While there are plenty of ways to shave off some regular monthly expenses and save money, few experts talk about ways to avoid spending on irregular purchases, or ones that may not be considered part of an everyday budget. Experts agree that sales people and advertisers are doing everything they can to separate consumers from their money [1], [2]. The key is for consumers to keep more money in their pockets either to improve their financial situation or just to make sure they are getting the most out of their money when they do choose to spend. Here are five tips for consumers to keep more of their money.
Avoid Extended Warranties
Extended warranties or service protection plans were designed to generate tons of profits for retailers, not to really protect the everyday consumer [3]. A typical extended warranty for a $900 washing machine may cost $150. That is equal to almost 20% of the original purchase price. The warranty usually only protects the consumer for three years, unless the optional extension is purchased which could lead to an endless cycle of buying warranties that end up costing as much if not more than the original product purchase price.
A better option is to always put 20% of the purchase price of any major purchase in a savings account (washer, dryer, refrigerator, lawn mower, etc.). By the time one of the appliances needs replaced, the savings account will be more than large enough to cover the needed expense [3].
Do Not Buy Credit Insurance
Both mortgage companies and credit card companies try to push credit insurance. The stated purpose is to protect the consumer in the event of a job loss, where the payments will be made or deferred for a period of time with no penalty to the consumer.
Essentially, the insurance protects the consumer from negative consequences of not being able to make their payments, and also protects the creditor from not getting paid. According to the Consumer Union, the non-profit publisher of Consumer Reports, credit insurance is a massive rip-off for consumers [4]. The cost of the insurance is high relative to the benefit. Instead, consumers should focus on getting their finances in order, including an emergency savings account.
Avoid Accidental Death and Dismemberment (AD&D) Insurance
AD&D insurance is a mathematician’s dream and a consumer’s nightmare. Insurance companies have come up with a way to sell insurance where the scenarios are so unlikely to happen that the insurance is almost pure profit with little payout. Scenarios include “loss of one hand and one foot” or “loss of thumb and index finger on the same hand.”
Of course an accidental death pays the full face value of the insurance. Notice that it has to be an accidental death, not death due to a disease or other natural cause. Instead, purchase a sufficient amount of life insurance and disability insurance.
Wait 24 Hours Before Making Large Purchases
Impulse purchases are one of the largest leaks in personal budgets. Stores entice customers at the register with last-minute items, fast food stores ask to “super-size” meals, stores have large impulse items (such as flat screen televisions at grocery stores), and late night television will have infomercials about products that slice, dice and clean up everything.
For many consumers, bombarded by advertisements and infomercials on television, it can be difficult to separate fact from fiction. To avoid emotional purchases instead of rational ones, consumers should not make any large or impulse purchase without going home and thinking about the purchase first. Do not be fooled by one-time only sales. Most consumers see dozens of one-time only sales every year. By waiting at least one full day before making a large or impulse purchase, the marketing excitement will have worn off and the consumer can make a logical buying decision instead of an emotional one. Waiting a full week will result in even less wasteful spending.
Do Not Buy Time Shares
Time shares have been around for years, yet there is still very little market for resale. Once a time share is purchased, the owner will generally find it difficult to sell. For those who are able to unload their time share at some point, will likely do so at a great loss. The reason there is very little resale market on timeshares is because they are not bought, they are sold [5]. In other words, people generally are not out shopping for timeshares, perhaps because they are generally regarded as a bad investment [6].
However, there are plenty of sales people looking for buyers to sell new units to. In other words, only after a carefully designed sales presentation do people usually buy timeshares, which many would conclude is indicative of their poor investment history [6]. Not only are there large upfront costs, but there are annual maintenance costs as well, which the owner is obligated to pay.
Smart Consumers
By avoiding high pressure sales tactics and making informed decisions, consumers will keep more of their money. By making smart decisions on where to spend money, consumers will feel more satisfied with their purchases. For more ideas on saving money check out Five Tips to Trim Your Budget by $300 per Month.
Sources:
[1] http://www.zclassifieds.com.au/how-to-negotiate-with-car-salespeople/
[2] http://money.cnn.com/2008/05/28/pf/retirement/ask_the_mole.moneymag/index.htm
[3] http://www.newlifeautomotive.com/extendedwarranty.htm
[4] http://www.consumersunion.org/finance/credredc499.htm
[5] http://www.natlassoc.org/schemes/timeshare/index.htm
[6] http://thegreattimeshareripoff.com/
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