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11 things we buy but don't need

Unnecessary insurance is on the list

By Karen Datko Sep 14, 2009 9:26PM

This post comes from partner blog The Dough Roller.


Particularly in difficult financial times, the last thing we should do is spend money on stuff we don't need or even want. Yet that's exactly what many of us do. I'm guilty of it, even though avoiding those expenses is really easy to do.


So I thought it would be a good time to put together a list of things many of us buy but really don't need. If you can think of other things we waste our money on, please add to this list by leaving a comment.


Extended warranties. Service contracts and warranty extensions are my biggest pet peeve. I love it when a store clerk asks me if I want to spend $39.95 to add one year to a warranty for something that costs $150. Are they serious?


Yet, electronics retailers and other stores make a fortune on extended warranty contracts. While none of us want to spend $150 to replace or repair something that breaks, we could if we had to (or we could go without). The service contracts and extended warranties are rarely worth their cost. We should insure only those things that are vital (e.g., home, life, health, auto) and that we cannot afford to replace.


Expensive mutual funds. Investing in high-cost mutual funds is an easy mistake to make. Unfortunately, mutual funds don't send us a bill each month for the cost of their services. If they did, high-cost mutual funds would go out of business fast. As a general rule, keep the total weighted cost of your mutual funds under 50 basis points (1/2%) and the cost of any single fund under 100 basis points. These funds are every bit as good (if not better) than mutual funds that cost much more. Your retirement will thank you.


Low-deductible insurance. This is similar to buying extended warranties. We generally don't need to pay for low-deductible insurance policies, particularly for auto and home. We raised our car insurance deductible to $500, which is the maximum permitted by law where we live. We'd hate to be out $500 if we had an accident, but the cost of a lower-deductible policy (say $250) is just not worth it. If you haven't already, check with your insurance agent and find out how much you'd save if you raised your deductible.


Unnecessary life insurance. Buying life insurance is not my idea of a fun time. Yet for those of us with dependents, life insurance is generally a must. Just be sure not to buy more than you need. One rule of thumb says you need 17 times your annual salary. That's a good place to start, although your specific set of circumstances may require more or less insurance. Stick with term life insurance, which is the least expensive, and recognize that once the kids are grown, you'll need a lot less (if any) life insurance.


Ringtones and other cell phone extras. Having just removed several ringtone subscriptions that were added to my children's cell phones when they took a survey on Facebook (at least that's their story and they're sticking to it), I can attest to how quickly these costs can add up. A cell phone advertised for $9.99 a month can quickly become $50 a month after taxes, fees and a bunch of "extras." Study your bill each month and stay away from the unnecessary extras the cell phone carriers love to tack on.


Rental car insurance. Rental car insurance is almost always unnecessary. Your own car insurance policy should cover you (although make sure to double-check), and the credit card you use probably offers rental car insurance.


Private mortgage insurance. We paid for private mortgage insurance 15 years ago when we bought our first home. Because home values increased a few years later, we were able to get rid of PMI quickly. But as difficult as it can be, the best bet is to save a 20% down payment before you buy a home. If you do, you avoid the cost of PMI.


Another option is a second mortgage. Interest rates will be higher on a second mortgage than on the first, but interest is usually deductible, and interest payments decrease as the principal amount is paid off. If you do have PMI, make sure to ask your mortgage company to remove it once you've built up a 20% equity cushion.


Unnecessary cable, Internet and phone service. Have you ever spent 10 minutes studying your cable, Internet and phone bill? It's amazing how much "stuff" you get charged for. For cable, we get charged for high definition, a digital video recorder, the digital video recorder service, the remote control(!) and, of course, cable. This is one of the reasons we are in the process of canceling our cable in favor of free HD TV. But scan your bill each month to see if there are services or extras you don't need and cancel them.


Overdraft "protection" fees. This one is really aggravating. Most banks offer overdraft protection. Spend more than you have in your account, and the bank will cover the difference up to a certain amount. You'll pay interest on the overdraft until you pay it off, which for us is never more than a few days.


But here's the catch: In addition to interest, the banks are now charging a fee as well. The fee can range from about $10 to as high as $35, from what I've seen. These fees can make a payday loan look like a good deal. As a result, stop relying on overdraft protection.


Too much electricity and natural gas. It is so easy to cut back on electricity and natural gas costs. Just using a few CFL bulbs will save money. Add to that a programmable thermostat, energy-saving power strips, better insulation and weather stripping, and a natural gas water heater, and you can save a bundle.


Books and magazines. Mrs. Dough added this one, and she gave me a look suggesting that somehow I buy too many books and magazines. She's right, of course. I usually justify the purchase because it relates to blogging, but it's still money out the door. And because I buy the same magazines every month, I need to get a subscription, which typically saves more than 50% off the cover price. The point is that the cost of books and magazines really adds up. Combine the library with magazine subscriptions, and you can save a bundle.


As a final note, I'd like to wish Mrs. Dough a happy 21st wedding anniversary. Anybody who can put up with me for 21 years deserves a medal.


Related reading at The Dough Roller:

Published Aug. 14, 2009



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