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Sunday, 11 March 2012

7 Ways You're Wasting Money Without Realizing It

Wasting money doesn't necessarily mean you're bad with money. You don't have to be a shopaholic or a frivolous spender to spend more money than you should. Often, there are leaks in our budgets that could easily be fixed if we knew what to look for. Some of the biggest money mistakes can be eliminated without even making a big change to your lifestyle.

So before you vow never to eat out again or take a vacation, see if you can plug these money leaks that you may not have even noticed.

1. Investing in expensive mutual funds. Unlike your gas or electric bill, mutual funds don't send you a monthly statement showing how much they cost. Even though the cost is hard to see, mutual funds that charge high fees are just eating away at your returns. High fees, which can include trading costs and the fund's management fees, can go unnoticed because investors don't get a bill for the fees. Instead, the fees are simply deducted from your account, reducing the overall return on your investments.

Instead of investing in expensive mutual funds, look for funds that charge less than 0.50 percent in fees annually. You can find index funds charge less than 0.1 percent. And if you need some help with your investing, rather than paying 1 percent or more for someone to manage your investments, use a service like Betterment. This online service makes investing a snap, and Betterment recently lowered its fees.

2. Ignoring your credit score. Everyone knows just how important a good credit score is, but most people probably don't think of it in terms of wasting dollars. Your credit score affects everything from interest rates to auto insurance premiums. Today, it can even affect your chances of getting a job, as some employers use credit history as part of their hiring criteria. It's simple: The better your credit, the more money you are going to have in your pocket.

For example, while you may be able to qualify for a mortgage with a credit score of 620, you won't get the best rates. To get the best mortgage rates, you need a score of about 760. And the difference in interest rates between a score of 620 and 760 can be well over 1 percent. Over the life of a mortgage, the better score can save you tens of thousands of dollars in interest payments.

3. Failing to get lower rates. The only good thing about high rates is that they can be lowered. You can lower you rate on just about anything--credit cards, mortgages, car loans, and student loans. There are several ways to get lower rates. The easiest way is to ask. Particularly with credit cards, just asking for a lower rate has proven to be very effective.

With mortgages, car loans, and student loans, refinancing is an option if rates are lower. And keep in mind that even if prevailing rates have not changed since you obtained your loan, you still might be able to get a lower rate if your credit score has improved. And finally, with credit cards, there are several very good 0% balance transfer options to consider. The point is, there are opportunities to lower your rates and not doing so is just throwing money away.

4. Overpaying for car insurance. Car insurance is one of those necessary evils in life. We all hate to pay for it, but we have to have it. Fortunately, there are many ways to reduce car insurance premiums with just a little effort. For example, you can raise deductibles or even cancel certain types of insurance for older vehicles. Auto insurance companies offer numerous discounts, and comparing insurance online takes just minutes.

5. Buying brand-name products. It's easy to get caught up buying brand-name products. After all, these big companies force-feed us with their captivating slogans on a daily basis. Looking past the pretty labels and catchy commercials, however, will save you money. Many of the "off bands" are often made by the same brand-named companies so the product is basically the same, but with a better price. This is especially true when it comes to prescriptions and over-the-counter medications.

6. Buying too much life insurance. Like car insurance, life insurance is a necessary expense if others are relying on your income. The key is to buy only the life insurance you need at the cheapest available price. For many, this means buying term life insurance, not universal or whole life policies that combine life insurance with investment products. And as your life circumstances change, consider whether you can reduce the amount of insurance you need, or even eliminate it completely.

7. Failing to get the company 401(k) match. Getting the most out of your 401(k) is essential to your retirement planning. Many companies will match a portion of an employee's contributions to a 401(k). But to take advantage of a company match, you must contribute a certain amount that varies by plan. By not making the most of an employer's matching contributions, many lose what would otherwise be free money. So take full advantage of your 401(k) by contributing up to the amount your employer will match.

DR is the founder of the popular personal finance blog The Dough Roller, and the credit card review site Credit Card Offers IQ.


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