Dear Young Friend,

If you're twenty-something, what do you worry about?

Karen

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That's the question I posed on my Facebook page when I was working on last month's post, How to Think about Risk and Insurance, as part of my Dear Young Friend series: If you're twenty-something, what do you worry about?

The answers I got were interesting, and wide-ranging. And they reminded me of something I sort of jokingly refer to as "cheap insurance." That's my label for actions that cost me little or nothing and are easy to do – but protect me from bad things happening.

For example, I always feed the parking meter. I call that cheap insurance, because the $1 I put in the parking meter means that I won't be getting a $20 parking ticket. Closing the windows before I leave home means no rain will be ruining my stuff and no mess to clean up when I get home. Getting my flu shot means I'm much less likely to get sick this year, miss work, and pay for a visit to the doctor. In my view, it's all cheap insurance.

These kinds of actions can't always guarantee that bad things won't happen, but they will make it less likely.

And there isn't a cheap insurance solution for everything. However, once you get in the cheap insurance mindset, I bet you'll see lots of opportunities to use it. Even if you're broke, you can find ways to get cheap insurance.

Let's see if we can find cheap insurance for some of the things my Facebook friends said they worry about.

  • Someone stealing my car
    • Lock your car.
    • Never leave your keys in the car, or hidden where they're easy to find.
    • Don't leave valuables, shopping bags, or money in plain sight.
  • Someone hitting my car
    • Use your turn signals.
    • When you park, stay within your space.
    • Don't drive in icy or snowy conditions.
  • How to start a retirement account on a limited income
    • Check to see if you qualify for the Saver's Credit, which gives you a tax refund to subsidize your retirement savings contribution. Between the Saver's Credit and not paying taxes on your contribution, putting $200 in your retirement account might only cost you $90.
  • House catching on fire
    • Install smoke alarms – and replace the batteries each year.
    • Don't leave candles or Christmas tree lights burning when you're away.
    • Toss damaged electrical cords.
    • Don't plug multiple things into one electrical outlet.
    • Keep important documents in a safe or safety deposit box.
    • Take pictures of what you own and your receipts, so that you can get it replaced.
  • Paying my bills and mortgage
    • Reduce the chance you'll miss a payment by keeping a calendar of due dates.
    • Set up automatic payments, if you're sure you'll have the money in the account.
    • Make a budget and track your spending each month, so you know how much is left for discretionary spending.
    • If you're late, call and ask if the lender will waive the late fee and the (additional) interest.
  • Locking myself out of my car or apartment
    • Hide a spare key, or give a spare key to a neighbor. But ask yourself: could a burglar easily find your hidden key? Can you trust your neighbor to 1) know where the key is, 2) be home if you need it, and 3) not use the key to go into your home themselves?
  • Forgetting to turn off an appliance
    • Choose appliances that turn themselves off after a certain period of time.
    • Have a system (process) that you follow, and ask yourself if you followed that system before you leave the house. For example, I try to unplug my toaster-oven right after my bread is toasted, rather than just turning it off.
  • Too many unread emails in my mailbox
    • When someone finds the magic bullet for this one, I'm all ears!
    • To avoid missing important emails, try to reduce the amount of email coming into that mailbox. Use spam filters. Set up a 2nd, freebie email address to use when shopping online or anytime you expect that the email address you provide will be getting notices about sales, newsletters, etc.
  • Forgetting my reusable bags when going to the store
    • Keep the bags in the car, so you'll always have them with you.
  • Will I ever be able to afford more than the basics?
    • There isn't any single cute little cheap insurance solution for this worry. As my colleague Kathy Sweedler said in her recent blog post, financial education (i.e., knowing how to manage your money) is only part of the answer. It can't make up for having too little money to cover basic expenses. (Check out that post; she also shares some of the strategies people use to get by.)
    • But it's also true that the less money you have, the more important it is to avoid bad things happening. Bad things cost money!
    • One of the challenges is to hang onto the belief that your decisions matter, instead of feeling that you have no control. That's a mental battle that's ongoing. Every time you use a cheap insurance idea to protect yourself from being hit with a bigger expense, give yourself a pat on the back. Money may still be tight, but you've avoided being even further behind.

If you read my previous post, you may recall that there are four ways of managing risk: bear it, transfer (insure) it, reduce or control it, and remove it. A lot of my "cheap insurance" ideas are actually ways of reducing and controlling risk. But calling them cheap insurance motivates me to do them. It makes me feel smart, like I'm getting a great deal.

These are just my ideas; you may have more and better ones. Please use the comment button, below, and share those!

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This post continues a series based on conversations with a young friend of mine about the financial decisions and challenges of being an independent young adult in today's world. You can find other posts in the series by clicking Organizing Finances in the Category list on the right side of this page. ~Karen