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Written by J.P. Wicklein
I caught an article by Erin Burt in Sunday’s Chicago Tribune that listed several common money wasters. I’ve provided the more interesting ones below, along with my thoughts.
1. Buying a new car instead of used one: New cars lose a big chunk of their value the moment you drive them off the lot. If you’re in need of a car consider buying one that’s a few years old. Much of the depreciation would’ve occurred while someone else owned it and you’ll wind up with a car that has relatively low mileage.
2. Carrying a credit card balance: Unless your balance is on a 0% introductory rate, this one is a no-brainer.
3. Paying to use an ATM: If you use an ATM other than your bank’s, chances are you’ll be hit with a fee. Plan ahead. Don’t put yourself in a situation where you’re forced to use an ATM that will charge you fees.
4. Let your money wallow: Too many people leave thousands of dollars sitting in a checking or savings account that earn very little interest. Consider moving your short term savings into an online savings account that pays a decent interest rate, such as, ING Direct (1.40% APY).
5. Wasting electricity: Unplug your appliances and home electronics while you aren’t using them. Even though they aren’t turned on they still consume electricity – and run up your bill in the process.
6. Paying banking fees: The dumbest thing I did this year was forget to transfer money into a checking account before writing a large check. As a result I bounced three checks. My bank honored the checks anyway…then charged me $105.
7. Giving Uncle Sam an interest free loan: Getting a large, federal tax refund is not a good thing – here’s why.
8. Ignoring your local dollar store: Admittedly, I’m guilty of this. I always buy staples, such as cleaning supplies, at the grocery store or Target. Often the dollar store will sell cleaning supplies, and other staples, at a significantly lower price.
9. Paying for unnecessary services: Do you have a gym membership, but never go? Are you paying for extra features on your cell phone or landline phone service? Take a look at your monthly expenditures and see what you can cut back on. Chances are you’re paying for things you don’t even use.
10. Not using a flexible spending account: If your employer offers a flexible spending account consider taking advantage of it. Through a flexible spending account you can pay for items such as co-pays and contact lenses with pretax dollars.
Photo by: anna-rchy
4 responses so far ↓
1 RJB // Aug 10, 2009 at 8:19 am
(1) Don’t forget leasing, an arrangement that leaves you paying for all the depreciation and none of the equity of the vehicle. The convenience of owning a car during its prime years and walking away from it before problems happen is hard to value, but I consider it a luxury. Leasing may make sense for businesses, as they can write them off as business expenses.
(10) Consider a health savings account (HSA) instead of flexible spending, if your employer offers such a plan. Flex plans are tied to your employer; if you quit or get laid off, or if your company gets bought, your flex savings will expire. HSAs are your own interest-bearing account that follows you from employer to employer, and they have the same tax advantage as flexible spending.
2 Financial Fellow // Aug 11, 2009 at 8:50 am
RJB -
Yes! Excellent point about “fleasing”. Additionally, if the leased car isn’t in perfect shape when you return it they can also tack on charges for very minor dings or knicks.
Also, thanks for the info on HSA’s. I’m not too familiar with them but will look into it further.
John
3 Brian E // Aug 11, 2009 at 10:13 am
The theory of buying a used car v. buying new needs to be reexamined. While I would agree, there is depreciation on a new car off of the lot, the real question that should be looked at is “what is the cost per mile?”
Try this…consider the cost of the vehicle vs. the miles you will put on it. For example I buy a new car for $25,000 and keep it for 120,000 miles, my cost per mile is $0.20833 per mile. Yet if I find a used car (same model but not the same year) for $20,000 and it has 30,000 miles on it, my cost per mile is $0.22222 per mile ($20000 / (120,000 - 30000). Add to it that there may be no warranty and you will need to replace brakes and tires sooner and the fact that you don’t know how the car was treated before you bought it, the new car may make more sense.
What I am trying to say is “Test conventional wisdom”. Go to any new car dealership and it becomes apparent that there is much less markup in new cars as opposed to used. In fact, new car sales are typically the least profitable division of the dealership (service and the used car lot are more profitable).
This is an easier exercise to do with a Lexus than a Chevy because at a Lexus dealership, the price on the car is the price of the car.
Just a thought.
4 Financial Fellow // Aug 12, 2009 at 10:30 pm
Brian -
Love to see the challenge to conventional wisdom! You bring up some good points about the depreciation being offset by the lack of any significant maintainance costs. I also like how you looked at it on a cost/mile.
Using your example above the even point is 150,000 miles. After which time, the used car becomes the better deal.
Looks like the key variables in this equation are: 1) The cost of the used car 2) The mileage of the used car at time of purchase 3) How long the car will be driven for.
Before you buy a used car you’ll have 2/3 of the variables figured. The last one could be addressed through a decent guesstimate.
Thanks again for the great insight!
John (Financial Fellow)
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