Wednesday, 04 February 2015 18:13

Auto Insurance and Debt

Written by  Dave Ramsey
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Q. I’m following your plan and trying to find different ways to save money. What’s a good way to decide whether or not you need full-coverage insurance on an automobile?

A. I think you should look at a couple of things. First, you need full-coverage or collision if you don’t have a lot of money, because you’ll end up walking if the car gets totaled. You need this coverage even if it’s a $2,000 car. You might keep the deductible a little high to save on premiums and then, if something unexpected happens, you can cover the out-of-pocket expense with your emergency fund.


Let’s say you have $50,000 in savings. You’re driving a $5,000 car, and you decide to drop collision coverage because you’re thinking if you total it you can just write a check and replace the car. You can, but then you have to look at the other side of the coin. What does this collision coverage cost per year versus the $5,000 risk you’re taking?


I’ve run those numbers a few times, and generally I find collision insurance to be a pretty smart buy!



Q. My mom and dad always told me to live below my means, but they never showed me how to make it happen. I’ve gotten out of debt and fallen back in several times. I want to get control of my money and stop busting my budget. How do I keep from falling back again?


A. It sounds like you’ve taken a serious look at your situation, and you’re  smart enough to know it’s not working and you want to do things differently. Well, this is a great time of the year for changes!


Years ago when I crashed and burned financially there were a few strong emotions that spurred me towards change. One of those was disgust. I realized that what I was doing was stupid, and that I was tired of living that way. I made a conscious, proactive decision that things were going to be different.


The second emotion was fear. I was scared to death that I’d be broke for the rest of my life. I don’t think you should ever live your life in fear, but a reasonable, healthy level of fear can be a terrific motivator.


The third thing was contentment. Marketers try to sell us on the idea that we’ll be happier if we just go out and buy things. When we have this stuff crammed down our throats all day long, rapid-fire, it can affect our level and perception of contentment.


One of the practical things I did was to stop going places where I was tempted to spend money. When you have to go out, make a list of only the things you need and take just enough cash with you to make the purchase. Spending money on a bunch of stuff you don’t need, and probably don’t really want, isn’t going to bring you contentment.



Last modified on Friday, 13 February 2015 18:18
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