According to the U.S. Bureau of Labor Statistics, the 3 biggest annual expenses in retirement are:
Yes – you read that correctly — transportation came in second.
The average annual cost of transportation for households age 55-64: $9,321 and age 65-74: $8,338.
A lot of retirees think that because they own their car and are no longer commuting to work every day, it’s a negligible cost. I promise you, it’s not.
Every year, you still have to pay for gas, insurance, repairs and maintenance. Owning a vehicle is not cheap. Today I’m going to share with you some hidden money pits, let’s call them “money sucks,” that appear to be saving you money when in reality they’re not.
Money Suck #1: Driving an Old Car
As I said, just because you own a car, doesn’t mean there are no additional costs for upkeep. And if your car is old, count on your upkeep costs being even higher.
According to Junkacar.com, the average annual maintenance cost of a vehicle 7 years old is $1,000. This number skyrockets to $2,000 when you reach the 12-15 year mark.
While you might think you’re saving yourself some money by driving your old junker into the ground, the truth is you’re likely wasting a lot of money every year.
Money Suck #2: Trading In Your Car Before It’s Paid Off
This one is almost the opposite of number one.
If you decide to get a new car and you still haven’t paid off your old one, be careful rolling over what you owe.
A lot of times when you roll over what you owe, you end up paying more than what the new car is worth. Make sure you calculate the true cost of making the switch.
Money Suck #3: Doing Your Own Taxes
Tax software has come a long way in the last few years and if you’re dealing with some very basic tax preparation, it might be worth saving yourself the cost of hiring an accountant to do your taxes. However, for most people, doing their own taxes is not worth it.
Tax professionals live and breathe lengthy tax codes, and will find deductions and tax exemptions that you had no idea existed. While tax software may be able to take these into consideration, you still need to know what you can legally deduct before entering it.
Most tax accountants charge between $150-$250 for tax preparation. This is a small annual investment that will save you thousands over the years. Plus, tax preparation fees are tax deductible the following year!
Money Suck #4: Buying Cheap Clothes/Jewelry
Buy cheap, pay twice.
I like that saying. High-end designer brand clothing is pricey and I don’t recommend you waste your money on it. But you shouldn’t buy cheap, fast fashion either.
Buy clothing that’s moderate-to-expensive. Clothing in this category costs a bit more because of the quality of materials and manufacturing but you won’t have to replace it as often. While it may cost a bit more upfront to build a wardrobe with higher-quality pieces in it, you will save more money in the long run. The same rules apply for jewelry. Pro tip: buy timeless pieces.
Money Suck #5: Not Paying for Parking
It might sting a little having to fork over a few dollars to pay for parking every month while you run in a store for a few errands, but it’s worth it when you consider the downside.
The average cost of a parking ticket now is between $10-$50, depending on which city you live in. Compare that to 25 cents for parking and it’s a no brainer. Don’t get burned for being cheap.
Money Suck #6: BOGO Deals
Buy One Get One Free deals are everywhere.
The problem is they’re never in the stores you’d want them to be. For instance, if toothpaste was BOGO free, that’d be a good deal. Toothpaste has a long shelf life and you’re going to buy more anyway, so stocking up when there’s a good deal is smart financially.
However, most BOGO sales happen in stores you frequent less. If you’re out shopping for a pair of shorts and you see a sign that says BOGO 50% off, it might seem tempting, you would be saving 25% off your total order. In reality, you’re spending more overall. Ask yourself, “Do I really need a second pair of these shorts?”
Stick to buying only what you need. Don’t get suckered into buying more than you need of any one item because it’s on sale.
Money Suck #7: Buying Food in Bulk
This might seem contradictory to number six. The trick is limiting your bulk orders to non-perishable items only. Avoid buying perishables in bulk unless you’re positive you’ll use them up before they spoil.
Think: large bunches of ripe bananas you always see on sale at your local supermarket. The price is tempting but you know after two days, half the bunch will be too ripe to enjoy. Stick to buying only non perishables in bulk and you’ll save money in the long run.
Money Suck #8: Keeping Your Money in a Savings Account
Opportunity Cost is defined as the loss of potential gain from other alternatives when one alternative is chosen.
There’s a surprising number of Americans who choose to keep their life savings solely in savings accounts. The cost of doing so is that the average savings account yields an abominable 0.06 percent interest rate, which is much lower than the rate of inflation.
Instead, put your money to work for you by investing in low-risk stocks and bonds, real estate and other higher-yielding investments.
Money Suck #9: Buying Extended Warranties
Extended warranties seem reasonable at the time of purchase. The sales clerk is explaining how it’s only going to cost a few dollars a month to protect your new purchase. You think, “I’m spending over $X on this…what’s another $19/month?”
Convincing yourself that extended warranties are worth the money is fear-based marketing working against you. Almost universally, extended warranties aren’t worth the money, says Consumer Reports.
You’d be better off putting aside the money …read more
From:: Daily Reckoning