By Geoff Williams
When you were young, and if you got an allowance, your parents probably told you not to waste your money on candy, comic books, video games or some other equivalent whenever you tended to go overboard on purchases.
But as you quickly figured out, what is a complete waste to some people is a perfectly reasonable purchase for others. Still, it's hard to argue with Joan Fradella, a West Palm Beach, Florida, resident when she says, "Our garbage dumps are filled with purchasing mistakes."
%VIRTUAL-pullquote-There are reasons we don't give credit cards to toddlers. We shouldn't treat our hard-earned money as if it is Monopoly money.%Fradella, who used to be a purchasing agent for a consumer electronics company before co-founding a divorce mediation company, says everyone should think long and hard before whipping out their wallets.
"There are reasons we don't give credit cards to toddlers. We shouldn't treat our hard-earned money as if it is Monopoly money," she says.
Still, since there is no rule book for what constitutes a waste of money, everyone has to go with their gut.
And, of course, there must be a million ways consumers can waste their money. So this isn't a comprehensive list of possibilities for throwing away your income.
Credit cards. While many consumers use credit cards wisely, lots don't -- and there are certain cards you shouldn't bother with, according to Dak Hartsock, a resident of Naples, Florida, and chief investment officer at ACI Wealth Advisors, an investment advisory firm.
"If you have a credit card with an interest rate over 11 percent, you should get rid of it," he says. "Once you get north of 11 percent or so, the interest expense piles up so fast that many regular Americans can't ever catch up. Credit cards are loaded guns for many Americans. If you don't pay attention, you are going to get hurt."
If it helps, Hartsock says that when it comes to borrowing money, try to think like the CEO of your own company. His rationale? If you were running a public corporation, and the interest rate on the company's debt jumped from 7 percent to 27.99 percent, "the company would be in deep trouble," Hartsock says.
And then what would happen? You would be fired, he adds.
Weddings. Again, like credit cards, you can pay for a wedding responsibly or you can go off the deep end. "The final price of a wedding usually ends up being about the price of the down payment on a new couple's house," says Rick Salmeron, a certified financial planner with his own firm, Salmeron Financial, in Dallas.
The problem, as he sees it: "The majority of couples end up super-sizing their wedding, blowing dollars on stuff they had never originally budgeted for. So many variables are ripe [for] emotional impulse purchases -- the wedding dress, makeup and hair, DJ, decorations, food, wedding favors, invitations, photography ... the list is seemingly endless."
If you're still not convinced, Salmeron puts his distaste for extravagant weddings this way: "So many marriages fail due to financial problems. Why create a financial hardship on your savings account on day one? What's so romantic about that?"
Cable TV. "People spend well over $1,000 a year just so they can watch five to 10 of the 200-plus channels they're paying for, and the cable companies keep luring them back into long-term contracts with promo deals that expire after a few months, then the rates go through the roof again," says Steve Belk, a Houston-based entrepreneur who created CutCableToday.com, an online guide for doing just that.
But Belk is hardly alone in his stance. In 2013, CouponCabin.com surveyed 2,046 adults; forty-five percent of respondents said cable TV is a waste of money, but 81 percent of them admitted to being paying customers.
Hartsock agrees it's a wallet wrecker. "I've never met anyone that wasn't paying at least $80 a month or $960 a year," he says. "You can basically duplicate cable with a combination of Apple TV ($69 a year), Netflix ($7.99 a month), and Amazon Prime ($99 a year). Total annual bill, $263.88 before tax."
Cars. If you really want to shred money, buy a car incorrectly or one you can't afford. "Buying a new car just generally doesn't make a lot of sense for most people in the lower- to middle-income ranges because the depreciation credit is likely to be more than they can use on their taxes," Hartsock says. "If you have to get a car, it's a better use of money to get a certified used."
%VIRTUAL-WSSCourseInline-884%He offers the suggestion that if, for instance, you bought a certified used Audi or Lexus -- not exactly shabby cars -- with fewer than 100,000 miles on them, "not only are you avoiding the huge depreciation that occurs as soon as you buy it off the lot, you still get the warranty coverage."
And be sure to get your financing straightened out before you go to a dealership. "Once you know what car you want, it's only a matter of shopping around for the best price out the door and not [having] to worry about financing and APR with a car dealership," says Edgar Cerecerez, a marketing specialist for a software company in Lake Forest, California, who bought a Honda Fit earlier this year.
He had planned to get a used Honda but actually found financing that was less for a newer car. In any case, by comparison shopping first and using an online automobile calculator, he knew exactly what he was getting into before buying his car. He estimates he saved at least $720 from financing alone, and of course, some consumers might save potentially thousands by nailing down the loan before going into a dealership.
Splurging. It isn't that you shouldn't splurge. But you may be doing it too much, particularly at restaurants, according to Danny Kofke, a retirement consultant in Atlanta.
"If you are like me, you usually need a doggie bag to go because you cannot eat your entire meal. Why pay more money for an appetizer when all it does is take up space in your belly before your meal is even brought out? In addition, soft drinks and even tea can now cost over $2. If you have a family of four, that is over $8 in just drinks."
Kofke says he can easily spend more than $12 on drinks -- he and his wife have four kids. "Order water instead, and you can save a huge chunk of change," he says.
And, sure, splurging a little may not be like buying an overpriced car, but if you're splurging every day, it's easy to see how you could really mess up your finances.
Robert Godlewski, an Atlanta resident, has a similar mindset. He is a public relations guy for a university and is just, as he puts it, "a regular guy" who is admittedly in an "ornery mood," due to some lousy weather in the area lately, but he feels like a lot of people mindlessly splurge on dumb things.
"Why do people feel they have to buy an expensive cup of coffee on their way to work?" he grouses. "Can't they get up five minutes earlier and make it themselves? I thought that was why instant coffee was invented."
He also thinks some people waste their money on overpriced premium cable subscription channels.
But while some consumers love their coffee and premium cable channels, nobody can fault him on where he thinks everyone's wasted money should go instead: "People should spend money, if you will, on their damn retirement accounts."
By Geoff Williams