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What do expensive mutual funds and Private Mortgage Insurance have in common? They both make this list of things people waste money on.
It’s kind of ridiculous how easy it is to overspend. There are just so many things out there that we can choose to spend money on. And sometimes the sheer number of options gets overwhelming, and we wind up buying things we don’t need.

Especially when finances are tight, it’s important to only spend money you actually need to spend. Yet many of us spend money on things we don’t really need, even though it’s pretty easy to avoid these expenses.

So whether you’re trying to save more money or just get through a financially difficult time, knowing what to look out for can help. That’s why we put together this list of things people waste money on.

1. 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 onto 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 wants 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 never worth their cost. We should look to insure only those things that are vital (e.g., home, life, health, auto) and that we cannot afford to replace. Plus, many credit cards offer extended warranties for free.

2. 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 as, if not better than, mutual funds that cost much more. Your retirement will thank you.

Don’t know how much your investments cost? Check out Personal Capital. It’s a free online tool that will tell you.

3. 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. You’d hate to pay $500+ if you got into a car accident with a higher deductible. But if you lower your deductible, you’ll pay extra each and every month you pay for your policy.

Check with your insurance agent about how much you could save with a higher deductible on your car or homeowners insurance. Then, put the money you save into a savings account. You’ll pretty quickly save up enough to cover that higher deductible!

4. 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. But be sure not to buy more than you need.

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. Check out this article for some advice on how to choose how much life insurance you need.

5. Cell Phone Extras and Paid Apps

Most of what you can do on your cell phone, you can figure out how to do for free. This used to be the case with additional ringtones. You had a bunch of free ones, but you could subscribe to a service to get more for an additional fee. Note: Your phone will still ring, even if you don’t pay for fancy ringtones!

These days, paid apps are the ringtones of the Smartphone world. Some paid apps may be worth your while, depending on what you’re purchasing them for. But many times, there’s a free app–or a free version of the app–to do what you want without costing extra. Think twice before you purchase apps. Find out how to slash your cell phone bill here.

6. 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 to book the rental probably offers rental car insurance.

For example, Discover Credit Cards come with the following rental car insurance: “Your Discover Card comes with a Car Rental Insurance Plan that provides $25,000 of secondary collision damage insurance when you rent a car using your Discover Card and decline coverage offered by the rental agency.” So purchasing additional rental car insurance just doesn’t make sense.

7. 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 percent 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 percent equity cushion.

8. Unnecessary Cable, Internet, & 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.

9. 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 just pay interest on the overdraft until you pay it off.

But here’s the catch: In addition to interest, the banks now charge 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.

10. Too Much Electricity & 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.

11. Books & 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.

12. Exercise Equipment/Gym Memberships

Buying exercise equipment isn’t necessarily a bad thing. But if you have equipment or a gym membership you never use, you’d be better off saving your money. If you’re already disciplined at working out, these can be worthwhile expenses. Just be sure to keep them as low as you can. Choose a cheaper gym, or get your in-home equipment used.

But if you’ve just made a new resolution to exercise every day, consider a lower-cost option first. Instead of spending a ton on a treadmill, commit to walking or jogging outside regularly. Then if you make that a habit, you can invest in equipment you know you’ll actually use.

13. Single-Use Kitchen Appliances

Any home goods store will be packed with kitchen appliances that have only a single use. These can be tempting. Sure, it’s nice to save time when peeling potatoes or whipping cream. But if the appliance only has one use, you can probably do better than that. Instead of wasting money on cabinet-hogging single-use appliances, look for appliances with a variety of uses.

For instance, a stand mixer could be a good investment if you bake often. You can give it more uses with additional add-ons. But you won’t spend a ton of money on a different appliance for each use your stand mixer can handle.

14. Many Personal Care Products

It’s really easy to justify spending way too much money on personal care products. But do you really need four different types of lotion, sixteen hair products, and twenty-five shades of eyeshadow? Probably not. Your best bet here is to keep things simple. Find a hair, face, and body care routine you like, and stick with a handful of affordable products. When you’re tempted to add more products to your routine, ask if you’re accomplishing anything new or just changing for the sake of change.

15. Formalwear

Sometimes you need to dress up for a special occasion. But owning expensive formalwear probably isn’t justified for most of us. Instead of buying a tuxedo or formal gown, it’s often best to rent these items. This is especially true if your size frequently fluctuates or you like to stay up-to-date on the latest styles.

These days, women can even rent formalwear gowns online through Rent the Runway and similar companies. You can use a gown for one night for must less than the actual cost of the gown.

16. Things Your Smartphone Can Do

If you have a smartphone, chances are it can do a lot of things you used to have to pay for separately. For instance, you used to have to buy a separate GPS subscription for your vehicle. Now, you can just use your phone’s GPS to get where you need to go. Likewise, you can use your phone to get the latest news, to stream podcasts, or to download music.

Go through the list of services you’re currently paying for, and see if you can do any of them on your smartphone for free. You might be surprised at the money you could save.

17. Loads of Baby “Stuff”

As parents, one of the primary places we overspend is probably on our children. It’s especially easy to do if you have a new baby. All the stores tell you that you need a variety of “stuff,” including a swing, a bassinet, a pack-n-play, a crib, a specialized changing table, and fifteen different skin care products. The bottom line is that you don’t actually need all this stuff, and you can spend much less money on your baby than this.

This also translates into when you have more grown-up children. They don’t need every toy they want, 50 changes of clothes in the closet, and every gadget known to man. Keep your parental buying decisions simple, and you’ll save a lot of money.

Author Bio

Total Articles: 279
Abby is a freelance journalist who writes on everything from personal finance to health and wellness. She spends her spare time bargain hunting and meal planning for her family of three. She has a B.A. in English Literature from Indiana University–Purdue University Indianapolis, and lives with her husband and children in Indianapolis.

Article comments

Craig says:

Warranties of any kind are a waste, such a rip off. The only time I do that is on a computer because I know it will last 4 years and it’s very expensive. I actually buy books and can understand how its a waste, but I enjoy the buying and reading experience and most libraries don’t have the books I want.

Manshu says:

Happy anniversary! I hope I am not late.

J. Money says:

haha nice – congrats on the wedding anniv 🙂 great list…

Mr. Smith says:

#9 Rings all too well for me. I can recall a two week period where I racked up over 20 overdraft fees totaling over $600.

My multi-billion dollar bank was nice enough to refund me $32 that month. Ugh.

Chris says:

Per discussion of not paying rental car insurance, I use to rent cars every weekend because I was trying to save up for a new car. Just remember your policy may cover an accident, but you still would have to pay a deductible just like it was your car. Then your insurance may go up on a car that wasn’t yours. Worse yet, your policy doesn’t cover an accident. Just a thought because most people decline insurance without fully thinking about it.

Zeke2040 says:

I agree with you on the extended warranties. Many years ago, I used to work for Sears and we were encouraged to sell warranties and sign people for credit cards more than actually selling products. In extremely rare cases where the warranties come with a service agreement that will do preventative maintenance or cover accidental damage they might be worth it for some people. However, most of the time the average person will forget to even take advantage of this benefit, and it is just a 100% profit for the company selling it.

Also, great mention with the magazine subscription. This is one I struggle with as well. I LOVE magazines and I pay full news stand price on all of them month after month. Time for a subscription.


Jan says:

Check out the TEXTURE app. For lpads…$8.20 per month for access to over 100 mags, and access to back issues.

Dee says:

Re: rental car insurance

JD at Get Rich Slowly had a post a while back about getting into a car accident in a rental car. Some comments suggested that getting the rental insurance is important because there are some fees that are typically tacked on that your insurance probably won’t cover. And the “secondary” part of the credit card insurance may indicate that it only kicks in after yours, which leaves you with the deductible. If you just pay for the rental car insurance, you hand them the keys and walk away.

DR says:

Dee, I remember that article well. The question remains, however, whether it is worth buying insurance to cover those types of fees. If I can afford to pay for the fees should I get into an accident, I would not buy insurance to cover those fees. Just my two cents!

Amber says:

As to #11 and Craig’s comments, I would suggest a more thorough look into the library. I do live in an urban area so our library system may be more advanced and offer more features than others, but in our library you can request books, CDs and DVDs (to buy) and have books from other libraries (including the big “central” one on the other side of town) put on hold for you for free. Our library also makes all back-issues of magazines available for checkout as the new months come in. If I read anything I want a copy of, etc. I can wait for the next month and check it out and make whatever photocopies I want (clearly I’m far too frugal to pay 10 cents for each copy!)

I have a friend who buys books because she wants to “build a library” and ostensibly likes seeing lots of books around her. I have the same thing and can visit it any time I want for free.

My library is an *amazing* resource. I’m willing to best most everyone else’s is at least pretty good.

Congratulations on the 21st anniversary!

Great list. Oddly, I’ve found that the programmable thermostat has resulted in higher power bills, not lower. This has been true two months out of three — last month by a large margin. Apparently I was doing better with the analog thermostat, leaving the air conditioner off until it was too hot to breathe and then turning it on at the warmest tolerable setting, than with relying on a computer chip to do the job.

This is a great list. I’m guilty of several of those…

Good list of ways to save money on items we don’t really need to buy. I like the library for borrowing books, CDs and DVDs. Exchanging books with other friends is also another good way to save on buying books and also frequenting second hand libraries and discards from your local library.

James says:

A really good list of ways to save money during hard times. I agree with and actually do most of them.

I guess the one area that I would have to ask the question “How do you know?” would be centered on #4 “Unnecessary Life Insurance” .

Sure, buying more life insurance than we actually “need” can seem like a waste of money. .. But if you happen to die with this “extra insurance” coverage in force, the death benefit will probably have a better ROI than any of the more traditional asset classes.

The bummer with term life insurance is that:
1) If you live, you don’t collect anything.
2) If you die, your beneficiaries get the benefits.

Beneficiaries don’t often complain about the “extra death benefits”. They are usually more concerned about that it is not enough.

That is why it is important to speak with a licensed, professional agent who can help you best assess your needs and more importantly, your wants.


Chuck says:

I have to disagree with #6. Rental Car Insurance

What your car insurance and the credit card doesn’t cover are the “diminished value” of the car even after repairs, and the “loss of use” that the rental car company can charge you for. So after an accident you may still owe the rental car agency thousands after all the insurance is done.