Make the right money decisions.
Photo: J Muckle
1. When buying electronics or appliances, should I buy the warranties too?
You might as well toss your money in the air and wave your hands like you just don't care. Extended product warranties are a multibillion-dollar industry unto themselves, raking in 40 to 80 percent profit margins. "The retailers are making a significant profit on those policies," says Laura Rowley, Yahoo! Finance columnist and author of Money & Happiness. Why? Because most products come with a one-year manufacturer's warranty anyway, and according to a recent Consumer Reports survey, repairs, on average, cost about the same as the policy. And while we're on the subject, you can skip the extended car warranty too. A new car is already warrantied, typically with a three-year/36,000-mile bumper-to-bumper warranty, plus a longer power train warranty, which covers the more expensive engine and transmission repairs. The time to consider an extended warranty is when your car is spending a lot of time in the shop as the basic warranty is winding down. "You might consider a contract with the manufacturer or a company you know you can depend on," says John Paul, AAA car doctor. "Skip the small warranty companies. They may be fly-by-night, so when you try to collect, they become very difficult."

2. Buy a house now or rent for two more years in the hope that prices continue to drop?
If you have a good FICO score (around 720 or above), can afford a standard 15- or 30-year fixed-rate mortgage, can handle a 20 percent down payment, and intend to own for at least five years, then, says O columnist and personal finance expert Suze Orman, go ahead and buy. As with stocks, it's too risky to try to time the market at its absolute lowest. Ask a local real estate agent to show you some comparable sales so you can bargain for the best price.

3. If I'm saving for a down payment on a house, does it make sense to sock away the maximum IRA contribution?
In time, the house will give you better tax write-offs than the IRA, not to mention a roof over your head. One exception, says Orman: "If your employer offers a 401(k) with matching contributions, I wouldn't pass up the free money."

4. Is long-term-care insurance worth it?
"Generally, it makes sense only for a very specific group of people: those with liquid assets between $400,000 and $1.5 million," says finance expert Jean Chatzky. The average nursing home stay lasts two and a half years, at an average cost of $78,000 a year—which means that if you have more than $1.5 million in assets, you can pay for your own care, and if you have less than $400,000, you could quickly qualify for Medicaid. "Age 60 is the time to buy insurance if you need to," says Chatzky, "unless you know you're at high risk for a medical condition, in which case buy earlier." For the greatest security, choose a company with a top rating from agencies such as Moody's or A.M. Best.

5. Do I need life insurance, and if so, how much?
Only if you love your loved ones. (That's a yes.) "It's so cheap that everyone with dependents or debt should have it," says Rowley. Insuring yourself for five to 10 times your annual household expenses can cost as little as $1 to $2 a day. "That means if something happens to you, your family has five to 10 years to figure out how they're going to go forward."

Arianne Cohen is a Manhattan-based writer. Her exploration of the world of tall people, The Tall Book (Bloomsbury), will be published in January 2009. 

Additional reporting by Brooke Kosofsky Glassberg and Kate Sandoval.

Please note: This is general information and is not intended to be legal advice. You should consult with your own financial advisor before making any major financial decisions, including investments or changes to your portfolio, and a qualified legal professional before executing any legal documents or taking any legal action. Harpo Productions, Inc., OWN: Oprah Winfrey Network, Discovery Communications LLC and their affiliated companies and entities are not responsible for any losses, damages or claims that may result from your financial or legal decisions.


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