3/14/2014 3:00 PM ET|
5 small things that are killing your budget
The little things really do add up. Don't let them overtake your finances.
It’s easy to ignore small expenses. We don’t often think of the small things when we look at spending, then we wonder why the budget seems so out of control. Yet it’s often the small daily expenses that add up to a lifetime of financial frustration.
The Rule of 752 can add so much needed perspective. Take a weekly expense and multiply it by 752. The result is the real cost of that expense over 10 years had you invested the money instead. I learned this in an interview with a guy who retired at 30 (yes, 30).
So with the Rule of 752 in mind, here are five “small” expenses that might be killing your budget.
1. Account maintenance fees
Have you checked your bank statements lately? Fees can crop up with bank accounts, credit cards and prepaid debit cards. While each fee by itself may not seem like a lot, they add up quickly. In addition, there’s no reason to pay them. There are many no fee checking accounts, no annual fee credit cards, and even prepaid cards that don’t charge a monthly fee.
Furthermore, once you eliminate the fee, you’ll save that money each and every month going forward. Getting rid of unnecessary fees is a truly painless way to save money.
2. Unnecessary TV and phone expenses
I miss the 1970s. We didn’t have cable, cellphones or even remote controls. TV was free and Pepsi was sold in glass bottles, but I digress. Today many families pay hundreds of dollars each month for TV, Internet and cellphones. Sure, we now have 500 channels, and cellphones far more powerful than the first computers, but the costs can get out of control.
To monitor the costs, look through your bills carefully. First search for fees on services or equipment you’re not using (like that second DVR in a bedroom where you never watch TV). Second, make sure you need the level of service you’re paying for. Recently, I learned we were paying for far more data than we ever used on our cellphones. And third, consider alternatives. Prepaid cellphone services, for example, can save you a bundle over those two-year contracts with major carriers.
You might pay “only” $30 a year for a monthly subscription to some magazine, but do you even read it? And could you get the information for free online? The same is true of subscriptions to online portals. It seems like a small amount, but when you add up the fact that you are paying it over time, and you might not even use the subscription very much, it just becomes another regular expense that you have to pay each month.
4. Convenience fees
Sometimes when you buy things over the phone, you are charged a convenience fee. Other times, the “convenience” fee is more of a small fee that you are charged when your bank sends you a paper statement. There are also “convenience” fees associated with travel. If you want to travel at a time that is more convenient for you, you might pay $50 or $100 more just for getting a better time for the train or the airplane.
Whether you repeatedly pay $2 for a paper bank statement or pay extra to travel at specific times, these convenience fees seem like a small price to pay now, but they add up over time.
5. Credit card interest
Credit cards are addictive. For what seems like a small monthly payment, a credit card enables you to buy now and pay later. Like the Siren songs of Greek mythology, however, credit cards can quickly lead to financial ruin.
The high interest rate associated with credit cards can really add up over time if you carry a balance and make only the monthly payments. By the time you pay off the credit card, you might have carried that debt for 10 years and have repaid three times what you borrowed in interest alone.
It seems like a small thing, but it turns into a big deal over time. Before you get excited about how you can put a $1,800 purchase on a credit card and “only” pay $54 a month, remember that it’s very possible that more than half of your payment is going toward interest, so you’re only reducing your debt by $27 or so each month. Having a lower credit score can also result in a higher interest rate, which translates into higher payments over time. By monitoring your credit (which you can do using a free tool like Credit.com’s Credit Report Card) and doing the work to build your credit, you can have better access to lower interest rates, which will save you money in the long run.
Go through your expenses, see where you are wasting money, and then try to plug those leaks. Take advantage of tools and strategies, like the 31-Day Money Challenge, for example.
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