Ranking the Money Wasters
Beth Braverman posted an excellent article on CNN.com listing the “7 Things You’re Wasting Your Money On”. You can find it here: https://www.cnn.com/2022/04/27/success/things-wasting-money-on-fe-series/index.html. It’s a quick read with great suggestions. I’m going to take it to the next step: ranking the money wasters with a suggested order on what to tackle first.
Lots of the people I speak with are pressed for time, or find focusing on too many financial issues at once too confusing or frustrating. Lots of people would like to figure out how to save money, but don’t know where to start. With all this in mind, here is a non-scientific ranking giving the order in which I would suggest dealing with the money wasters on Ms. Braverman’s list.
In making this order, I considered the amount of savings, the ease of making changes, the potential applicability of the savings to the most people, and the complexity of the market or issue. In other words, I’m looking to help you figure out what is going to give you the best results in the fastest and easiest way possible,
1. Credit Card Interest
This is at the bottom of Ms. Braverman’s list (which I don’t believe is in any particular order), but it is the top place to look for savings. A lot of people don’t understand how their cards charge interest. Let’s say that you have a $1000 owed balance on your account, for which the card is charging interest. One month, you spend $100 on the card, and you pay $100. You feel good – you haven’t charged that much, and you paid it, so everything is the same, right? For many cards, wrong. The card applies your $100 payment first to the $1000 you owed, not your new charges. The new charges just get rolling into the amount you owe. Then, depending on how you accrued that $1000 debt (purchases, fees, cash advances), that $1000 likely will be charged at different interest rates. Your $100 payment will be applied to your minimum due first, which often is applied to the part of your debt with the lowest interest rate. Any excess is then applied to your debt with the highest interest rate. So, depending on the minimum amount due, the different interest rates for different charges, and how you used the card, you might have just shifted some debt with a lower interest rate to a higher interest rate. And meanwhile, you're still being charged interest on all your debt, including what you charged that month. That’s not getting ahead – it’s falling behind.
That’s just one way your credit card debt might be costing you more than you think. In general, with interest rates ranging for most cards from 20-30% or more on top of annual fees and other charges, getting rid of revolving credit card debt is the best way for many people to stop wasting money. Credit cards are a great convenience, but if you don’t pay them in full each month, you’re just giving a large amount of money away for nothing.
2. Food Waste
Anyone else had or have a parent or grandparent who told you not to waste food because there were kids starving somewhere in the world? That alone is a good reason not to waste food. But another good reason is that food waste costs you money – maybe hundreds of dollars each month. With inflation creeping up, especially for food prices, making sure that food doesn’t expire and leftovers get eaten can amply shrink your grocery and/or restaurant delivery bills, saving you a lot of money. This is an easier way than many to save significant money.
3. Extended Warranties
I’ve found that some people love extended warranties, and some people don’t find much value in them. As Ms. Braverman says, “sometimes the cost of the plan will exceed the cost of potential repairs.” Even so, unless you purchase a lot of extended warranties, I think the amount of potential savings here is smaller, although this is an easy step to take.
4. Sale Items You Don’t Need
There is a sure way to save money – don’t spend it if you don’t have to! For some people, this act (or refraining from acting) may save a lot of money if they tend to be drawn in by sales. But, for others who watch their spending closely, this suggestion won’t be that helpful. It all depends on your personal habits and tendencies. Because of the potentially limited applicability for some, this is number 4 in my ranking.
5. Subscriptions You Don’t Use
As Ms. Braverman notes, more than 70% of consumers spend more than $50 per month on subscriptions they don’t need or want. That adds up to more than $600 per year, which isn’t nothing, but doesn’t have the same impact as not taking a couple extended warranties, not buying a couple unnecessary items, or watching the food waste. I also personally find it difficult to determine if a subscription is really something I don’t use or want. For example, if a streaming service is not running any new episodes of a couple shows I love for a couple months, and then releases new seasons that I want to see and am glad I have the service to see, am I “not using” the service during the less used months? Granted, I would usually rather wait and get the DVDs for free from the library if and when they’re released, but a lot of people don’t want to wait to see the latest episodes of the shows they talk about with their friends. It is a good idea to periodically review subscriptions and rid yourself of anything clearly unused, but because the criteria for what it means for something to be “used” or “not used” may be uncertain, this is a less efficacious step for me than the others. Also, many subscriptions are not highly expensive, so the savings may not be that much. This is a good way toi save a little money, but it also may be limited.
6. Overpaying for Insurance
In contrast, this can be a place to save a lot of money. A new insurance plan may be a lot less expensive, particularly (as Ms. Braverman notes) in an industry that commonly offers “new customer” deals. So, why have I ranked this so low? Insurance is very hard to shop for due to the complexity of the market and the policies. It may seem like one policy is a better bargain than the other, but it may be cheaper because the coverages and exclusions are different. It is essential to read and understand the fine print in the contract, which is challenging for many of us. There are also significant difference is the quality of service offered by insurance companies, which you don’t want to discover after you need to make a claim. This suggestion can give you big savings, but there’s a lot of work and care needed to make it worthwhile.
7. Bank Fees
Very little is more frustrating than giving the bank money so that it has the privilege of using my funds as their asset. It makes sense to seek free accounts and use only you bank’s ATMs unless there is no other option. But the amount of potential savings here is generally low, so it ranks last on my list.
It is important to note that none of these are bad suggestions. All can be helpful, and stop you from wasting the valuable money you’ve earned. If this blog has spurred you to act to stop wasting money, it has done its job. But, some ways of stopping waste may be better for you than others. The most important thing to do is to be aware of your particular situation and stop the waste where you can.
Once again, thanks to Beth Braverman for an excellent and article!