Importance of Great Products

Citylights18 · ‎07-26-2021

One thing those giving financial advice don't focus on is the importance of great products on your financial health.

Credit card rewards can be part of this. Earning points with a hotel loyalty credit card instead of a 1% cash back earner.

Having discount auto insurance of good quality save you $500 a year over a 10 year period that is $5000 in savings. Keeping home internet costs low can save you $1,000 a year vs. letting promotions expire and paying full rate. Prepaying phone service for a year and no interest phone financing.

I can go on but having great products not only are good for the wallet but also peace of mind where you don't have to worry about it.

iced · ‎07-27-2021

I've typically found that discount/price and quality are not positively correlated, but rather negatively correlated. That is, the old adage "you get what you pay for" tends to ring true. I find this particularly true with appliances, furniture, and electronics.

I agree that getting something that's of high quality is a better return on investment in the long term, but it often costs more in the short term and that's usually all that people look at. What will it cost them right now? What will they get right now? Delayed gratification is once again vanquished by the moment.

An example is a mattress. Some people shop by price, looking for the biggest pillow or foam top mattress they can find for cheap, then throw it out after 5 years or still have lower quality sleep. After looking at a 10-year period and factoring in the 1-2 times they replaced that mattress, plus all the lost time and discomfort from sleeping on a lower quality mattress, they would have been ahead buying a high-quality but more expensive mattress to begin with. In the moment though, they balk at spending $2,000 when they could spend $800 instead.

GatorGuy · ‎07-27-2021

Ironically I thought you mentioning discount insurance was going to hit on how going cheap can cost your MORE money if you are underinsured or don't have quality insurance. I have definitely heard many, many cases where your $5,000 savings over 10 years is wiped out in multiples because of cheap products.

Sometimes you can save money, yet get a similar product by going cheap. Sometimes it can cost you major in the long run.

iced · ‎07-27-2021

@GatorGuy wrote:
Ironically I thought you mentioning discount insurance was going to hit on how going cheap can cost your MORE money if you are underinsured or don't have quality insurance. I have definitely heard many, many cases where your $5,000 savings over 10 years is wiped out in multiples because of cheap products.

Sometimes you can save money, yet get a similar product by going cheap. Sometimes it can cost you major in the long run.

That's my sentiment on it. My auto insurance is not the cheapest I could get, but when someone decided to run a stop sign and hit me, my insurance experience was painless and swift and was worth much more than the 15% I could have saved by switching to Geico.

Citylights18 · ‎07-27-2021

@iced wrote:
@GatorGuy wrote:
Ironically I thought you mentioning discount insurance was going to hit on how going cheap can cost your MORE money if you are underinsured or don't have quality insurance. I have definitely heard many, many cases where your $5,000 savings over 10 years is wiped out in multiples because of cheap products.

Sometimes you can save money, yet get a similar product by going cheap. Sometimes it can cost you major in the long run.
That's my sentiment on it. My auto insurance is not the cheapest I could get, but when someone decided to run a stop sign and hit me, my insurance experience was painless and swift and was worth much more than the 15% I could have saved by switching to Geico.

I pay extra for a low deductible auto insurance plan myself but I don't pay a particuarly high premium.

This thread is thinking less in terms of cheapest option but more the value option. I bought a loaded full sized car back in 2015 for 22,750 and its still worth 13,500 today. I could have paid 40,000 for the same options and still had it be worth only 13,500 today. That is why I'm saying great products that provide you value.

With some of these things like appreciation on the stock market and home appreciation we are all subject to the fed and macroeconomic forces outside of our control. Doing the research to find good financial products though is something you can directly control.

iced · ‎07-27-2021

@Citylights18 wrote:
I pay extra for a low deductible auto insurance plan myself but I don't pay a particuarly high premium.

This thread is thinking less in terms of cheapest option but more the value option. I bought a loaded full sized car back in 2015 for 22,750 and its still worth 13,500 today. I could have paid 40,000 for the same options and still had it be worth only 13,500 today. That is why I'm saying great products that provide you value.

With some of these things like appreciation on the stock market and home appreciation we are all subject to the fed and macroeconomic forces outside of our control. Doing the research to find good financial products though is something you can directly control.

Another interesting take. I'd go the opposite: high deductible insurance as the numbers game says I'll come out ahead. If having a $500 deductible costs an extra $500 per year versus a $1000 deductible, I'll take the $1000 every time as the odds of me being in an accident and paying $1,000 is <100% but the odds of me paying an extra $500/year for a lower deductible is 100%. Even at half that, the odds of me being in an accident every other year is still <100% and the odds of me paying an extra $250/year for 2 years is 100%. I still have the best (and only) chance at coming out ahead with the high deductible. I do the same with health insurance and max out my HSA instead.

The advantage I have in this case is savings. I can absorb a $2,000 auto deductible. People who can't will pay more regularly for insurances because they lack the savings to absorb those higher deductibles. It's literally a case of the rich getting richer and the poor getting poorer.

I don't quite understand the car example. Are you saying two places are selling the exact same car, one for $22,750 and one for $40,000? That's a no-brainer to go with the $22,750 seller.

Anonymous · ‎07-30-2021

I think OP meant buying it a couple years old vs buying it new.

DaveInAZ · ‎08-01-2021

@Anonymous wrote:
I think OP meant buying it a couple years old vs buying it new.

Absolutely! My "work car" is a 2003 Kia that I bought new, but I think I've got my money's worth out of it. But my other car is a 2016 Mazda that I bought in Sept. 2017 with only 18k miles. With used car prices up as much as 40% over last year due to the shortage of new cars because of the computer chip shortage I recently did a cash-out refi, pulling out over $3k in equity and getting a new loan for 4 years at 2.49%; I'll take all the $$$ they want to throw my way at that rate.

With car insurance I think you need to change insurers every few years to keep them honest. I had American Family for years, but they got ridiculous on their rate increases (with never making a claim), so I switched to Geico a few years ago for half the rate. But this year I switched to Progressive, again for half the rate.

The one thing I disagree with the OP on is travel rewards CCs. I only do cashback cards. I rarely travel, but when I do I can shop around for the best rate, and keep my cashback flowing.

Citylights18 · ‎08-09-2021

@Anonymous wrote:
I think OP meant buying it a couple years old vs buying it new.

I mean buying a loaded full sized non-luxury car instead of paying 20,000 more for a luxury brand name for the same features. Making a value new car purchase for 28,000 or 25,000. For most people going overboard on a car purchase is where they get themselves into trouble.

Citylights18 · ‎08-09-2021

@iced wrote:
@Citylights18 wrote:
I pay extra for a low deductible auto insurance plan myself but I don't pay a particuarly high premium.

This thread is thinking less in terms of cheapest option but more the value option. I bought a loaded full sized car back in 2015 for 22,750 and its still worth 13,500 today. I could have paid 40,000 for the same options and still had it be worth only 13,500 today. That is why I'm saying great products that provide you value.

With some of these things like appreciation on the stock market and home appreciation we are all subject to the fed and macroeconomic forces outside of our control. Doing the research to find good financial products though is something you can directly control.
Another interesting take. I'd go the opposite: high deductible insurance as the numbers game says I'll come out ahead. If having a $500 deductible costs an extra $500 per year versus a $1000 deductible, I'll take the $1000 every time as the odds of me being in an accident and paying $1,000 is <100% but the odds of me paying an extra $500/year for a lower deductible is 100%. Even at half that, the odds of me being in an accident every other year is still <100% and the odds of me paying an extra $250/year for 2 years is 100%. I still have the best (and only) chance at coming out ahead with the high deductible. I do the same with health insurance and max out my HSA instead.

The advantage I have in this case is savings. I can absorb a $2,000 auto deductible. People who can't will pay more regularly for insurances because they lack the savings to absorb those higher deductibles. It's literally a case of the rich getting richer and the poor getting poorer.

With insurance I'd recommend low deductables. Yes you could save a couple of hundred a year with a higher deducutable but its not worth it. Where someone is really going to save money is if they can buy a cheaper house and cheaper car. FWIW I decided to spend an extra 250 dollars a year on my home owners insurance to move my deductable from 1,000 from 4,000 a year.

You could argue of course that 2 million can be a fixerupper and bargin in some markets. But usually houses appreciate by the same amount of total dollars. If everything goes up 100,000 and you paid 400k while your neighbor paid 500k you are coming out ahead in terms of housing costs and more appreciation as a percentage.

My advice, especially for a young person starting out is to buy the cheapest thing you can get away with. Then upgrade once you have two incomes involved. A decent condo in a good location is going to be easier to deal with. Then you also have to know when you are ready for an upgrade based on understanding where you are relative to peak income for a profession.

For many they need the graduate degree to make them viable to step up as a buyer. Or they can afford something but in 2 years time they'll be making double. In that case it makes sense to wait and work on your credit/investment profile. I did not get my first credit card until 33 and I feel like that was too late.

A hotel card would be nice for someone single, they rack up the points then when they are dating they've got the perks for a vacation. Even if you don't have the top tier status with a hotel by having the card alone you get some status and higher earning rate when you buy. Cashback cards are alright but they don't confer any benefits beyond the 2% or 3% that you get cash back. Something like NFCU they are giving you more perks in their ecosystem like shopping portals and insurance.