What Items Should You Buy Extended Warranties On?

When purchasing new items, consumers frequently encounter offers for extended warranties at the point of sale. These additional protections, promising to cover repairs or replacements beyond the manufacturer’s standard guarantee, can seem appealing. Many individuals look to financial experts, such as Dave Ramsey, for guidance on making sound financial decisions that impact their household budgets.

Dave Ramsey’s Core Philosophy on Financial Protection

Dave Ramsey’s financial teachings emphasize debt-free living and building personal financial resilience. A central tenet of his philosophy is the creation of a robust emergency fund, serving as a financial safety net to cover unexpected expenses. This approach encourages individuals to take personal responsibility for their financial well-being through diligent saving and disciplined budgeting.

He advocates for “self-insurance,” where individuals accumulate sufficient savings to cover potential financial risks themselves, rather than relying on external insurance or warranties for common issues. This means setting aside money specifically for unforeseen circumstances like medical emergencies, job loss, or unexpected repairs. The goal is to avoid debt and maintain financial independence by having liquid cash readily available.

Why Extended Warranties Are Not Advised

Extended warranties are not recommended due to several financial considerations. Companies selling these warranties often realize significant profit margins, as the cost of the warranty typically far exceeds the likelihood or actual expense of a covered repair. A large portion of the warranty’s price can go towards sales commissions, making them more beneficial for the seller.

Most items come with a manufacturer’s warranty that covers defects for a reasonable period, often a year or more, during which major issues are most likely to surface. Extended warranties frequently contain numerous exclusions and limitations, meaning common problems may not be covered, rendering the purchase ineffective. These warranties often expire before parts are statistically likely to break down, minimizing the chance a consumer will ever need to use them. The money spent on an extended warranty is therefore diverted from more effective financial strategies, such as contributing to an emergency fund.

Items Where Extended Warranties Are Unnecessary

Applying the principle of self-insurance, extended warranties are unnecessary for most common purchases. This includes major appliances such as refrigerators, washing machines, and dishwashers. Similarly, extended warranties on consumer electronics like televisions, laptops, and cell phones are not advised.

For automobiles, beyond the initial manufacturer’s warranty, extended warranties are not recommended. The cost can be substantial, potentially thousands of dollars, and the probability of using it may be low. Instead of purchasing these additional coverages, the financial approach suggests saving money to cover potential repair costs for these items if they arise.

Building Your Own Financial Safety Net

Building a robust financial safety net, primarily through an emergency fund, is the alternative to purchasing extended warranties. This fund should contain three to six months’ worth of living expenses, providing cash for unexpected events like unforeseen repairs or replacements. This cash reserve empowers individuals to address sudden expenses without resorting to debt or relying on costly warranty programs.

Consistently setting aside money into this fund allows individuals to “self-insure” against potential breakdowns, turning warranty payments into personal savings. If an item breaks down after its standard warranty expires, the funds are available to pay for repairs or even a replacement. If no major issues occur, the saved money remains available for other financial goals or future emergencies, creating a win-win scenario for the consumer.