This thought must have been bouncing around in my head for awhile or maybe not. I remember where I was when I first thought it and it had to be in the past week. It has been a long week. Lots of working and playing with kids. Crazy that my life is going back and forth from playing with dogs to playing with kids and I have the audacity to sometimes be sad.
The thought, more of a realization, came to me after the book I was reading listed high deductible insurance as a good investment. My first thought was to think of the boys birth and all the money we owed on that and think what the hell and then it was to think of my daughter’s birth and how we owed just as much despite having a low deductible and think hmm, but that wasn’t the realization.
That came when I sent a text to my friend telling me of what the book said and my needing to reason through it. It went like this. Let’s say you have a $500 deductible on your auto insurance and you can save $100 a month by raising it to $5000. That means if you get in an accident you’d spend $5000 out of your own pocket before the insurance spent anything.
Here is where things get interesting. The wheel in my mind started turning and I thought, ok $5000 is $4500 more than $500 and if you saved $100 a month and put it away somewhere it would take 45 months to save the $4500 to make up the difference. Then I started to really think. The book I was listening to was all about probability. How many accidents have you gotten into in the last 45 months? For me the answer is 0. It is 0 for the 45 months before that too and before that and before that. Cross my fingers I’ve never had a claim on my collision insurance.
That leads us into something interesting. Is it your mindset to put away the money you save each month. When you cancel an online subscription or make another change to save money do you actually save it or better yet invest it? I know I don’t. That isn’t my thinking. My thinking is I saved so much money and now I can spend it elsewhere. It wasn’t that I was already spending this much money every month so instead of changing my lifestyle I’m going to save or invest the money I’m saving.
Now if you were to invest the $100 you’re saving by having a high deductible insurance policy and it gained 10% a year in the stock market then after four years you’d have $5,569.20. That more than makes up for the deductible amount if you need to dip into that savings and I think it is clear why a high deductible insurance policy is a good investment. I also think it is clear why mindset matters and it isn’t the one people think matters.