The problem with wasting money is that it can be difficult to pinpoint exactly how you are wasting money. You can fix that by honestly keeping a spending journal so that you can see exactly where you are wasting the most money. But let’s face it - that’s incredibly hard to do. As you work on getting into frugal lifestyle mode, it’s important to identify your money weaknesses and learn about the biggest money wasters in your budget. In many cases, your spending habits are holding you back. Here are four ways you are probably wasting money:
1. Buying on Impulse
This is probably one of the biggest money wasters. Often because you think you are getting a deal when you are really just spending money. Retail markets know that as much as 70% of all purchase decisions are made in the store, and that half of those purchases are actually made on impulse. These are things you buy only because you suddenly feel like it (prodded by advertising and product placement in the store), and not because you need or want the items.
The most obvious way to curb this wasteful behavior is rather simple. Consider your needs and wants, and make a list before you ever step out of your house or log onto any retail website. Then stick to said list. This can be especially important when you are at the grocery store where the line of needs and wants are blurred. I mean, I can definitely justify getting that extra jar of orange juice or an extra box of Cheerios for the kids. They need those even though I didn’t think of getting those items when I figured out what we needed at home right?
2. Bank Fees
Most of a bank's revenue comes from fees. These fees are charged on loan origination, overdraft and any number of surcharges. If you fall below an account minimum you can be charged a fee. If you spend more than you have in your account, the fee might be as much as $45 per transaction. And, of course, visiting the ATM can result in its own fees. If you visit an ATM not owned by your bank, that could mean double fees, since each bank might charge you.
It’s estimated that banks will make $30 billion just on fees in 2020. That’s $30 billion out of our budget for no good reason.
In order to avoid these fees, make sure you understand the fee policy at your bank. Opt-out of overdraft so you can’t incur said fees. Then keep track of your spending so you never overdraft your account. The first time your debit card is declined because you opted out of overdraft will serve as a powerful incentive to keep your finances updated because it’s pretty embarrassing to not have the funds to pay for goods when there’s a whole line of people staring at your patiently.
Do your best to avoid ATMs unless you are getting cash in-network and know you won’t be charged a fee. You can also get cash by going into the bank itself, or by getting cashback when you make purchases at the store with your debit card. If your bank charges you high fees, then vote with your feet and try to find a bank with low fees. Open accounts that don't require minimums, and find an institution that will refund out-of-network ATM fees.
3. Inappropriate Insurance Coverage
You may not realize that you are paying for insurance coverage you don't need. I knew a woman whose policy had maternity coverage even though she was in her forties and already had a hysterectomy. You may also have duplicate coverage for rental car usage, or you may be paying some other premium you don't need.
On the other hand, you might be under-insured. In these cases, one illness, or auto accident, or instance of damage to your home can result in financial difficulty. The only way to find out is to go through your coverage and make sure your coverage is adequate. Do it regularly as well, because your life circumstances change constantly. What might make sense for you at one point maybe not be appropriate later on in life.
One way to save some money on insurance is to build up an emergency fund that can be used to pay deductibles, and see if you can raise your deductible to get more coverage at a lower price.
The general rule of insurance is this. Buy insurance to insure for anything that will devastate your finances if the bad outcome occurs, but skip the expense of your finances can handle the strain. That’s because on average, you are losing out by buying insurance. Otherwise, every insurance company will be out of business. I want to stress that this isn’t to say that insurance isn’t useful. In fact, insurance is amazing because you are pooling the risk of an accident with every one of the insurance company’s customers. Some types of insurances, like medical insurance, can be a lifesaver if you get sick. So think about what you can insure and not insure, but don’t skip the cost altogether.
4. Carrying a Credit Card Balance
It seems like a good deal: You buy something on a credit card, and then make small payments each month. Unfortunately, carrying a credit card balance can lead to a huge waste of money. Think about it. At a 20% interest rate, you are eventually paying for everything plus a fifth of it every year you still owe money. This is especially true if you only pay the minimum each month because you could be paying for the expense for as much as 30 years or more. That’s like saying you are buying something, only to pay for it at 10, 20, 30 times the cost.
When you don’t pay for your credit card in full each month, most of your payment is actually going to interest. And that interest does nothing for you since it is merely lining someone else's pockets. If you want to keep more of your money for yourself, it’s vital that you pay off your credit cards as fast as you can. Only buy what you already have money to avoid carrying a balance.
Bottom line: You might be surprised at how much money you are wasting when you take a few minutes to sit down and trace your expenditures. Run a financial audit to see where you can trim some of the waste. Do it now!