Have you ever stopped to think about where your money is going when you’re not even paying attention? And no, I’m not referring to money being stolen. I’m referring to money that is leaving your pocket as a consequence of your actions… or inactions.
These could be very minor, careless actions, or simple laziness. Either way, you’re losing money, and we don’t want that. We want to put as much money to work for us as possible or keep it for things we’d rather be spending on.
You might be thinking, “I know where all my money is going, I know I’m not losing money”. But these losses don’t necessarily result from where your money is going, but rather how you’re managing it and where you’re keeping it.
Let’s not beat around the bush though, here are the top 6 ways you are wasting money.
Keeping Your Savings In A Traditional Bank
When you keep your money in a traditional savings account, such as your traditional Bank of America, Well’s Fargo, US Bank, or other brick-&-mortar banks, your money is actually losing value! This is due to inflation. In economics, inflation means the general increase in the price of products and services and the decrease in the purchasing power of a specific currency.
From 2010 to 2020, the average inflation rate was about 1.83% in the United States. If we round up, this means that every single year, your money is losing 2% of its value. To put it in perspective, if you have $100 in a traditional savings account, in one year that money will be losing $2 worth of purchasing power.
This may not seem like a lot on the surface, but as the years keep passing, this value adds up, devaluing your money furthermore in the long run.
How To Avoid This
So how do we avoid this issue? Where do we keep our savings? Is our emergency fund just supposed to be losing value each year? Don’t worry, there’s a solution to this issue.
High yield savings accounts are the perfect answer for this. Although I like to invest and make my money work, emergency funds are there for us when everything else is down, so we do not want our emergency fund to be highly volatile. This also goes for any other savings account we have, for example, a home-purchase savings account.
You’ll usually find high yield savings accounts with an online bank like Marcus by Goldman Sachs, Ally, or Vio Bank. Credit unions also offer this service, Blue Federal Credit Union is a perfect example of this, offering a whopping 5% APY for values up to $1,000 on their Accelerated Savings account! You can strategically use multiple accounts like these. For example, in this case, you can max out your Accelerated Savings account then put everything above $1,000 in the next highest APY account. There are multiple strategies you can use to maximize the return on your savings.
Keep in mind that due to current low-interest rates imposed by the Fed, some of these banks may not be providing interest rates higher than the inflation rate. Nonetheless, having these accounts minimizes what you lose to inflation. Also, interest rates are bound to bounce back up at some point in the future.
Not Factoring Time-Value
Factoring time-value is one of the most effective ways to ensure that you’re getting the most out of every single hour of the day. If you don’t know what time-value is, it’s exactly what it sounds like, the value of your time! You can actually lose a lot of money by not factoring time-value into your day.
Let me give you an example. Let’s say that your car needs a repair, you’re not a mechanic, and you usually spend time outside your job on a side-hustle where you make about $400 a week. Let’s also say that doing this repair at a shop by a mechanic will cost you $500.
In this case, you have two options:
- Take your car to the mechanic, have them do the repair in 2 to 3 hours. The cost of this is $500 plus taxes.
- Do it yourself. If you’re someone who doesn’t mind learning something new, this might mean that you go out of your way to learn how to do the repair. You learn what you need to purchase, what needs to be done, and ensuring that your repair is done correctly. With everything you need to learn and apply, this will take you about 2 weeks to a month. The cost of this is $200.
You’re probably thinking that option 2 is the less expensive option, but this is not the case. You see, the amount of time that you need to dedicate to learning the entire process, going out and purchasing what you need, performing the repair, and ensuring that it is done correctly has now taken away the time that you could’ve been spending on your $400/week side-hustle.
If you aren’t planning on becoming a mechanic or having some type of mechanic side-hustle, this might not be the most lucrative option. You’re not only spending $200, you’re actually spending $1,000 if this process only takes you two weeks!
That’s $800 for two weeks of no side-hustle and $200 for the cost of the repairment.
This is only one example, but time-value factors into so many other situations in life, even something as small as public transportation. The less expensive but more time-consuming ride could actually be costing you more than the more expensive but less time-consuming ride.
Always factor in what you could be doing with your time to be more productive.
Not Returning Useless Items
You’d be surprised at the number of people who forget to return expensive and useless items that they intended to return; sometimes they didn’t even think about returning them but ended up never using them.
This isn’t just items from your regular shopping mall or your local Walmart. This also includes online shopping.
In the long run, forgetting to return unnecessary items, such as clothes is costing us a lot of money. According to Cosmopolitan, “The average millennial keeps an average of three $40 items per year that we don’t actually like, according to a new Cosmo survey. That’s $120 of wasted cash.”
This is cash that could’ve been put into a high-dividend yield ETF, stock, or some other income-producing asset.
So do yourself a great money-saving favor, return your unwanted items. In the long-run, it’ll save you money, quite a bit of it.
Using the Wrong Credit Cards
This one only applies to some people. There are certainly those who should not be using credit cards due to their toxic spending behaviors. For those who can use credit cards responsibly though, using the wrong kind of credit card is actually costing you money!
If you’re a responsible credit user, why not take advantage of the perks that many credit cards offer? An excellent example of this is the Discover Credit Card cashback bonus. It gives 2% cashback on purchases at restaurants and gas stations, and 1% cashback on all other purchases; they will then match your accumulated cash to 100% of what you got in cashback. Also, if you sign up with this link, you’ll be getting a $50 bonus for making your first purchase within 3 months.
There are plenty of other options out there with different bonuses. I simply gave this one as an example because this specific card also accepts those who are new to credit and may not even have a credit score. I started off with this card when I didn’t have a credit score yet, and I have not been disappointed.
Another great example is Petal, providing various rewards for different options of credit cards.
The overall point here is if you are responsible enough to use credit cards, don’t lose money by using credit cards that give you minimal rewards or none at all.
So many people overpay in taxes because they’re simply not aware of all the tax benefits they could take advantage of.
Many people target the rich and accuse them of paying a very small percentage of their net worth to taxes while being completely unaware that they, too, have tax benefits that they can take advantage of and miss out on every single year. Of course, these benefits vary depending on your individual situation.
Most people don’t like to think about taxes and don’t usually want to deal with them, so you could do one of two things:
- You can do your own research on which benefits you can take advantage of.
- You could spend a little money to have a tax professional do this for you, saving you a lot more than what you spent to have the pro do it for you. This wouldn’t only apply to the current year, but to a lifetime, by having them help you plan for the future so that you can save on taxes throughout your life.
A tax pro could help you find benefits or tax breaks that you didn’t even think of, or that would have taken hours of research to find on your own. Consider a tax pro as an investment, the savings you’ll make will be your return on investment (ROI).
Wasting Money on Snacks (Yes, Coffee Too)
One of the worst ways that we waste our money is those daily “cheap” snacks. That morning coffee from Starbucks counts too. It’s a big problem affecting the Millennial and Gen Z generations.
In fact, according to an NGPF report, “the average 25- to 34-year-old reported spending $2,008 per year at coffee shops, and according to a survey by the money app Acorns, 41% of millennials admitted to spending more on coffee in the past year than they had invested in their retirement accounts”.
If instead, this was invested into an index fund at a rate of return (ROR) of 7%, it would come out to be hundreds of thousands of dollars.
Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it”.
This is only for the cost of coffee. Stop and think, what other snacks are you spending money on a regular basis? It seems so small now, but it adds up! A great solution for this if you’re the type to get easily hungry or who NEEDS to have some coffee in the morning is to buy snacks and/or coffee at the grocery store. Bring your snacks with you on your daily trips and make your coffee in the morning.
Buying things from the grocery store that’ll last you for even a week will save you more money than spending $5.50 a day on snacks and/or coffee.
Now that you have this information, what will your next steps be? Will you leave it off for tomorrow and continue to passively lose money, or will you start taking action to save yourself big in the long run?
Always remember that carelessness leads to losses; be diligent, and disciplined with your finances, it’ll save you a lot of money.
If you have anything to add in terms of monetary losses that take place in our daily life or if you simply want to leave your thoughts on the topic, please leave them below! I enjoy reading the feedback.