You’re at the checkout counter about to make a big purchase. After the cashier scans your item, she instinctively asks, “Would you like to add the extended warranty for only $50 more?”
Immediately you start sweating. You’re spending a lot of money and want to make sure you protect our purchase. But is the extended warranty really worth it?
The answer is no.
The Odds of It Breaking Aren’t in Your Favor
Whether it’s a new television, kitchen appliance, or vehicle, an extended warranty is a waste of your money.
Try and think of a time when you actually used the extended warranty you purchased.
I’ll wait right here while you think…
Can’t think of one? Yeah, I can’t either. The truth is the odds of your purchase breaking while still under warranty isn’t very good.
That’s why manufacturers offer them in the first place. They know that 99% of warranties purchased won’t actually need to be cashed in. This means they get to put most of that warranty money in their pockets.
Now some of you may be screaming at your screen about the extra warranty on your cell phone. More specifically; Apple Care. However, things like Apple Care may not be as good of a deal as they seem.
Last year I dropped my iPhone and the screen shattered. I took it into the Apple Store and they were able to fix it. I paid $129 to repair the screen since I didn’t have Apple Care. If I had Apple Care, the cost would have been $29.
Yes, I’m aware that’s a $100 difference. But how much does it cost to purchase Apple Care in the first place? You guessed it; $100. Either way I would have spent $129. I would personally rather not pay $100 up front just in case I break my phone. I’ll just wait and see if I end up needing it.
Now Apple Care does cover up to two incidents, but the odds of your phone breaking twice is highly unlikely. I’ve owned three iPhones over the past 6 years and this is the first repair I’ve had to have.
If the Product Needs a Warranty, You Probably Shouldn’t Buy It
If you’re that worried about your item not lasting a couple of years, maybe it’s not something you should be purchasing in the first place.
Try this; the next time you’re in the check-out line and they ask if you want the warranty, ask them, “What’s wrong with the product?”
Any good employee will respond with, “Nothing! This is a great product!”
“Well if it’s a great product than why would I need the warranty? Do you think it’s going to break?”
At this point they will only be able to answer with a blank stare. Most stores have their employees pushed extended warranties. If it’s available for your product, they’re going to try and convince you to buy it. Why? Because they make tons of money on them.
If it’s a quality product, it shouldn’t need protection.
Take a Look Around
Still not convinced? I want you to try this. Walk around your house and write down every item you have that you could have purchased the extended warranty for (even if you didn’t end up buying it). This includes furniture, televisions, appliances, computers, and any other electronic you own. Don’t forget things like ceiling fans and yard equipment, too.
Now that your list is nice and long, go ahead and pretend you spent $50 on each item for an extended warranty (some may have been more, some may have been less. $50 is a good average number for this activity). So, for example, if you have 20 items, your total would be $1,000 spent on warranties.
Now, put a star next to each item for which you actually utilized the warranty. Let’s say you only had to cash in on that $400 television. You’ve spent $1,000 total and only needed to cash in on that $400 item. Where’s that other $600? In the manufacturer’s pocket.
I get it; warranties add a certain level of security to our more expensive purchases. If that computer were to break, most of us don’t have the money on hand to just go buy another one.
Luckily, I have a solution. A good one.
From now on, when the cashier tells you how much the warranty is, kindly say, “No thank you.” Then, take the amount for the warranty and put it into a side account. This could be a piggy bank at home or a separate savings account at the bank. If you do this for every purchase, you’ll end up with a good chunk of money set aside.
We’ll call this your “warranty fund.”
Now, if one of those items happens to break, it won’t be covered under the extended warranty. However, you now have your warranty fund to cover the cost. Simply take out the amount you need and replace the item with cash.
I told you it was a good solution.
I am a financial coach that is passionate about working one-on-one with people and helping them regain confidence in their finances. If you want to completely change your quality of life, I’m here for you! Email me at firstname.lastname@example.org to find out how I can help!
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