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giovedì 13 febbraio 2014

Net Worth and Pleasure

via The Simple Dollar:

In a post a few days ago, I made an offhand comment about how I didn’t really receive personal pleasure from seeing my net worth increase, though I once did. A few people emailed me on that subject, so I thought I’d clarify what I meant.

When I first began to overcome my personal finance mistakes, I found that calculating my net worth and looking at the change from month to month was incredibly powerful. It was a single number that provided “proof” that I was making better decisions than I was making before.

An increase in net worth meant that I was unquestionably spending less than what I earned, which is the key to personal finance success. An increase in net worth meant that all of the hard day-to-day choices I was making were actually adding up to something big.

It was exhilarating. Each time I calculated that number, I could clearly see the impact that my choices were having even if they weren’t really evident in my day-to-day life.

Over the ensuing years, however, things changed in my life. I changed careers and moved in a self-employment direction. We bought a house and had two more children. All of our debts disappeared and we started building a nice nest egg.

In other words, I began to really see the impact that our financial choices are having on our day-to-day life. If we hadn’t turned our finances around, I would not be self-employed right now. I wouldn’t be able to be sitting there waiting when my children come home off the bus. We wouldn’t be living in a nice house with enough space for a home office. I would be feeling stress from things as simple as checking the mail.

I don’t have to look very far to see how our good financial choices changed my life.

So, let’s look at those situations side-by-side. When we first started our financial turnaround, I didn’t see those changes in my day-to-day life. I was still working the same job, living in the same place, driving the same automobile.

I didn’t have the milestones in my life to demonstrate the changes brought about by our financial choices.

Today, things are different. I have lots of things in my life that have only happened because of our financial choices. Being financially stable opened the door to the house we own. Being financially stable opened the door to a career change for me, one that lets me help my children get ready for school in the mornings and be there for them when they get home, which is incredibly important for me.

I don’t need a number to show me those things.

It’s those life milestones that show me the incredible positive impact that good personal finance choices have made in my life. Every single day, my life shows me what I’ve accomplished and why I need to keep my eye on the ball.

At first, I needed that number to see that I was accomplishing something. Now? I don’t need that number. I just need to look around my life.

That’s the reward for sticking with personal finance improvement. You eventually begin to see how it affects your life in a lot of ways and when you recognize that it’s your hard work that made it happen, it inspires you to keep going.

I still figure up my net worth every once in a while, but it’s mostly an exercise to ensure that I’m making smart financial decisions. The day-to-day inspiration that I used to get from that number now comes from the realities of my life – and that’s the result of pushing through those years where I was working hard to improve things but I wasn’t seeing any direct reward.

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domenica 9 febbraio 2014

The Risk and Reward of Generics, Store Brands, and “Best Buys”

via The Simple Dollar:

When Sarah and I were really straining to get our finances under control, we went through a phase where we bought the cheapest versions of every food and common household product. We bought cheap coffee, cheap cereal, cheap dishwashing detergent – you name it.

As we used this stuff, we found that most of it did a very nice job. In most cases, we couldn’t notice a difference between the name brand version we used to buy and the inexpensive version we were now using.

Sometimes, though, the difference was disastrous.

I’ve told this story before on The Simple Dollar, but one of the disasters we faced came in the form of garbage bags.

Before the switch, we had purchased premium-level garbage bags and had never had a single problem with them. We were quite used to filling up our trash can to the brim, then easily pulling out the sack and taking it to the dumpster.

When we switched to the cheap bags, we continued doing the same thing – why wouldn’t we? The first bag or two held, but then one of them exploded on the carpet in front of our door, with the bottom completely ripped out of the bag. We had a huge mess to clean up.

After that, about one in every seven or eight bags would blow up. We started double-bagging, which drastically reduced (but didn’t eliminate) the blowouts, but when we did that, we calculated that we really weren’t saving money any more over the expensive bags.

(We did eventually learn that you can almost eliminate the blowouts with cheap bags if you only fill them up to about 50% to 60% of capacity and never put heavy items in them, but, again, if you’re using two cheap bags for every one expensive bag, you’re not saving much money.)

All of this taught us a pretty important lesson: it’s not always the best move to buy the cheapest version. Instead, you should strive to buy the least expensive version of an item that does its job well.

This requires some experimentation. Here’s how we’ve always approached it.

First of all, try the generic version of the product. Buy it first, before ever trying the name brand version. If you consistently buy the name brand version of a product right now, just try the generic or store brand version the next time you go to the store.

Once you’ve tried it, evaluate it. Did it do the job that you wanted it to do? If the answer is “yes,” then you essentially have no reason to not buy the generic version of that product.

Sometimes, though, you’ll find the answer is “no.” At that point, I don’t just start buying random versions at the store. I turn to Consumer Reports.

I use their website – or, if you don’t have a subscription, you can visit your library as most of them have the last few years of CR on their shelves – and look up the most recent comparison they’ve done of that particular kind of product.

I don’t buy the top one. Instead, I buy the one they’ve indicated as the top “best buy” – and I’ll usually take note of all of the ones they’ve marked as such.

In my experience, I’ve found that the product that CR marks as a “best buy” isn’t the cheapest one at the store, but it’s never the most expensive version, either. It’s a middle of the road buy. However, I can’t recall a time when the “best buy” version ever failed me.

When I look at my shopping list and the items that end up in my cart, they’re almost always a mix of generic and store brand items and items that were marked “best buy” in Consumer Reports, with more generic and store brand items than anything else.

Sure, we could afford the name brands for all of this stuff, but why? If the generic or store brand version does the job that I want, there’s no point in buying the name brand version. If the generic doesn’t do the job, why wouldn’t I look for the one that gives the most bang for the buck? For figuring that out, I trust Consumer Reports.

You know, sometimes I wish I still had some of my grocery receipts from before our financial change. Given what I remember of shopping in that timeframe, I’d probably laugh… or cry. I was constantly spending extra money on versions of items that didn’t do the job any better than the cheap versions, and over the course of a year, thousands of dollars went down the drain.

If I only knew then what I know now, our financial state would be amazing.

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venerdì 7 febbraio 2014

Another Look at Personal Finance and Class Warfare

via The Simple Dollar:

A long while back, I wrote an article discussing class warfare and personal finance advice. In short, my conclusion was that you’re making a mistake by mistrusting financial advice from someone just because of an income gap. Financial advice given to someone making $100,000 a year isn’t useless to someone making $25,000 a year because the core principles are the same.

That isn’t to say that there isn’t some personal finance advice that applies better to certain income levels than others. Someone who is completely unemployed, for example, is going to be much more interested in advice relating to government programs and resources than someone making six figures. At the same time, someone making six figures is going to be more interested in investment advice than someone who is unemployed.

Here’s the thing: all of those are just specifics. They’re just different ways of implementing the same principles, and those principles drive financial success regardless of whether you’re unemployed, you’re making minimum wage, you’re retired, or you’re earning a mint.

We’re all in this together.

I’ll give you three examples of exactly what I’m talking about. Here are three key personal finance principles that show up in all of our lives.

Spend Less Than You Earn – The Bigger the Gap, the Better

It doesn’t matter whether you’re making minimum wage or you’re making six figures, you need to spend less than you earn. If you’re not doing that, your financial situation will never improve. If you’re simply hoping that your future self will take care of it, you’re banking your future on an unreliable image. All of this is completely true regardless of your income level.

You can spend less by simply being more frugal and looking seriously at your spending. Are you paying for satellite or cable television? Is your cell phone package expensive? Are you eating out a lot when you could eat at home or at community dinners for much less? At the same time, you can earn more by looking for more revenue streams. Are there side jobs you can do? Can you find another, better primary source of income?

If you do have a gap, you can apply that money toward paying off debt or toward building an emergency fund (see below) or toward saving up for a goal you have in mind.

All of those things apply to basically everyone, regardless of income level. The tactics of cutting your spending and looking for more ways to earn money are the same for everyone.

The Cost of Living of Your Area Is Going to Shape Your Choices

Let’s say you live in Norman, Oklahoma. You earn $25,000 a year, which isn’t too much more than minimum wage.

Let’s say another person lives in San Francisco, CA. How much would that person have to earn each year to match the standard of living of that person making $25,000 in Norman?

The San Francisco dweller would have to bring in $49,138. Why? Comparing San Francisco to Norman, groceries cost 36% more, housing costs 311% more, utilities cost 17% more, transportation costs 20% more, and health care costs 36% more, according to this data.

If you can find a job that pays $40,000 a year at the University of Oklahoma in Norman, you’re going to live better in terms of groceries, housing, transportation, and health care than someone making $75,000 a year in San Francisco.

That’s just a specific example, but it’s one that repeats over and over and over again when comparing places to live in the United States. Someone making a lot of money who is locked into living in an expensive area by their job isn’t really doing much better than someone earning substantially less in a lower cost-of-living area.

Regardless of your income level, it makes sense to live in a lower cost-of-living area as long as your career is supported there. All of us are in that same boat.

You Need to Have an Emergency Fund

It doesn’t matter whether you’re earning a ton of money or you’re earning just a few bucks an hour. If you lose your job or your spouse falls ill or your transmission falls out of your car, it’s going to financially hurt.

Again, regardless of your income level, the only real way to handle sudden emergencies like that is with an emergency fund. You’ve got to have some cash on hand.

Life hands all of us bad cards sometimes. Every single one of us has unexpected obstacles to overcome. Having some cash in the hole makes those obstacles much easier to deal with.

It makes sense for all of us to take a little bit out of our pay and put it aside for those emergencies. It doesn’t matter whether we’re making a mint or making a pittance, having a little money set aside is eventually going to be a life saver.

We’re All Fighting the Same Fight

These are just three examples – of many – that make it clear that, in most regards, almost all of us are fighting the same financial battles.

We’re all tempted to buy things that we shouldn’t. We all struggle with spending less than we earn. We all want to make sure that the rest of our lives are secure and that we can do everything possible for our children.

We all make mistakes. We all fall short of our goals sometimes. We all fall into traps and pitfalls – and sometimes those traps and pitfalls are quite deep.

We all succeed sometimes. We all struggle sometimes. We all have opportunities placed in front of us. Sometimes, we pick up the ball and run. Sometimes, we miss the boat.

Yes, some of us earn more than others, but so many of our choices and so many of the challenges and pulls on our life are exactly the same.

The next time you pass judgment because someone is making less than you or you ignore the difficulties of someone making more than you, stop for a moment and recognize that almost all of us struggle with the same exact things when it comes to our money. Just because someone didn’t have an opportunity or a trap put in front of them at a key moment in their life – or just because someone did – doesn’t mean that they aren’t struggling in many of the same ways that you are and that they aren’t fighting for successes in their own life.

We all want a better life.

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giovedì 6 febbraio 2014

Do the Hard Things First

via The Simple Dollar:

It’s a pretty common principle of time management. When you have a list of tasks to do, choose the one that’s hardest and do that first. That way, you tackle it with the most energy and the freshest mind.

What’s interesting is that many well-organized people use this principle quite well in the short term, but then completely discard it when looking at the long term. When they figure out today’s to-do list, they’ll choose the hard task, but when they look at plans that cover years, they avoid the hard task.

The easiest example I can think of for this phenomenon is retirement savings. Many, many people, when they’re first given the chance to save for retirement, choose not to save anything at all. They choose the easiest part first – not saving anything at all – and save the hardest part for later – socking away 10% or 15% for retirement.

As many as 40% of households near retirement age have no savings at all for retirement – and the numbers get even worse when you look at younger folks.

Your long term goals work almost exactly the same as your to-do list for today. You have more energy and more mental capacity now than you will have in the future, so you should tackle the hardest parts of your goal now, not later.

Retirement savings? Kick that rate up high now while you’re employed and have youth on your side and a strong ability to find a new job if needed.

Debt repayment? The more extra payments you throw at it right now, the less interest you’ll pay over the lifetime of the loan.

Insurance? A plan to get life insurance or health insurance in a few years doesn’t help you if something goes wrong in the next few months.

Yes, it’s hard, especially when you’re younger and your income level is lower.

However, youth has tremendous advantages. You have a much greater capacity to be flexible with your life. You have more energy and more career opportunities. You also have a much longer time horizon, meaning that you’ll have much more time on the other side of that hump.

What can you do to get started? Clean out your closet and sell your unused stuff. Choose the smaller apartment. Make some harder choices today like eating a cheap dinner at home.

Want a specific example? Try out the 52 week money challenge, but knock out all of the highest numbers first – or, better yet, do the entire thing backwards, starting with the $52 week. It’s pretty sweet when you’re finishing up that project and the last few weeks only require you to sock away a few bucks.

You are never younger and fuller of energy and motivation and ability to solve life’s problems than you are right now. Doesn’t it make sense to step up to the plate and knock down some of the more challenging parts of your goals?

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mercoledì 5 febbraio 2014

5 Tactics for Getting a Better Cell Phone Deal

via The Simple Dollar:

This article first appeared on U.S. News and World Report Money.

Cell phone companies want you to sign up for expensive two-year contracts. Why wouldn’t they? It’s money directly in their pocket. They’ll use every sales technique they can to get you to sign on the dotted line for a new contract.

Sometimes, that contract winds up being a good deal, but there are several things you can do to make sure that you’re getting the best deal for the services that you need. Here are five tactics you can use to make sure that you’re getting the best deal.

Use multiple methods when shopping around. If you’re at the end of your cell phone contract, the ball’s in your court. You not only have the ability to choose the specifics of a new contract, you can also jump to a new carrier.

Cellular providers offer phones and contracts in a variety of different ways – online, in retail locations, and via flyers as well. When shopping around, don’t just visit their websites to compare deals. Check out the shops of the reputable carriers in your area.

A valuable tip: before you even start comparing carriers, use OpenSignal to figure out which providers have good coverage in areas where you’re commonly going to be using your phone. There’s no point in getting a cheap cell phone if it doesn’t even work in your area.

Include prepaid phones in your comparison. Many people overlook prepaid cell phones when they shop around and compare packages and prices. For many users, prepaid phones are very competitive in their price structures and many of the prepaid providers are tied directly to larger providers (meaning that they use the network of the large providers).

Check out the prepaid offers available on sites like Amazon.com, then research the providers so that you know what kind of network they have. You may just find that a prepaid phone matches what you need at a much lower price – and without a contract.

Negotiate. If you do settle on a particular offer, nothing’s keeping you from negotiating. You can simply tell the provider that you’re considering switching to them – or that you’re currently shopping around with other providers – and simply ask for some perks.

It’s often useful to come armed with comparable deals from other providers. Simply state that another provider has this particular deal and ask if they can adjust the price on one of their packages to match it.

Remember, the worst thing that can happen is that they say “no.”

Check for a professional discount. Many employers have arrangements with major cellular providers for a discount on their plans for all of their employees. For example, Verizon’s employee plan provides discounts for the employees of thousands of businesses – and it’s easy to see if you qualify.

Check with your employer to see if they have such an arrangement and, if they do, use that as a part of your price comparison.

Ask to compare the plan you’re considering with a no-contract version. If you’re considering signing a contract in order to get a cheap phone, ask the provider what the cost of a non-contract version of the same plan costs. Generally, non-contract plans are significantly less expensive per month, but do not provide a discounted phone.

This gives you the freedom to find an unlocked phone and use it (provided it’s compatible with your provider) or use an older phone that you already have. In either case, it can drastically reduce your monthly cost if you’re willing to spend more at the start of the contract, adding up to a net savings.

These tactics, when used in concert, can significantly reduce the amount that you have to pay each month for your cell phone.

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martedì 4 febbraio 2014

Make Failure Into a Stepping Stone, Not an Excuse

via The Simple Dollar:

Whenever I push myself into a strict diet or a strict exercise regime or a strict set of personal finance rules, I find that I thrive in the short term.

For the first week or so, I’ll hit every benchmark I have within those strict rules. I’ll exercise. I’ll eat incredibly well. I’ll avoid spending an unnecessary dime.

Then, at some point, I fail. Usually, it’s out of thoughtlessness – I just backslide into a bad routine for a moment. I’ll eat something way outside the bounds of what I should be eating. I’ll tell myself I’m going to exercise later today – then I’ll get distracted by playing with the kids. I’ll buy something small on a whim.

Soon after, I’ll realize that failure, and I’ll beat myself up over it. I’ll think really negative thoughts about how I’m hopeless for a little while, then I’ll resolve to get everything back on track. I’ll have a few more days of success, then I’ll fail again.

The cycle repeats itself a few more times, with a smaller and smaller period of success in the middle, until I simply give up.

It’s a common cycle that a lot of people find themselves in when they’re trying to make a major change in their lives. I’ve been through this cycle quite a few times myself, and I’ve come to realize that there’s one big thing at the core of all of it.

I set myself up for failure by adopting changes that offer a very narrow path for success. If you choose life changes that require a significant change from the habits you already have, it’s going to be hard. If you make it so that those changes must be absolute – no backsliding allowed – you’re begging for failure. You need an approach that you can slowly build on.

Instead of saying, “I’m cutting out all food and drinks I don’t eat at home,” simply say that you’re going to cut out those treats three days a week. That way, if something comes up and a friend wants to meet you for coffee on Tuesday, you don’t have to freak out about failing at your goal and you won’t feel like a loser if you do. If you find that this goal becomes trivial, change it to four days a week or five days a week.

Instead of saying, “I’m going to exercise every day for 30 minutes,” simply say that you’re going to work out three times this week for thirty minutes. That way, if you miss an exercise session one day, you haven’t failed at your goal. If you find that this goal becomes trivial, increase the number of days.

In other words, it’s a lot easier to stick with a goal if one mis-step or a simple life interference doesn’t mean failure.

What happens if you fail anyway? If you still find failure, then you should reassess what you’re trying to do.

Failure at a personal goal means that there’s some significant aspect of your life that’s working in opposition to that goal. It’s a sign that maybe you need to work on something else first.

For example, if you find that the reason you’re failing at spending goals is because it’s so easy to buy something incidental with a friend, your challenge shouldn’t be to adopt strict spending limits, at least for now. Your goal should be to separate social encounters from shopping, because it’s that connection that’s causing you problems.

If you find that you mess up on your spending goals because of the ease of online shopping, your goal should focus on your online behaviors.

It’s pretty hard to win a race if there’s a speed bump in the way. Sometimes, you have to stop and smooth out the speed bumps before you can really get going. A failure doesn’t mean you’re incapable of winning the race. It just means that maybe you should stop and smooth out the speed bumps.

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sabato 1 febbraio 2014

Shopping and Tunnel Vision

via The Simple Dollar:

One feature that Sarah and I have decided to add to our dream home is a “den” of sorts. This den would serve as a game room and a party room of sorts, plus it would be a place to house our board game collection, our book collection, and our remaining movie collection.

As I’ve mentioned before, we have a pretty detailed idea of what kind of house we’re going to build, so we’ve actually been thinking about details like how to furnish the house. What will we take from our current home? What will we need to add to the new home?

Any game room / party room will need at least one solid table and we currently don’t have any that will work well for that purpose (we could use our main dining table, but we intend to continue to use that for dining and if we repurposed it, we’d be buying a new dining table). So, this has left me looking for a good table for a game room.

I want a sturdy table that will last for a very long time, meaning I want one made of solid wood that’s well constructed. I’d also like the table to have some features that make it work well for tabletop games – it shouldn’t be too far across the table, but it needs to be big enough to hold a sprawling game. Easy access to beverages without them being right on the table would be very nice, too.

In looking around for ideas for this, several friends pointed me toward this company. I had the chance to examine several of their tables recently and I fell in love. Some of their products are basically perfect for what I’m looking for.

The price tag, though? Painful is an understatement.

Here’s where things get tricky. It would be really, really easy to get “tunnel vision” at this point and begin to focus obsessively on one of those tables. I could keep gazing at their website, imagining one of those tables in my dream home. I’d add in details – friends sitting around it, enjoying each other’s company while playing a game.

Eventually, I’d reach a point where the desire would become overwhelming and I’d decide that I must have this table. At that point, I’d find myself clicking the “buy” button, deciding that I’d figure out how to pay for it later.

Why would I envision that? I used to do it all the time – and I know from talking to readers and reading other articles that many, many people do that very thing. We get caught up in something we perceive as a need, we find the “perfect” solution for it even though that solution is really expensive, and then we talk ourselves into buying it.

Sure, this is another “want versus need” situation, but it’s worse than that. Once that “perfect” solution is found, tunnel vision will often set in and other solutions aren’t even seen, let alone considered.

How do you stop that?

For me, the first method of breaking the cycle is simple. Can I find the same product for a better price elsewhere? Even if the item is basically one-of-a-kind, you can still look around and see if you can find someone who can make you the same thing locally.

This first step is a good one because it doesn’t introduce any compromise on the item itself. All I’m doing is looking for ways to have that exact item at a lower price.

What inevitably happens as I shop around is that I see similar items at much better prices. For example, with the above table, I asked around with a local woodworking group and a few people pointed me to a local woodworker who looked at the designs and said he could make me a duplicate of the table I was looking at for about 30% less. He also pointed me to something similar he could make that would cost about 70% less than the desired table just by losing a couple minor features. It’s still basically the same table, but it would cost 70% less.

I’ve also found success when simply browsing for ideas. Not too long ago, I went to a furniture store and found a table that was surprisingly similar to the table I was looking at for about 75% less. I wasn’t particularly looking for a table, but I was surprised to find such a similar one.

I found several options that will save me a mint essentially without compromising on what I liked about the table.

I’ve gone through the same process with many items: computer tablets, work desks, and work chairs, to name a few. I’ll find an item that’s “perfect” and, for a while, I’ll get “tunnel vision” with that item. The first step is to simply shop around for that same exact item, but in the process, I almost always find similar items that are functionally equivalent. By doing that, I usually end up saving a ton of money and wind up not compromising on the aspects that matter.

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giovedì 30 gennaio 2014

The Best Renters Insurance for 2014

via The Simple Dollar:

In my last post, I shared my take on the best home insurance. With the growing popularity of renting, I conducted some additional research to determine which carriers provide the best renters insurance.

After analyzing several national and local companies, Allstate stands out as the best renters insurance provider. If you want a free online quote, you can get started right away. Continue reading and I’ll explain why you need renters insurance and discuss the major components of a solid policy.

Selecting Allstate as the best ultimately boils down to three important factors:

Policy Management

Coverage

Cost

The other national renters insurance providers that rank just behind Allstate are:

Nationwide

Liberty Mutual

American Family

Who Needs Renters Insurance?

To put it simply, if you’re currently renting an apartment or home, it’s in your best interest to get a renters insurance policy. It’s easy to get a free online quote and learn exactly what your rates will be. Once your policy is purchased, you then have the assurance of knowing your possessions are protected.

Some people mistakenly assume that a landlord’s home insurance policy includes coverage for your personal property. In most cases, this is not true. Chances are, your landlord’s policy does not cover your personal possessions.

College Students

Needing renters insurance as a college student depends primarily on where you live. If you live in a dorm or a rental unit close to your college campus, there’s a good chance you’ll be covered by your parent’s homeowners or renters insurance policy (assuming of course they actually have one of these policies). The same is not true if you rent a house or apartment off campus.

College Student Living in a Dorm

Many home or renters insurance policies limit your coverage as a college student to 10% of your parent’s personal property coverage. To give you an example of how this might work, if your parents have $100,000 of personal property coverage, as an eligible college student you could receive 10% ($10,000) of coverage for your possessions. The exact percentage you’re eligible for varies from policy to policy, so be sure to verify with your parents before you assume you’re covered.

College Student Living Off Campus

If you rent a house or apartment off campus, get your own policy. The best thing to do is start with a free quote and go from there. As a college student, you might not think your belongings have a lot of value, but just the cost of your computer, cell phone, books, and clothes can quickly add up.

Young Professionals

You may’ve been able to get through college using a couch you found on the street, but

chances are you’ve made some improvements to your standard of living. Maybe you bought a new TV, overhauled your furniture, or upgraded your electronic devices. Along with these improvements, you’ve probably moved into a nicer apartment. According to research conducted by the National Multifamily Housing Council, roughly one-third of apartments in the U.S. are rented by someone under 30 years old.

Although it’s not legally required, many property management companies that manage multiple complexes in big cities make renters insurance compulsory. Whether it’s a requirement of your rental agreement, or you’re just taking the initiative, protecting your new investments with a renters insurance policy is a wise move.

Grandparents

If you have a grandparent that rents a home or apartment, you should check in with them to make sure they have some protection. Many seniors are retired and living on a very fixed income. If a major incident were to occur, it could be especially tough for them to get back on their feet.

Older adults also have valuable jewelry or family heirlooms they have collected over the years. Some of these items may have more sentimental value than anything else, but it’s still worth it to protect these items with a basic renters insurance policy.

Finding the Best Renters Insurance

All of the best renters insurance companies provide a similar set of basic coverage options. Knowing that you can get the basics covered, factors like price and the ease of policy management start to take on more importance. The following sections dig deeper into these topics and illustrate why Allstate comes out on top.

Renters Insurance Policy Management

Managing your renters insurance policy really starts with determining how much coverage you need. This is an important part of the purchasing process that you need to get right.

Many of the best renters insurance companies provide access to a simple calculator to help you estimate the cost of your possessions. But the online tools provided by Allstate are a step above what much of the competition has to offer.

To begin with, Allstate’s What’s Your Stuff Worth? tool walks you through several categories like clothing, electronics, hobbies, office and living, kitchen, and more. As you progress through each category, the tool shows you images of common items and enables you to specify how many of each item you own.

For example, in the clothing section, you might specify that you have four pairs of shoes and six pairs of pants. Meanwhile, a calculator in the lower right of the screen keeps track of your running total.

Digital Locker Mobile App

Allstate’s Digital Locker app includes several features that help you manage your renters insurance policy. Perhaps most useful, the app enables you to catalogue your possessions with pictures. You use the app on your smartphone or tablet to take pictures of all your possessions, assign values to each item, and upload the images to your account.

Available on Apple and Android platforms, the app also enables you to:

Organize your possessions by room, category, or in lists.

Provide more accurate estimates by using the Google or barcode search (especially helpful if you’re uncertain of the value of an item).

Take advantage of room and category templates to help make sure you don’t overlook anything important.

Using the Digital Locker app makes it incredibly easy to keep your inventory current and gives you the peace of mind of knowing that if you ever have to file a claim, all the information you need is literally at your fingertips.

With all the tools and resources provided by Allstate, managing your policy is a breeze.

Renters Insurance Coverage

In the insurance world, a “peril” is a cause of loss. Most renters insurance policies are listed as “Named Peril” policies, meaning that your policy will identify exactly what you’re insured against.

Some of the most common perils include:

Theft

Water Damage

Vandalism

Fire

Smoke

Lightning

When you get a renters insurance quote, be certain to review the perils you’re protected against. If you live in an area particularly susceptible to fire or lightning, verify that these perils are listed in your policy.

Types of coverage

All of the best renters insurance companies provide access to four types of basic coverage:

Personal Property Coverage: This includes coverage for items you use on a daily basis, like your clothing, appliances, and furniture, as well as specialty items like your jewelry collection or musical equipment. (You’ll want to look into extended coverage for really expensive items, but more on this later).

Liability Coverage: This portion of your renters insurance policy provides protection when you are legally liable for bodily injury or property damage that occurred as a result of an accident or incident involving you or another member of your household.

Medical Payments to Others: Covers the medical costs for any house guests that are injured at your residence, regardless of whether you are liable or not. Medical payments could include things like x-rays, doctor’s fees, or hospital stays. It’s important to note that medical payments protection does not cover you or other members of the household.

Additional Living Expenses/Loss of Use: Covers additional living expenses if damage to your home or apartment is so severe that you are temporarily displaced. This could include hotels, restaurants, or other similar expenses. Your policy will specify how long you have access to the coverage.

Nationwide is one company that stands out for offering superior coverage options. In J.D. Power’s 2013 U.S. Household Insurance and Bundling Study (Renters) , Nationwide was one of only two companies to be rated among the best in Policy Offerings.

Extended Coverage

As alluded to earlier, there are a few circumstances where additional renters insurance is worth looking into. Extended coverage (also called a floater policy) is appropriate if you have a particularly expensive piece of jewelry, a valuable stamp collection, or other similar item that has especially high value.

Extended coverage is offered by Liberty Mutual, American Family, and other top renters insurance companies.

Renters Insurance Cost

Similar to what I mentioned in my post about home insurance, the best renters insurance carriers provide access to an online quote tool. Getting a quote really is the only way you can see how much it will cost given your unique circumstances. Many first-time purchasers are surprised at how affordable renters insurance is. Past studies by the Independent Insurance Agents & Brokers of America and Trusted Choice Independent Insurance Agents indicate the average price for $30,000 of renters insurance ranges from $12-$15 per month, while experts at the National Association of Insurance Commissioners suggest you can expect to pay $15-$30 for a policy depending on your level of coverage.

I was curious to see how these numbers held up and got quotes from three different companies using the same renter profile. The quotes were generated for $30,000 worth of coverage, with replacement cost, for a rental unit just outside a major U.S. city. Here’s what the monthly rates looked like:

American Family: $11.50

Allstate: $17

Nationwide: $22.42

These rates are pretty close to what the studies and experts suggest, but rates always vary based on your location.

As you can see, the difference in price between the providers will definitely add up over time. If you’re looking for the cheapest renters insurance, the best thing to do is to compare quotes from at least two providers.

Discounts

All of the best renters insurance companies offer discounts. The most common discounts include:

Multi-Policy: Available if you have an auto insurance or other policy with the same company.

Claims-Free Discount: Available if you haven’t filed a claim over a certain period of time.

Protective Devices: Available if you have fire or smoke detectors or a home security system installed. Although there are not as many discount opportunities when compared with home insurance, taking advantage of all available discounts can result in big savings.

Factors That Impact Renters Insurance

Similar to home insurance, there are several factors that influence the cost of your renters insurance premium.

Level of coverage: The level of coverage you choose is one of the major factors that impacts the price on your renters insurance premium. The level of coverage you need is going to vary from person to person. The easiest way to determine what you need is by using the estimation tools provided by Allstate and other top companies.

Location: If you live in an area that has higher crime rates or is more susceptible to wildfire, tornadoes, or other natural disasters, you can expect to pay more for your renters insurance policy.

Deductible: The deductible is the amount of money you pay out of pocket before the insurance kicks in. The formula for deductibles is pretty straightforward: a low deductible means higher premiums; a high deductible means lower premiums. Again, you might be tempted to choose a high deductible, but be sure to choose a level you can realistically meet.

Replacement cost vs. Actual cash value: Most renters insurance providers give you the option to choose between replacement cost and the actual cash value. If you choose replacement cost, you are covered for the actual cost to replace the item that has been lost. If you select an actual cash value policy, the insurance company covers what the item is worth at the time of the loss. In other words, it would be the replacement cost minus depreciation. Replacement cost is the more expensive alternative, but you won’t regret going with this option if you ever have to file a claim.

Is Renters Insurance Worth It?

When you live in an apartment building or a house with multiple units, it doesn’t matter how careful you are — you are only as safe as your most irresponsible neighbor.

When you actually sit back and crunch the numbers, the cost of replacing everything you own can add up quick. This is exactly what makes finding the best renters insurance so important.

Renters insurance is affordable, it’s easy to get, and has a huge upside. Choosing to live without a renters insurance policy may end up being a big financial mistake.

Written by Andrew Hansen

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