Did you know that some of the actions you take on a daily basis could be costing you hundreds or thousands of dollars every month? Sadly, people lose money in some of the most ridiculous ways and they are often never aware. Well, maybe you’re one of these people and you’ve been wasting money in ways that you least expect. Here are 7 ridiculous ways people waste money so you can avoid these deadly money mistakes and keep more cash in your pocket!
Number 1: Paying for too much insurance coverage
One of the ridiculous ways people waste their money is by paying too much insurance coverage. I know this may sound hilarious because you think the more insurance the better! Although insurance is important and some of the major challenges that you might be aware of are people who don’t have insurance coverage and those who have are underinsured. However, it is also possible to be over-insured in certain situations and you may be wasting money as a result. Being over-insured simply means that you are paying too much money for a particular insurance policy or you are paying for insurance that doesn’t match your needs and these unnecessary premiums could cost you thousands.
Therefore, let me share with you some examples of how you could be paying for too much insurance coverage so that you can avoid making the same mistake. The first example relates to life insurance. For instance, if you’re paying a mortgage loan for a new home and you have young children who are still dependent, it may be best to pay a higher premium for more coverage in terms of your life insurance. After all, no one knows when they’re going to die and a life insurance policy is important for your beneficiaries in case you pass away. However, as your lifestyle changes, there may be no need to continue paying a high premium for life insurance. For instance, you could reduce how much you pay on your insurance policy if you no longer have a mortgage loan to pay, all your children are now independent, and you have enough savings. Instead, you could divert your money to other things such as investing for retirement.
Also, you could be wasting money if you have multiple health insurance plans. For example, you may not have any need for another policy if your employer’s health insurance is sufficient. Another way that you could waste money on insurance coverage is by choosing an insurance plan that you don’t need. Insurance policies are often complex and sometimes it may be difficult to determine the one that you need. Therefore, it’s best to speak with a financial expert before making your decision.
Number 2: Refinancing their mortgages too often
Another way that people waste their money is by refinancing their mortgages too often. Mortgage refinancing is simply the process of replacing an existing mortgage with a new loan. For example, you may want to refinance your mortgage because you saw a new loan with a lower interest rate, and you want to take advantage of it. Some other reasons for refinancing a home include reducing monthly mortgage payments and paying off loans faster. You may be able to save thousands every year on your mortgage payment through refinancing if done well but you may end up wasting money if you do it too often.
The major reason why most people who refinance their mortgage too often waste money is that they only focus on the benefits of refinancing without understanding how it works. The process of refinancing a home is similar to the process of applying for your first mortgage, therefore, there are some fees that you’ll have to pay. You can calculate whether a refinancing option is worth it by comparing the fees that you’ll have to pay with how much you’ll be saving.
For instance, if it cost you $5,000 to refinance your home and you’ll only be saving $100, it would take you 50 months to break even with this option. Also, you’ll be wasting money for refinancing your home within this period even if you see another option with a lower interest rate. However, because most people don’t understand how this works, they may think they’re saving money by refinancing their mortgage too often.
Number 3: Paying only the minimum payments on their credit cards
Almost everyone today has at least one credit card but about 55% of credit card users have debt. Now, credit card companies today offer flexible repayment plans by reducing the minimum amount that you have to pay every month. For some, this amount may be as low as 1% to 5% and this seems like a good offer but paying only the minimum payment on credit cards is another ridiculous way that people waste their money.
Although making the minimum payment seems like a great deal because you can avoid late payment fees and keep your card active, it is only a great deal for the credit card companies. Credit card debts are one of the debts with the highest interest rate and the longer it takes you to pay, the more money you’ll have to pay as interest. However, by paying more than the minimum payment every month, you’ll be able to pay off your debt faster and reduce the amount that you would pay as interest. You could end up paying thousands of dollars as interest simply by paying the minimum payment on a credit card.
Furthermore, every additional dollar that you add to your minimum payment can potentially make you save more money at the end of the day. For example, if you make a minimum payment of $25 and you have about $800 credit card balance, it would take you about 4 years to pay off. However, if you add $4 every month, it would only take 3 years for you to pay off your debt and you could save about $50. Although I used a small figure in this example, it should give you an idea of how much money you might have been wasting by paying only the minimum payment on your credit card every month.
Number 4: Buying things as a means of retail therapy
Another ridiculous way that people waste money is by buying things as a means of retail therapy. This topic often sparks debates amongst people and I know that this may not be something you want to hear, especially if you are a big fan of going on a shopping spree as a means to relieve emotional tension. Although there are proven benefits of retail therapy as a means of relieving stress, however, it only lasts for a short time. But, what doesn’t last for a short time is the effect that it will have on your finances.
Therefore, you need to find a means of reducing emotional spending if you want to save more money. You’re likely going to face situations that will cause you stress on a regular basis. However, how you respond to these situations is what matters. You have to look for other means to deal with your emotions without wasting money. For example, instead of going to the mall, you may decide to talk to a friend, write in your diary, take a walk or meditate. Remember that most of the things people buy as means of retail therapy are things that they don’t need.
Also, remember that it’s easier to ditch a bad habit by replacing it with a good one than it is simply to eliminate it. You can take better control of your finances by creating a budget for how much you wish to spend any time you’re emotional until you are able to avoid retail therapy all together.
Number 5: Failing to cancel unused memberships and subscriptions
If I could check your email right now, I’m certain that I would find messages trying to sell one thing or another to you. Failing to cancel unused memberships and subscriptions is another ridiculous way that people waste money. So many people don’t visit the gym yet they have a gym subscription. I know it’s hard to keep your body in shape but also realize that it is harder for most people to admit that they’re not using their subscription and just cancel it. The problem is that most people underestimate how much it costs to have unused subscriptions, therefore, they just ignore them.
One of the reasons why most people fall into the trap of unused memberships and subscriptions is recurrent payment. Although this has its advantage because you won’t have to worry about subscribing for your favorite service every month, you may end up losing a lot of money when you no longer need it and forget to cancel your subscription. Another reason why people fall into the trap of unused subscriptions are free trials. If you forget to cancel your trial once you’re done, you’ll be charged and you may no longer want or need the service.
Therefore, you must take the time to cancel memberships and subscriptions that you no longer need. For instance, you should cancel your gym membership if you don’t use it and if you do find the drive to work out then you can exercise at home without the fancy facilities of a gym. Also, reduce the number of streaming services that you have. You don’t need to have cable and Netflix running at the same time. Although the cost of some subscriptions may seem minute, a $10 per month subscription that you’re not using for 6 years is over $700.
Number 6: Paying for unnecessary convenience
Everyone likes convenience, however, it may be costing you more money than you think. Therefore, paying for unnecessary convenience is one of the ways that people waste their money. For example, it may be easier to find a plane ticket and compare prices when using a third-party service but there are also fees attached to it. You can reduce the amount that you would spend by booking your ticket directly with the company.
Another common and costly example where people spend a ton of money for convenience is with their food. Many people don’t want to take the time to plan out their meals, do groceries and cook leading to them relying upon fast food or delivery services. The reality is that you can save hundreds of dollars a month by simply cooking at home.
Another type of convenience that people waste money on is coffee. Some people would even agree that they don’t know how to operate a coffee machine but they could save a lot by making their coffee at home. Spending $4 on a cup of coffee 4 to 5 times in a week would cost you about $800 to $1,000 every year.
Number 7: Buying things to keep up with their peers
Finally, the last ridiculous way people waste their money is by buying things to keep up with their peers. One sure way to poverty is spending more than you earn and one of the reasons why we do this is because we buy things just because everyone else is buying it. Remember, your financial goals may be different from your peers, therefore, you shouldn’t let their spending decisions influence yours. You don’t need to have the latest gadget or devices if the one you’re using right now is still working. Also, you don’t need to buy new clothes to impress your friends because they should like you for who you are as a person and not because of how you dress!
And there you have it, 7 ridiculous ways people waste their money!