyone.  Play it safe.

renters insurance

Are You Struggling to Save?

Saving money is tough, but it’s important.  And still, lots of us are struggling to save. We manage to make ends meet, we put away money for our retirements and we pay off our student loans.  But are we doing one of the most important financial tasks: saving for an emergency?

A recently released poll indicates that two-thirds of Americans would struggle to come up with $1000 for an emergency.  Well that makes sense, you think.  Plenty of people are either struggling to make ends meet with low paying jobs or they’re just not financially wise enough to have an emergency fund.  But that’s not the whole story.

The poll grouped people by incomes.  For people making under $50,000, 75% of the households said that they would struggle to come up with $1000 for an emergency.  But when the income category rose to those making between $50,000 and $100,000, the number only decreased to about 67%.  And for the families making more than $100,000 a year, about 38% indicated that they would have trouble pulling together $1000.

What’s the reasoning behind this?  Conventional wisdom says you should have 3-6 months worth of expenses stashed away.  That number can be pretty daunting.  At one point, I definitely had 3 months set aside, but today, I’m not sure I do.  Is that high recommendation what keeps people from saving any money at all?

Are people just not worried about emergencies?  Do they figure they can cut back elsewhere if they suddenly need money?  Or do they simply think that they will put a surprise expense on a credit card (which is what many people end up doing)?  And let’s be honest, no one wants to think about an emergency fund.  It’s more fun to save up for a vacation or buy a new car.

Of course, that’s not to say that people aren’t trying.  The reason many people can’t come up with $1000 isn’t simply because they don’t care to set aside the money.  For many people, saving is a struggle.  The article quotes one person who talks about wages remaining flat while costs rise.  It’s tough when you don’t get a raise but your landlord still raises your rent.   It’s also true that people set aside money to fund a down payment on a house, and they deplete their savings when they purchase.

But whatever the reason, it’s worth it to try to build up an emergency fund.  If $1000 is too daunting, then aim for $500.  Even if you have a credit card and could put an emergency expense on a card.  You will have to pay it off, and why not do your best to reduce the amount of interest you pay.  Let’s say your hot water heater breaks and a new one costs you $1000.  You can put it on your credit card and pay it off slowly, paying a chunk of interest every month.  But if you have $500 set aside, you can pay off half of the bill and pay off the other half over the next few months.  You’ll still be making interest payments, but your payments will add up to that much less.

Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no help at all.

Golden Handcuffs: Money Isn’t Everything

I recently had the opportunity to apply for a position in my company that would have been a pay increase.  Who doesn’t want a raise?

I didn’t apply.

Why not?

Don’t get me wrong, I absolutely did consider it.  The idea of a bigger paycheck is always nice.  But to me, the more important part was the work I would be doing.  I really enjoy my job right now.  The pay is good (could always be better), but more importantly, I enjoy the day-to-day.  I’m not one of those people who says “Oh, my job is so great, I would do it even if I didn’t get paid.”  Because let’s be honest – my favorite part about my job is the paychecks.  If I were volunteering, there were many other things I could be doing.

But looking at this new job opportunity, it just wasn’t worth it.  It was work that I’m not very interested in.  And the money would have been nice.  I thought about all the things I could do to my house that I’ve been saving up for.  (Okay, so it wasn’t THAT much more money, but every bit helps.)  However, what’s the point in having money if you’re miserable while earning it?

While in law school, I learned about the idea of “Golden Handcuffs.”  Basically, that means that you go into a high paying job where you work your tail off doing tasks you don’t really enjoy, but you make a good amount of money.  So you have more money to spend when renting or buying your home, buying a car, taking vacations, and doing all the other fun things you do with your money.  Of course, you have less time at home, so you’re probably paying for services as well, be it a maid service or a lawn service or extended child care.

Then you see an opportunity for a job you would enjoy much more.  But unfortunately, the pay is also significantly lower.  You could take it, but that would mean a change in your lifestyle, and are you really ready to give up that great apartment?  If you’ve bought a house, maybe you can’t afford to make less money because you won’t be able to pay your rent.  And you can’t see giving up the awesome vacations you take every year.

That’s what we call “Golden Handcuffs.”  You find yourself stuck in your situation because you have a too lavish lifestyle.

Is it worth it?  Some people would say yes.  They love being able to spend their money and so they’ll suffer through the terrible day-to-day.

For me, it’s not worth it.  I spend a lot of time at work.  I’m lucky to have great coworkers and a pretty great job.  I can’t imagine spending 8 hours a day (or more, in my case) being miserable just so I can make more money.  Sure, sometimes you have to do what you have to do – you can’t just quit your job because you don’t like it.  You do need some sort of income.  But as you’re looking around, or thinking about applying for that better paying job, take everything into account, not just the paycheck.  Golden handcuffs are a hard trap to escape.

The Latte Factor - Does It Work?

A few years ago, a personal finance “guru” coined the term “Latte Factor.”  The basic premise is that small expenses add up and by simply cutting out your daily latte, you could be saving thousands of dollars each year.  Then, you just invest that money instead of spending it on your daily coffee and voila!  You’re rich.  (Well, okay, not rich, but you have a good amount of money.)

If only it were that easy.  

First off, I don’t know about you, but I certainly don’t drink a fancy coffee every day.  I don’t go out to lunch every day.  I make my coffee or tea at home.  Sometimes I participate in the office coffee club, where 50 cents buys me a cup of coffee with whatever extras I want (creamer, sugar, fancy syrups, etc).  Of course, I drink my coffee black, so this isn’t really a bargain, but I appreciate that it exists.  Most days, I also bring my lunch to work.  I eat out on occasion (lately, more than I probably should), but it’s a treat, not a regular occurrence.

People reading personal finance books, blogs, or forums have probably already figured out that hey, maybe spending $100 a month on coffee isn’t worth it.

Or maybe it is.

I am a firm believer that every budget needs a bit of fun money.  It doesn’t matter what sorts of debts you’re paying off.  Even if you’re living paycheck to paycheck.  You need to set aside a small bit of money for something fun.

Now, that may not be $100 in coffee.  Maybe it’s $1.50 a week to rent a movie from Redbox.  Or $20 a month to spend on downloading music.  Something small to treat yourself.

Why do this?  Because if you only spend your money on requirements and never ever splurge on anything “just because,” you’ll end up busting your budget with a big “just because” purchase.  It doesn’t matter how strict you are on your budgeting.  Pretty much everyone ends up doing it.  Maybe not right away.  Maybe you can make it a few months without any fun expenses.  But sooner or later, it’s going to catch up with you.  And you’ll think “Well, I haven’t spent any extra money in three months, so I can totally afford to buy this $100 thing.”  

Except that you didn’t budget for that $100 thing.  So now you’ve busted the budget and have to figure out where that $100 is coming from.  

If you just factor in a small amount to spend on yourself, on whatever you want every single month, you’ll find you’re in a better place, both mentally and financially.  Maybe you just give yourself $25 a month to spend however you want.  You can save it til the next month, but that money isn’t for bill paying or debt reduction.  It’s for fun.  

And maybe for you, that treat you give yourself is a trip to the local coffee shop with your coworkers every work day or a few times a week.  Maybe you shouldn’t get that $5 frappuccino every trip (not only will it hurt your wallet, that will destroy your waistline), but maybe those daily coffee trips are important to you and bring a smile to your face.  

Cutting unnecessary expenses is a good thing.  But when budgeted properly, those small expenses can also be what helps you keep your financial health and your sanity in check.  So maybe the latte factor isn’t all it’s cracked up to be.


Budget Avoidance

Over the past few weeks, I’ve noticed an interesting pattern in myself.  It used to be that I was so excited to open up YNAB to see how my budget was doing.  I was so proud of myself for staying in my budget categories and saving up for future expenses.

But as of late, I haven’t wanted to look at my budget.  I’ve been avoiding it, to be honest.  I don’t want to open the application.  I don’t want to import any of my recent expenses.

Why?  Because I’ve been spending too much money.  Some of it is by necessity, some of it is because I’ve seen good deals on things that I would be buying over the next few months, some of it has been “just because.”

And that’s not good.  That’s decidedly not the way to budget.  It’s great that I’m tracking my expenses and it’s great that I have a budget.  These are all steps in the right direction.  But then I have to run my budget.  As my boss likes to say, you make a plan and you work the plan.

I’ve made a plan, but I’ve been avoiding working the plan.

I’m not what I would call a compulsive spender.  I know what I’m doing, and I don’t have to be doing it.  But I do sometimes think that I have an issue with willpower.  And when my life gets stressful, that willpower starts to fall by the wayside.  I start spending too much money in areas I shouldn’t be.  I ignore my healthy diet plans in favor of eating out more often (not good for the waistline or the budget).  And it simply isn’t good for me.

We’re in a new month now, and while I could say that my budget starts fresh, that’s not necessarily true.  Because I use YNAB,  I plan to “live on last month’s income.”  That means that all I have to spend in May is what I earned in April.

The problem is that I spent a lot of that in April as well.  I’m significantly underfunded for this month and will certainly be underfunded in June as well.  But I’m going to work to get back on track.  Every dollar helps.  I’m not at risk of being unable to pay for bills, thankfully.  Because I’ve been putting money away every month for some bigger bills that are still months away, there’s a nice cushion in my bank accounts.  But I can’t be relying on that, because if I do, what happens when those bills come due?  I need to be ready.

So now that it’s May, I’m recommitting to my budget.  I’m also recommitting to healthy eating, which isn’t cheap, but eating out hasn’t been cheap either.  I’m recommitting to putting myself first and finding fun in things other than spending money.  There is a lot of fun to be had in the city over the summers and much of it is free.  It’s most definitely time to take advantage of those opportunities.