Whenever you go to a store or a dealership the salespeople focus in. They have their defined list of tactics to get the sale. Don’t be fooled by their tricks and be cautious about who you trust with your money:

1. Calls you by your first name often – By using your first name they are trying to establish some trust with you so it can be exploited.
2. Mentions their family - Joe the sales guy is out to get you but not Joe the family man. He’s a regular guy just like you and will give you the best deal. Not!
3. Last one in stock – Its a pressure tactic to get you to commit to a sale. If at any point you feel pressured you should leave even if it is the last one in stock.
4. Have another offer – Another common pressure tactic. If there is another offer then congratulate that person and move on.
5. Special promotion today only – This is the third pressure tactic. Once again just walk away if you are feeling the pressure. There will be other promotions and you will get your item at the price you want.
6. Tells you what you need – This applies to both good and bad salesmen. With a good salesman you go in for a minivan and walk out with a minivan with all of the features you need. With a bad salesmen you go in for a minivan and leave with a Porsche.
7. Talks himself up – A salesmen will try to talk about how great of a sales person they are and the kind of figures they put up. They are trying to draw you into a false sense of security. Because he puts up great numbers doesn’t mean he is giving you the best price.
8. Spin the financing – They quote the financing price using longer periods or weekly payments to make it sound cheaper then it is

Talk Back:
Are there any other sales tactics that you’ve experienced ?

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It’s quite common in the personal finance community to be “hating” on the extended warranties. Some of the main points people make about warranties are the “warranty costs more then the item” and “if it breaks it will do it within the first 6 months and will be covered under standard warranty”. Now I don’t necessarily disagree with these statements however they always seem to look at warranties from a negative perspective.  Warranties are just another form of insurance and when properly accessed are a great way to protect yourself.

Things to consider

• Cost of the item – Generally speaking the original cost shouldn’t have that much of an impact on your decision to buy an extended warranty but I decided to list it first because it is important emotionally. If you’ve gone out of the way and purchased a high end item the last thing you want is it breaking right after the standard warranty runs out. This can definitely be a stressful and frustrating experience that seems to increase as your original purchase price increases.
• Servicing Your Needs – When you made the decision to purchase this item one of the things you should have done was decide what your needs where and how this item will meet those needs. Well in order to get an extended warranty you should understand how this item will continue to meet those needs and for how long. This may require a deeper look at the industry and determining what major technology shifts are on the horizon. This will help you decide how long you’ll be satisfied with the item and therefore the length of warranty required.
• Repairability – This is a real “black box” for people. Before making any purchase you should always do research at what it costs to repair an item. You will need to know cost of the components, cost of the labor and difficulty of repairing items. An example that I use all the time is PC vs Laptop. PC’s easily come apart and components are relatively cheap. Laptops on the other hand are small, difficult to take apart and the components can get expensive.
• Cost To Replace – If the item retains its value then your the necessity for a warranty becomes greater.  Or if you purchased a higher end item then it stands to reason that you will probably replace it with an item of equal cost. In eihter case it will cost you a pretty penny to get a brand new one so a warranty is a good mechanism to protect yourself from an unplanned purchase.
• Cost Of The Warranty – There is no single answer for this. This value will change based on the various criteria outline above. Obviously the cheaper the better.

An example

I recently went through this process and decided to purchase the extended 3 year warranty on my 42″ Sony XBR 5 TV. Here’s I how I came to the decision:

• Cost of the item: The TV cost us $2600, which is no small amount especially since you could get a similar sized LCD at the time for $900.  I have a hard time dealing with a product that turns out to be a lemon and get easily frustrated when it happens. I needed peace of mind with such an expensive purchase.
• Servicing Your Needs – This TV has all the bells and whistles at the time of purchase. It had the latest refresh rate and a one of the best contrast ratios. Now there are TVs with better options but what I have right now is good enough. I’m not enough of a videophile that I’ll notice minor technology advancements. Not to mention when the warranty runs out in 3 years we will most likely be moving out of our condo and into a home. When that happens we’ll probably be purchasing a second TV with the latest upgrades so I need the current TV to last until then.
• Repairabilty – LCDs are very compact in the back and are difficult to repair. Usually even if something small breaks it will require the replacement of a much larger component to fix it. My father in-law has exactly the same TV and had to get it repaired. If he didn’t have the warranty it would have cost him $1800 which is a staggering amount when you take into consideration the cost of a new TV.
• Cost to Replace – If this TV broke to the point where it wasn’t worth it to repair then I would probably go out and spend another $2600 on a similar caliber TV. I’ve had crappy TVs in the past where the different shades of black all look the same and you can’t make out anything in a dark scene. I’ve been there and done that so I’d definitely spend the money on a good TV.
• Cost Of The Warranty – The extended warranty cost $350 for 3 years. That is a mere 14% of the total cost of the TV. Considering everything above I felt this was a worth while premium to pay for the piece of mind.  Had the warranty cost more then that I probably wouldn’t have gotten it but I felt the price was reasonable.

Conclusion

There are a lot of warranties out there that are big rip offs and aren’t worth a second thought.  However just blindly turning them down is careless as well. Hear out what the warranty covers and what it costs. Consider the criteria above and you may find its worth the extra bit of cash to protect investment.

Have you ever bought an extended warranty  and why?  Do you blindly turn down the extended warranty options ?

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Monday night was the beginning of a 20 hour shift for me. I started at 10PM Monday and finished at 6PM Tuesday.  This isn’t the first time I’ve worked these sort of hours  and probably won’t be the last. The hours are somewhat excessive so I’m never surprised when I get asked “Why do you do it?”.

Why I do it..

I do it because I am capable and while I am capable I will work as hard as I can to meet my goals. It’s really that simple. From my perspective I have very little holding me back. There are people who travel the world because they don’t have responsibilities preventing them from doing so. This sort of logic applies to working as well. By working and earning as much as you can before things like marriage and more specifically kids come into the picture you can establish yourself on sturdier financial footing. Going forward in life I will be comfortable knowing the following:

• That I have a fully funded emergency fund
• That I have a substantial RRSP which will have 25 years to compound annually
• That I have a healthy investment portfolio that can grow for 25 years
• That I will have plenty of equity built up in our home by pre-paying our mortgage and lowering the length of the mortgage

These are the reasons I do this. For me it is worth the short term strain for the long term peace of mind.

A little parable

Going along these same lines I want to tell you about someone I use to work with. This person had an uncle who owned 2 hotels. He also mentioned that his uncle was just at the beginning of a 6 month vacation around the world. Upon hearing this I made a comment about how his uncle was living the dream. He decided to fill me in on his uncle’s secret to success. It came down to choice. At a point in his life he had to decide “Do I want to work 80 hours a week for 10 years or do I want to work 20 hours a week for 40 years”. With life you get out what you put in. In this case he sacrificed for the short term to live well in the long term. This was his decision and it may not be the same for everyone. I’d like to pose the question to you:

Would you work 80 hrs/week for 10 years or 20 hrs/week for 40 years? In either case you end with enough money to retire comfortably be financially independent for the rest of your life.

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There always seems to be a lot of confusion about what an account type is and what an investment type is. People seem to think that the only thing they can get is an RRSP savings account or an RRSP GIC and don’t fully understand how those are different than a regular Savings account or GIC. Hopefully this will clarify the differences for people.

Account type:

Registered Retirement Savings Plan (RRSP) - This is a federal government registered plan that defers taxes until the future. The money you place in this account is pre-tax dollars and your money grows tax-free. You only being to pay taxes once you start making withdrawals from the account.

Registered Education Savings Plan (RESP) - This is a federal government registered plan that defers taxes until the future. You grow money in this account tax free in order to pay for a child’s education in the future. You will being to pay taxes once the money is withdrawn for education purposes.

Registered Retirement Income Fund (RRIF) - This plan is similar to an RRSP in that it allows you to continue to grow your money tax free. The difference is that there are forced scheduled withdrawals. The purpose of this plan is to provide income during your retirement years, but allow the remaining amount to continue to grow tax-free. With this account the government can start collecting on some of their deferred tax income.

Tax-Free Savings Account (TFSA) - This is newest of in the arsenal of federal government provided account and one of the most misleading. This account is funded with your money after it has been taxed and just like an RRSP the money is allowed to grow tax-free. The key to this account is that you are allowed to then withdrawal the money tax-free. You pay absolutely no taxes on any money made in this account

Other – These account types have no preferential tax treatment at all. Whatever money you make in these accounts the government will tax.

Investment Type:

Savings – Thats right, that simple savings account you set up is technically an investment. You have lent the bank your money and in return they are paying you interest. Generally the interest in these accounts change with the Canadian interest rates but can vary from bank to bank.

Guaranteed Investment Certificates (GIC) – When you place money into a GIC investment you must choose a term date. A term date is an agreed amount of time that you will leave the money in the investment. In exchange for keeping your money at the bank for a set period, the bank will pay interest at a locked-in rate (the locked-in rate is usually at a premium to current rates). No matter what happens to Canadian interest rates, whether they go up or down, your GIC rate will always remain the same.

Mutual Funds – Mutual funds is a pool of investor money which is managed by a professional investor. The investor chooses what to invested in weather it is a stocks, bonds or some other time of investment

Stocks - Is a certificate declaring that you own a share of a company. When you buy stocks you are buying a part of a company and not an electronic ticker symbol.

When it’s all said and done you can hold pretty much any investment type in any account type. That means you can buy stocks in your RRSP or you place your money in a GIC in your TFSA. The key thing to understand is that an RRSP savings account is not one entity but rather you decided to invest the money you had set aside for your RRSP account into savings, stock, mutual funds or a GIC. Hopefully this clears things up for new people trying to sort out their personal finances.

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Please note that these are just basic definitions to clarify the difference between an account and an investment

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