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We moved in the spring, and it seems like the move has created as many questions as it answered: What should I do with my old stuff, sell it or trade it? Which digital services do I really need at the new house? Are mortgage-savings programs a good idea?
The newest question is whether or not to get a "home buyer resale warranty" (not to be confused with a home warranty offered by a builder). If you're unfamiliar with these, they're more or less a service contract on various components of your house, such as appliances, HVAC, and water heaters. They are usually considered at the onset of a relocation, but many can be purchased at any time.
The one we're being offered is by American Home Shield. It costs $356/year for the basic plan ($512/year for the "Enhanced Plan") and works like this: when a covered item breaks down, you can contact them by phone or online and request a service call. After the request is processed, one of their "approved and insured contractors" will come out to diagnose and fix the problem. The cost for this "Trade Service Call" is $60.
Sounds reasonable, but let's look at some of the fine print:
- "This Trade Service Call Fee applies to the initial visit by a contract for each covered trade. This initial fee covers any additional contractor visits required for the same breakdown within 30 days of the original service date. Additional charges may apply for some repairs and replacements."
- "... Warranty covers the repair or replacement of many system and appliance breakdowns, but not necessarily the entire system or appliance."
- "... may provide cash back in lieu of repair or replacement in the amount of AHS's actual cost to repair or replace such item, which in most cases may be less than actual retail pricing."
- "... [items needing to be replaced] will be replaced with units having comparable features, not necessarily the same dimension, color, and/or brand."
Hmmmm... you thinking what I'm thinking? That's a lot of fine print. Let me see if I've got this right:
My two-year-old $1,100 Kenmore stainless steel 3 x 3 x 6-foot side-by-side fridge is acting wonky. So I call, a technician comes out to "fix" the problem and I shell out 60 bucks. 31 days later, it's acting up again so I reluctantly make another call. After parting with another $60, tech tells me it's unfixable.
I call AHS and they give me two options: I can either have the $600 it would cost them to replace it with a "comparable" fridge, or they'll deliver me a brand new 2.5 x 3.5 x 6.2-foot Hotpoint bottom-freezer... in bisque.
This is a real possibility.
So let's do the math: $512 for the Enhanced Plan (basic plan doesn't cover refrigerators) + $60 + $60 = $632. So in essence I've either payed $632 in order to get $600 (which isn't usually a good deal) — OR — I paid $632 for a fridge that doesn't match ...have the same features... or fit (which is arguably an EVEN worse deal).
Of course, while this is a possibility, it isn't a certainty. Instead, he could have fixed it the first time he came out and I could have no more problems the rest of the year.
Then I'm only out $572 ($512 + $60) for a repair that, according to AHS's literature, averages $157. In that case it would have been worth it because I... wait a minute... no... no, it still wouldn't have been worth it. I just flushed $415 down the toilet!
And speaking of toilets, the average cost to repair one is $70 and the average cost to replace one is $285. So if my toilet broke instead of the fridge, I just paid $572 to have an old one fixed when I could have spent the same amount and bought TWO brand new ones!
So you can see, the fewer things that break, the more "expensive" this coverage is. If you really want to get your money's worth, you need a lot of things to break. I don't know about you, but I'm not big on rooting for my house to fall apart so that I can get my money's worth out of a warranty. Come to think of it, kinda sounds like insurance... EUREKA! Call it a warranty, call it a service contract, call it whatever you want, but we've discovered the truth: it's just another form of insurance.
Nothing wrong with insurance as long as you know that's what you're getting. So back to my original question, are these warranties a good idea? If the seller pays for it, then sure, why not. But if it's coming out of your pocket then consider the age of the home, its various components, and what exactly is covered in order to make an informed decision. Again, pay attention to the fine print.
In our first home we chose to get one because we were first-time home buyers and it gave us a little peace of mind (which is, perhaps, the biggest selling point). But when we had a plumbing issue within that first year, since it had to do with pipes outside the footprint of the walls, it wasn't covered (said it right there in the fine print and a customer service rep confirmed it for me, unfortunately).
So will we get a "home buyer resale warranty"? Doesn't look like it. The home is only four years old and we have adequate savings to cover any breakages that would have been covered by the warranty. What we could do each year is put the contract fee (or premium, pending how you look at it) in a separate savings account just for home repairs (not unlike what I suggested for pet insurance). That way if we need it, we'll have it. And if we don't need it, at least we didn't wash it down a drain that never needed fixing.
Wanna get out of debt? Start by looking at your biggest expenses and find ways to reduce or eliminate them. For many of us, that biggest expense is our mortgage.
But not for 45-year-old Jay Shafer of Sebastopol, California. Why? Cause Jay has taken downsizing to a whole other level. Jay lives in an 89-square-foot house he designed and named "Tumbleweed." Jay, a former grocery store clerk, now designs these houses for a living. And not only has his mortgage disappeared, his utilities are now under $100 a year. Here's his story:
To be honest, this lifestyle appeals a great deal to me. Not only because of vastly reduced expenses, but also because of the burden of choosing, maintaining, replacing, cleaning, and storing our "stuff."
That said, I wouldn't go near this lifestyle till we're empty nesters because of the following equation:
5 humans + 1 dog + 86 square feet = (Matthew - sanity) + psychiatrist bills + restraining orders
And even once the kids leave home, really, let's be honest, what's the likelihood?
While searching for something else, I stumbled across this ABC News story from October: "Latest Celeb Money Meltdown: Nicolas Cage." The article recounts the financial trials of various celebrities and semi-celebrities who have seen the the financial rewards that accompanied professional success somehow slip away.
Among those on the list:
- photographer Annie Leibovitz ("has struggled to stay out of debt");
- actor Stephen Baldwin (he and his wife "defaulted on over $824,000 in payments to their mortgage");
- baseball great Lenny Dykstra ("foreclosure sale of [his] $18 million California mansion");
- mob-boss daughter Victoria Gotti ("apparently owes $650,000 to JP Morgan Chase Bank");
- actor Willie Aames, former star of 1970s and '80s hit shows Eight is Enough and Charles in Charge ("filed for bankruptcy last year, and his home is in foreclosure");
- actress Jodie Sweetin of Full House fame ("house is in foreclosure...water has been shut off twice").
As for Nicholas Cage, one of Hollywood's highest-paid stars, the ABC report says he "owes the IRS more than $6.6 million in income taxes." A CNN story quotes the actor's former attorney (against whom Cage has filed a lawsuit) as saying Cage needed to earn $30 million a year "just to maintain his lavish lifestyle."
In a court filing, the attorney noted that in 2007 Cage went on a "shopping spree" that included "the purchase of three additional residences at a total cost of more than $33 million; the purchase of 22 automobiles (including nine Rolls Royces); 12 purchases of expensive jewelry; and 47 purchases of artwork and exotic items." Cage also reportedly bought two castles, one in England, one in Germany.
Nicholas Cage may earn millions of dollars a year, but I'm reminded of a line from Dickens:
Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.
The numbers, of course, are relative. Annual income $20 million, annual expenditure $20,600,000 (or more), result misery.
Financial security/stability is far less about how much you earn than it is about how much you spend — and, of course, how you choose to invest any surplus.
I recently read Stop Acting Rich...and Start Living Like a Real Millionaire, the latest book by Thomas Stanley, author of the 90's best-seller The Millionaire Next Door. There was one specific part that jumped out as something to share here.
First, let me point out an underlying truth, that hopefully most SMI readers will immediately recognize: there's a lot more to true happiness than incomes, spending habits, and such. Without Jesus, the rest isn't worth anything, whether a person thinks they are "happy" or not.
With that said, though, it's important to also point out that Christians are not immune to the correlations between money usage and happiness. So don't be too quick to discount the way you handle money as a strong influence on the degree of happiness you feel. The great news in this regard is it's the way you carry out your stewardship duties (my choice of wording) that is found to be predictive of happiness in study after study, not the absolute level of wealth or income you possess.
Back to Stanley's book. Throughout it he illustrates the contrast in spending habits between two groups: those with high incomes but low net-worth (big earners but big spenders), versus those with high net-worth who may or may not also have high incomes.
In his chapter on housing, Stanley goes into some detail about the degree of happiness these groups (and some subsets within those groups) report. Most happiness studies find that factors such as health, loving families, and enjoyable jobs are the most important ingredients to overall happiness. But in his studies, even when these other factors were present, there was still a noticeable split in happiness among the high-income group.
Stanley explains:
Much of their dissatisfaction is found in certain choices the have made. Two key choices are neighborhood and house. Both of these elements influence consumption patterns. What if you earn $200,000 a year but spend like neighbors who earn $300,000? You are likely living above your means. As my surveys and studies have found, those who live above their means tend to be dissatisfied with their lives. Conversely, those who live below their means are significantly more likely to report that they are happy.
He goes on to develop the point that the price of the home is only the beginning. When you live in a more expensive neighborhood, the cost of everything seems to creep up, if for no other reason than the spending habits of your neighbors tend to pull yours upward. Few are immune to that tug (and those who are probably are less likely to buy into the more expensive neighborhood in the first place!).
Stanley is hitting on a theme here that we've mentioned before in this blog, namely that absolute income is not as good a predictor of happiness as relative income. To illustrate this simply, someone making $100,000 is statistically more likely to report they are happy if they live in a neighborhood where most of the neighbors make $75,000. In fact, it's quite likely that person could make more money, say $150,000, and wind up reporting they are less happy — if they live in a neighborhood where most of the neighbors make $200,000.
In case you're tempted to think you would be happy in any of those scenarios, given the high incomes I'm talking about, guess again. The same pattern holds whether you cut all the numbers in the prior paragraph in half or double them.
Stanley has this advice for those caught in this trap, or possibly inching towards it without even realizing what they're about to do:
How can these Smiths [those with relatively lower incomes than their neighbors] find happiness? Get out of Jonesville [i.e., neighborhoods with houses that are a struggle for them to afford]! This is an especially urgent message now with real estate prices plummeting and some tempted to grab a so-called bargain in or around an exclusive neighborhood. Never forget that that nice house in the prestigious community will cost you considerably more than the price of the mortgage, real estate taxes and insurance.
Your ego may take a bit of a bruising by admitting that you don't have the income to live among the glittering, but bruises fade with time, and it's almost guaranteed that your satisfaction with life will increase once you are no longer fighting to keep up with those who can simply run faster.
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