by Want to make the most of your money and spend it wisely? You might not be aware of the different ways you are wasting money. Continue reading to find out the 7 biggest wastes of money, and how to avoid them.
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Bars
Would you pay for a car that you know you can get for 6x cheaper?
Why would you buy a drink that you can get for 6x cheaper?
When you spend $12 for a shot of scotch at a bar, that’s exactly what you’re doing. That same drink, if you bought yourself a bottle and poured yourself one drink could cost you only $1.75. Not only would you save on the cost of the drink, you’d save on tips too!… Sorry bartenders!
So why do drinks cost so much at a bar? Well, the bar needs to pay for its overhead. So when you pay $12 for a drink at the bar, roughly $1.75 covers the cost of the drink, and $10.25 covers the cost of the bar’s rent, wages, utilities, profit, etc.
Here’s my cost comparison of a few different whiskey prices at a bar in San Francisco compared to their retail bottle prices.
There may be times when it makes sense to pay $12 for a drink. Maybe you’re celebrating a special occasion. Maybe you’re catching up with old friends. Maybe in that moment of time, the value of happiness that the drink will bring you exceeds $12, in which case $12 would be worth it.
But don’t make it a habit. If you’re paying $60 for 5 drinks just to get loaded, you’re making a big mistake. You could have easily bought two 750ml bottles with that money!
Anybody who can tilt their right hand counterclockwise can pour you a shot of whiskey from a bottle. You could easily do that at home. So if you’re gonna pay for a bar’s rent, wages, utilities, and tips, why not get the most out of it? Get a drink that takes at least SOME effort to make, like a martini, old fashioned, or specialty cocktail.
Gambling
Gambling is a tremendous waste of money with a negative expected rate of return.
If you spend $100 on lottery tickets, there is an overwhelming likelihood that you will come back with less than $100.
Casino games provide the House an advantage. For example, Roulette provides the House a 5.3% advantage. That means that for every 100 rolls, the house will beat you 5.3% more than you beat them. For every dollar you bet, your expected return is -5.3%.
For sports betting, the House always sneaks in a commission. That means that it doesn’t matter which team wins or loses, you’re paying a premium to bet and the House will collect that premium as commission.
Business Insider calculated the expected value of the Mega Millions lottery and determined that a ticket that costs your $2 has an expected value of -$0.71 for a lump sum payout and a -$0.89 after-tax annuity payout. Ouch!
For more details on why gambling is a big waste of money, check out my article here.
Gyms
Gyms CAN be a waste of money, but it depends on what you get out of it.
In my analysis, it costs over $90 a month, over a period of 3 years, to own a Peleton bike and enroll in its subscription.
Conversely, buying a set a weights and a bench would cost only about $10 a month.
Is the Peleton experience worth that price? For some people, it will be an emphatic yes. For many people, myself included, it would be a resounding no.
If you’re paying for something you’re not utilizing, and not getting value out of, then you’re probably just wasting your money.
Check out my full gym membership analysis here.
New cars
A car will lose between 15% and 20% of its value each year according to Bankrate.com.
If you buy a vehicle that is lightly used, about 1-2 years old, you’ll purchase it after the biggest drop in depreciation.
Eww a used car? What if it’s dirty? What if the owner didn’t take care of it? What if it’s a lemon?
If you buy a used car from a dealership or online, they should be able to provide you an inspection report and/or the CarFax which detail the car’s accident history.
“But I only buy brand new.”
If you want to save money, you’ll have to get over your ego. Some things you should definitely buy brand new. Underwear is a great example!
But a car is just a tool. You can’t take it with you when you die.
- That hotel room at the Ritz Carlton you’re staying at? USED.
- The airplane you’re travelling in? USED.
- The rental car you’re using to putt around town? USED.
A car is a machine. If it has tens of thousands of miles on it, as long it’s been maintained properly and passes inspection, it should have tens of thousands of miles still left in it.
New Electronics
Like cars, some electronics can run into the thousands of dollars. New electronics are one of the biggest wastes of money.
I’m extremely happy with the second-hand Macbook Pro I bought in 2015 from a seller on ebay.
This laptop would have costed me over $1000 more if I had bought it new.
The used one I bought had been used less than a year and it only used up 36 battery cycles. Most modern MacBooks can go over 1000 cycles before needing a battery replacement.
The laptop also came with a 30 day return policy. So when I first got it, I made sure to run it through a wide range of tests, from video, sound, gaming, web browsing, etc. It passed every single test I through at it.
My laptop runs as good as new, 5 years later.
If I ever need to replace this laptop, I’d probably do the same thing on ebay or check out Apple’s refurbished product site if it means saving a significant amount of money.
The phone, laptop, or tablet you’re using to read this article will probably either be in your junk drawer or in a junkyard 10 years from now. So who really cares if it’s new?
Electronics are just like cars. You can’t take it with you when you die.
Credit card debt
Credit card companies are making a TON of money from consumers.
In fiscal year 2020, Visa made 14 BILLION in operating income (net revenue minus operating expenses).
How did they make that much money? They made it from all of the different credit card fees that consumers are paying. Fees like Transaction Fees, Late Fees, Interest Fees, and Annual Fees.
The biggest thing most consumers can avoid are the interest fees. Credit card companies charge you interest if you use their credit card (i.e. borrow their money) but don’t pay them back in full by the due date.
Interest fees typically range from 15% to 25%. That is a STAGGERING amount to pay to borrow money. Just for reference, a 30 year mortgage interest rate right now is hovering around 3%.
If you want to avoid interest fees, be sure to pay your bills IN FULL and ON TIME.
Credit card fees are one of the biggest wastes of money. Take responsibility for your finances. Don’t let the credit card companies get rich off of you!
Learn more about how to make the most of your credit cards by checking out my article here.
Housing
I still remember the time my sister’s friend mentioned that she was living alone in a 2-bedroom apartment. Why did she need two bedrooms? “Are you going to rent out the spare bedroom?” I asked.
Nope. She was just using it as storage. She didn’t have any plans with it. Didn’t plan on renting it out either.
OK…
She probably could have moved into a 1-bedroom apartment, with all else being equal, for a thousand dollars cheaper. That’s $12,000 a year she could have saved. $60,000 over five years.
The morale of the story is don’t buy or rent more house than you need if you want to maximize your money.
With more money you can instead maximize your life experiences and collect memory dividends!
Putting it All Together
We tend to waste money where we really don’t have to. We waste money on bars, gambling, gyms, new cars, new electronics, credit card debt, and housing. These are the biggest wastes of money that you can easily avoid.
Try challenging yourself to save where you can. Try having a drink at home. Limit or altogether stop gambling. Explore gym alternatives. Buy used cars and used electronics. Downsize your debt like you downside your home. All of these techniques will help you avoid the biggest wastes of money so you can spend YOUR money on things that matter the most to YOU.
