5 secret expenses that could be costing you thousands
Posted February 7
Updated February 8
Everything isn't as it seems.
You think you're doing the right things. You're putting money away for retirement. You're paying your bills on time and not carrying credit card debt. You've even considered trying a new budget to ensure you make the most of the money you earn.
These are all great steps, but they still might not be enough.
There are dozens of hidden money traps you've yet to uncover. These secret expenses are lurking, slowly draining the wealth from your pocket.
Some are easy to spot. Others are buried beneath the surface, requiring more work to discover their dirty deeds. Make no mistake: Each and every one of these expenses can cost you thousands of dollars, strangling your finances and crushing your dreams in the process.
If you want to make the most of your hard-earned dollars, pay attention! Let's face these money-sucking monsters head-on and protect your pocketbook right away.
5 expenses that are killing your finances
1. Mortgage Interest
If you're like most homeowners, you probably carry a mortgage on your home. Once you hit a certain income level, you may even decide to upgrade your current living situation. But beware! Your affordable mortgage might not be what it seems.
Remember the great deal you got when you bought your home? Yeah, that's not what you really paid. Using a $150,000 mortgage at a fixed rate of 4 percent over 30 years means you end up paying over $105,000 in interest fees. A 15-year term is more palatable, but you still end up with an extra $50,000 in interest.
The Solution: Pay off your mortgage as quickly as possible and save tens of thousands in interest payments. If you're locked into a 30-year mortgage, try making double payments. If you can't afford that, pay half your mortgage every two weeks. You'll pick up an extra monthly payment every year, which will cut your payment period by roughly six years and save you thousands in interest.
2. Investment Fees
So, you're pumping money into your 401(k) every month. That's great! But do you know what it's costing you?
Investment fees may be the most well-kept secret expense of all. Even though you feel like you're doing the right thing, you could be losing huge money to fees. Over time, investments in the stock market can expect to make about a 6.5-7 percent annualized return. If you're paying 3.5 percent out in fees, that's eating up half of your growth. That could literally cost you hundreds of thousands of dollars in retirement savings.
The Solution: Continue saving for retirement but know where you stand. If you find your employer-sponsored program has high fees, alert your manager. Then, put enough money in the fund to meet any company match. After that, consider stashing the rest of your retirement money in an IRA that uses a low-cost index fund. You can get great diversification at a lower price.
3. Car Payments
Want to know one of the biggest expenses killing the family budget? Look no further than the car payment. We're so addicted to these vehicles that the average car loan costs more than $500 a month, even though the average loan term has also increased to over 68 months. That's crazy!
Does your family, like many, have two cars, both with car payments? Also like many, do you trade them in every few years, exchanging an old car payment for a shiny new one. Sure, this seems normal, but it shouldn't be. Those monthly car payments were literally crushing the power of our paycheck.
The Solution: How can the average family ever get ahead if you're shelling out thousands in car payments every month? You can't. Stop thinking about your car in terms of payments, and start thinking about how much it is actually costing you. Better yet, drive your car into the ground, pay cash for the next one, and stop the cycle of borrowing ASAP.
4. Restaurant Spending
Love to eat out? Hate cooking? Is your family spending more than $1,000 a month on food — mostly at restaurants? Between the car payments and the restaurants, are you eating and driving your savings to death?
It doesn't take long for restaurant spending to add up. Spending just $10 for lunch every day translates into about $225 a month ($2,600 a year) — and that's just for lunch. That doesn't include all of the dinners, events, or family outings you might take throughout the year. Before you know it, a big chunk of your change is going toward restaurants.
The Solution: Stop hitting the restaurant and start eating at home. Instead of grabbing an expensive sandwich on your lunch break, brown bag it instead. If you make $50K a year, saving $2,600 in lunch expenses is the equivalent of a 5 percent raise! How can you say no to that?
5. Nights Out
Enjoying some down time is important to staying sane. But, the way you spend that time — and your money — could have a big effect on your wallet.
Hitting the bar twice a month may not seem like a big deal ... until you look at the real cost. A $300 entertainment bill every month equals $3,600 a year in fun and drinks. That's plenty of money to go on a nice vacation! Was it really worth it?
The Solution: At the risk of sounding lame, try spending some time in with your friends. Watch some movies, play some cards, and bring some drinks home instead. Just by cutting your nights out in half, you'll save an extra $1,800 a year. Save that money for a vacation or put it toward your other savings goals. Plus, a night in can be just as fun.
The thought of hidden money traps and secret expenses is enough to spook any seasoned saver. But, don't let your fear of the unknown get the best of you. Get to work uncovering these financial landmines and protect the money you've worked so hard to earn. While it may take some effort on the front end, you'll save thousands of dollars and years of hard work later on.
Your future will thank you.
Greg Johnson is the founder of ClubThrifty.com, co-author of the book "Zero Down Your Debt," and a certified travel addict. Contact him at firstname.lastname@example.org.