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.