Here comes our comeuppance for living now and paying later. Here come the four horsemen of the apocalypse-in-your-pocket: Amex, Diner's Club, Mastercard and Visa. Plus those store cards that hide a 25 per cent rate behind a discount smile.
It is astonishing that the law makes it much easier to entice people into debt than to encourage them to save. The US Government has benefited enormously because we have been spending much more than what we have earned over the past eight years. Cheap money has helped to keep the economy going. But only for so long.
Spending more than you earn
Among the biggest money mistakes people make are getting sucked into buying items that they don't need and may not even get any real benefit from. Cars are a classic waste of money that could have gone into investment. We need to slim down the debt and tighten our buckle a notch. Think before you spend and save where you possibly can.
A penny saved is a penny earned, the saying goes. Actually, it is more like 1.33 pennies saved because savings come after paying tax on your earnings.
It is no coincidence that some of the world's top business and money men, including Warren Buffett and Sam Walton, drove around in very ordinary cars most of their lives.
Money wasters
The top five ways people waste money according to United States commentator Quentin James:
Buying insurance they really don't need.
Insurance is only meant to cover situations with major financial consequences. If you've already got the money to take care of the ones you love, you don't need life insurance, he says. In general, don't buy insurance unless it will really protect you financially.
Imagine if you accumulated the premiums you would have to pay to cover your life for the next 10 years. Now double that amount to account for the gains you would enjoy from having the money appreciating in a savings account. The amount of money you are foregoing is staggering.
Buying expensive additional warranties.
Major appliance retailer stores make a lot of money by selling extended warranties that can cost up to 50 per cent of the value of the product purchased. In general, if the average life of an electronic product is three to five years, then you should just hedge your bets and skip the extended warranty.
Moreover, as defective appliances tend to pack up in the first year, that risk is in any case covered by laws protecting consumers.
Paying fees that you could have avoided.
Whenever you make a major large purchase you can get deceived into paying unnecessary fees. It's a psychological trick that all the best financial businesses use. Banks know that $800 in administration fee seems like a drop in the bucket against a $250,000 house. Car dealers and real estate agents are the same. Whatever the deal, don't be afraid to question fees and you might be surprised how often the salesperson will compromise to get that sale.
Buying after solicitation.
Good marketing involves making consumers think they need something they never knew they wanted.
Solicitation often takes place for products and services that have a high- potential return for the business that is selling them. These include financial products like mortgages, credit cards and debt consolidation loans.
Not maximizing the power of money.
The key principle for maximizing the power of money is to be diligent about letting it flow into high-interest accounts. If you have money in a 5% savings account, use the funds to consolidate 19% credit card debt or put it into investments yielding 8%.
It is amazing how you could save your valuable money over time. Avoid these five money wasting pitfalls and you will be much better off within 5 to 10 years.
