Sunday, July 26, 2009

20 Ways to Waste Your Money

by Erin Burt

Whether a newbie or seasoned budgeter, nearly everyone has spending holes -- leaks in your budget that drain money with you hardly noticing.

These small drips can add up to big bucks. Once you find the holes and plug them, you'll keep more money in your pocket. That spare cash could be the ticket to finally being able to save, invest, or break your cycle of living paycheck to paycheck.

Here are 20 common ways people waste money. See if any of these sound familiar, and then look for ways to plug your own leaks.

How to waste your money

1. Buy new instead of used. Talk about a spending leak -- or, rather, a gush. Cars lose most of their value in the first few years, meaning thousands of dollars down the drain. However, recent used models -- those that are less than five years old -- can be a real value because you get a car that's still in fine working order for a fraction of the new-car price. And you'll pay less in collision insurance and taxes, too.

Cars aren't the only things worth buying used. Consider the savings on pre-owned books, toys, exercise equipment and furniture. (Of course, there are some things you're better off buying new, including mattresses, laptops, linens, shoes and safety equipment, such as car seats and bike helmets.)

2. Carry a credit-card balance. If you have a $1,000 balance on a card charging 18%, you blow $180 every year on interest. That's money you could certainly put to better use elsewhere. Get in the habit of paying off your balance in full each month.

3. Buy on impulse. When you buy before you think, you don't give yourself time to shop around for the best price. Resist the urge to make an impulse purchase by giving yourself a cool-off period. Go home and sleep on the decision. If you still want to make the purchase a day or so later, do your comparison shopping, check your budget and go for it. Oftentimes, though, I bet you'll decide you don't need the item after all.

4. Pay to use an ATM. A buck or two here and there may not seem like a big deal. But if you're frequenting ATMs outside your bank's network, the surcharges can add up quickly. Put that money back in your pocket by using ATMs in a surcharge-free network such as Allpoint or Money Pass.

5. Dine out frequently. A habit of spending $10, $20, $30 per person for dinner can be a huge drain on your wallet. Throw in a $6 sandwich for lunch and a $4 latte in the morning, and you've got quite a leak. Learn to cook, pack your lunch and brew your coffee at home and you could save a couple hundred bucks each month.

6. Let your money wallow. If you are stashing your savings in your checking account or a traditional bank account, you are wasting money. You could put it in a high-interest online savings account and get paid to save. You can even get an interest-bearing checking account through such reputable companies as Everbank, Charles Schwab, E*Trade and ING Direct.

7. Pay an upfront fee for a mutual fund. Selecting no-load funds can save you more than 5% in sales charges. Of course, no matter how well a fund has done in the past, you can't be sure how it will perform in the future. But if you pay a load, you'll begin the performance derby in the hole to the tune of the load. See the Kiplinger 25 for our favorite no-load funds.

8. Pay too much in taxes on investments. Are you investing in a tax-sheltered 401(k) or Roth IRA? If you're not maxing out those accounts before you invest in a taxable account, you're spending too much.

9. Buy brand-name instead of generic. From groceries to clothing to prescription drugs, you could save money by choosing the off-brand over the fancy label. And in many cases, you won't sacrifice much in quality. Clever advertising and fancy packaging don't make brand-name products better than lesser-known brands (see Similar Products, Different Prices).

10. Waste electricity. Of the total energy used to run home electronics, 40% is consumed when the appliances are turned off. Appliances with a clock or that operate by remote are typical culprits. The obvious way to pull the plug on your energy vampires is to do just that -- pull the plug. Or buy a device to do it for you, such as a Smart Power Strip ($31 to $44 at www.smarthomeusa.com, which will stop drawing electricity when the gadgets are turned off and pay for itself within a few months.

11. Pay banking fees. Overdraw your checking account and you'll pay $20 to $30 a pop, so it pays to keep tabs on your balance. Plus, are you still paying for a checking account? Free deals abound -- but make sure they're really free. For instance, will the bank charge a fee if your balance drops below a certain level or if you download your info into a personal-finance software program? That's not free.

12. Buy things you don't use. This sounds like a no-brainer to avoid, but how many times have you seen something on sale and thought you couldn't pass it up? Even if something is 50% off, you're spending too much if you don't use it. href=Couponing, for instance, can be a great way to save on your grocery bills. But if you buy things you wouldn't have purchased in the first place simply for the sake of using the coupon, you're wasting your money. The same goes for buying in bulk. A bargain is no bargain if it sits unused on your shelf or gets thrown away.

13. Own an extra car. Okay, so a car is a necessity for most people. But face it -- cars are a huge drain, from their loan payments to insurance fees to gas and maintenance costs. Own more than one car and you'll double or triple those expenses. Ask yourself if that second or third car is really necessary. Are you holding on to an old car for sentimental reasons? Can you or your spouse carpool, take public transportation or bike to work?

14. Ignore your local dollar store. Shopping at the dollar store can be hit-and-miss, but it's not all kitsch or junk. If you know what to buy, you can find some real bargains. For instance, my local dollar store charges 50 cents for greeting cards versus the $3-plus at a drug store or gift shop. (I have a big extended family so I figure this saves me more than $100 per year.) You can also score a deal on cleaning supplies, small kitchen tools, shampoos and soaps, holiday decorations, gift wrap and balloon bouquets.

15. Keep unhealthy habits. Smoking is not only bad for your health, it burns up your cash. A pack-a-day habit at $6 a pack costs $180 a month and $2,190 a year. A junk-food or tanning-bed habit can be costly as well. Not to mention the money you'll waste on medical bills down the road.

16. Be complacent about insurance. Your bill arrives and you pay it without a second thought. When was the last time you shopped around to determine whether you're getting the best deal? Rates vary widely from insurer to insurer and year to year. Reshopping your auto, home or renters insurance might save you hundreds of dollars.

It also pays to evaluate your insurance needs. For instance, upping your out-of-pocket deductible from $250 to $1,000 can save you 15% or more on your car insurance. Consider using the same insurer for your home and auto insurance -- you could snag up to 15% off for a multiple-line policy. And make sure you're not paying for insurance you don't need. For instance, you need life insurance only if someone is financially dependent upon you (such as a child).

17. Give Uncle Sam an interest-free loan. If you get a tax refund each April, you let the government take too much money in taxes from your paycheck all year long. Get that money back in your pocket -- and put it to work for you -- by adjusting your tax withholding. With a little discipline, you can use that extra cash each month to get started saving or pay down debt (or make ends meet to avoid going into debt in the first place). You can file a new Form W-4 with your employer at any time.

18. Pay for something you can get for free. Dust off your library card and check out books, music and movies for free (or dirt-cheap). Don't pay to receive your credit report when you're allowed to get it at no charge by law. Take advantage of kids-eat-free promotions. And dial 1-800-FREE-411 for free directory assistance.

19. Don't use a flexible-spending account. Your employer may allow you to set aside pretax dollars to pay for medical costs not covered by insurance. You can use the money for expenses such as therapy, contact lenses, insurance co-payments and over-the-counter drugs. You may be able to do the same for child-care costs.

20. Pay for unnecessary services. How many cable channels can a person watch? Do you really need all those extra features for your cell phone? Are you getting your money's worth out of that gym membership? Are you taking full advantage of your subscriptions (such as Netflix, TiVo or magazines)? Take a look at what you're paying for and what your family is actually using. Trim accordingly.

Copyrighted, Kiplinger Washington Editors, Inc.

'Cash for clunkers' starts Monday

Feds release final rules for the $1 billion gas-guzzler trade-in program, including its recipe for killing engines permanently.

By MSN Money staff

Though automakers and their dealers have been peddling cash-for-clunkers deals since the bill was signed last month, the hard sell really begins Monday.

The program offers owners of many older vehicles up to $4,500 to trade them for brand-new vehicles.

Regulators on Friday issued the final rules for the $1 billion program, unveiling a framework for registering dealers and a way to pay them once a car is proved to be scrapped. Though dealers may not file for payment until today, any sale since July 1 that otherwise meets the requirements (spelled out below) is covered.

Some noteworthy provisions in the rules:

Only new-car dealers can issue the credit, and they must have an active franchise agreement with the manufacturer. That means used-car dealers can’t issue the vouchers. Neither can a new-car dealer that has lost its franchise, as several thousand Chrysler and General Motors dealers have recently.

Dealers are required to disclose to the consumer the scrap value of their trade-in and can keep $50 of that amount to cover their administrative costs.

Though all trades must be in drivable condition, dealers are required to disable the vehicles' engines before scrapping them. Regulators’ accepted procedure: Drain the oil, then run several quarts of sodium silicate through the engine. As engine heat evaporates the solution, deposits of dehydrated sodium silicate line the engine's lubrication system, abrading all the moving parts and causing the engine to seize.

The dealer must stamp the title "Junk Automobile, Cars.gov" before submitting it for reimbursement. And the dealer must have clear title before doing so.

Scrap facilities can sell any part of the car except the engine block or whole drivetrain, but ultimately the car must be taken off the road.

Violators of the rules face civil penalties of up to $15,000 per incident.

Beware 'cash for clunkers' sites
The National Highway Traffic Safety Administration is warning car shoppers that official-looking sites have already sprung up, offering information on the program and asking for personal data or preregistration.

In fact, if the site uses the term "cash for clunkers," it's not official at all. The program's name is the Car Allowance Rebate System.

"There's only one official site for the government, and that's NHTSA's CARS.gov Web site," said NHTSA spokesman Eric Bolton. "Folks should go there and not rely on 'cash for clunkers' sites on the Internet as they are not official."

An estimated 250,000 vouchers will be issued on a first-come, first-served basis. Dealers let you know whether your trade qualifies, credit the amount to your down payment, then apply for the voucher. Only new vehicles -- domestic or imported, purchased or leased -- qualify, and they must have sticker prices under $45,000.

Buyers do not have to register or apply for any part of the program. Dealers do.

Trade-ins must be 1984 models or newer, get no better than 18 miles per gallon, and have been registered and insured for the past year.

There's a catch
The vouchers aren't a panacea for buyers.

Car buyers must remember that their trades will be scrapped and have no value to the dealership above the amount of the voucher. A 10-year-old Lexus might qualify for the biggest ($4,500) voucher, but it's almost certainly worth more than that on the open market.

So, Rule No. 1 for buyers intent on using the program: Check and double-check the value of the vehicle you want to ditch. Almost any roadworthy vehicle is worth $1,000 and typically twice that if it's an import.

Which leads to Rule No. 2: The mileage you get in your daily driving does not matter one bit. What matters is what's on record with the government; its source of data is www.fueleconomy.gov. A muffler-dragging 25-year-old Toyota may meet the popular definition of clunker, but if the government's estimates show it got more than 18 mpg combined new, it's not a clunker. You'll see two sets of fuel-economy numbers for most cars: one calculated under an older EPA system, the other recalculated to reflect a new formula. Use the new one.

Rule No. 3: You can layer government programs: Trade an old pickup for a shiny Ford Fusion Hybrid, for example, and you can get $4,500 because the trade is going to the crusher and a $1,700 tax credit (a dollar-for-dollar cut in your taxes, way better than a deduction) for the new hybrid.

Not all hybrids qualify for deductions; Toyota and Honda have sold their quotas under the law, and Ford's expire in the fall. Check out current qualifying vehicles here. Some new "clean diesels" qualify for these credits as well; here's a list.

On top of that, the sales tax on any new car, with a price of up to $49,500, bought between Feb. 17, 2009, and the end of the year is deductible on next year's tax return.

Which leads to Rule No. 2: The mileage you get in your daily driving does not matter one bit. What matters is what's on record with the government; its source of data is www.fueleconomy.gov. A muffler-dragging 25-year-old Toyota may meet the popular definition of clunker, but if the government's estimates show it got more than 18 mpg combined new, it's not a clunker. You'll see two sets of fuel-economy numbers for most cars: one calculated under an older EPA system, the other recalculated to reflect a new formula. Use the new one.

Rule No. 3: You can layer government programs: Trade an old pickup for a shiny Ford Fusion Hybrid, for example, and you can get $4,500 because the trade is going to the crusher and a $1,700 tax credit (a dollar-for-dollar cut in your taxes, way better than a deduction) for the new hybrid.

Not all hybrids qualify for deductions; Toyota and Honda have sold their quotas under the law, and Ford's expire in the fall. Check out current qualifying vehicles here. Some new "clean diesels" qualify for these credits as well; here's a list.

On top of that, the sales tax on any new car, with a price of up to $49,500, bought between Feb. 17, 2009, and the end of the year is deductible on next year's tax return.

Financial physics still apply
Don't let the thump of up to $4,500 in "free" money hitting the table distract you. Negotiate on a new car the same way you always would. The only thing different is that all the parties involved know exactly what the trade is worth upfront.

MSN Money personal-finance columnist Liz Pulliam Weston recommends buyers limit loans to four years and put down at least 20% of the price of the car. Her car-buying rule of thumb: Keep payments to no more than 10% of your monthly gross income.

For many people, that means a fairly cheap new car. But they're out there. (Here's MSN Autos' look at new rides under $10,000.) With a $4,500 voucher as a down payment and a four-year loan at 7.5%, the payments on a $10,000 car would be about $133. You can see current loan rates here.

For someone with subprime credit -– a FICO score of 620 or below -– rates could easily top 15%, adding $50 a month to the payments on that $10,000 car.

If your credit is bad, even a car with $4,500 on the hood is a mistake.

Saturday, July 4, 2009