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Waste Not, Want Not

As I cleared our dinner table the other night, I scraped some of my uneaten veggies into the trash. I immediately heard my mother saying, “There are starving kids in India that would give their right arms to eat what you are throwing away!”

She had a point. Affluence inherently breeds a certain level of waste. So do negligence and inefficiency. I could easily have avoided wasting those veggies by reducing the amount I originally scooped onto my plate. When I dumped them into the trash, I was also wasting more than food. I was literally “throwing money away.”

As a financial planner, I regularly consult with people who have been throwing real money into the trash on a daily basis. Here are the top areas where people waste money and what they should do instead:

Buying investment products with hidden fees and commissions. This includes mutual funds, insurance, structured products, limited partnerships, and annuities. Costs can go as high as 10% of your initial investment and 5% a year. Since an average return may be 7%, subtracting 5% in costs leaves a paltry 2% return to the investor. A $500,000 investment could cost $50,000 up front and $25,000 a year. All too often, most of this information is buried in fine print and not voluntarily disclosed to you if you are dealing with an agent or broker.

What to do? Insist on full disclosure of fees. Even better, make sure you have someone looking out for your best interests, someone for whom you are a client and not a prospect. Home buyers routinely employ real estate brokers to represent their interests. Consumers of financial products need to consider doing the same.

Paying more than your fair share in state and federal taxes. A mentor once told me the best paying job in the world is understanding the tax code. Because the US tax code is extremely complex, most people try to just keep it simple. In this case, simplicity can come with a very high price tag. Some of the biggest tax savings come from fully funding retirement plans, maximizing deductions, proper use of corporations, and paying attention to your estate planning.

Impulse buying without researching products for quality and price. Comparison shopping pays big dividends, and the Internet makes it easier than ever. One of the best investments for frugal shoppers may be a subscription to Consumer Reports.

Buying new, brand name, large ticket items. America’s debt binge of the past five years will change our lifestyles for the foreseeable future. More of our income will go to taxes and personal debt repayment. New cars, houses, furniture, and even clothes are luxuries most of us must learn to live without. Get to know places where you can purchase these goods used. Check out local second-hand dealers as well as websites like Autotrader.com, Ebay.com, and Funituretrader.com.

Education for education’s sake. Getting an education is great, as long as it will help open career doors for you. Often I get resumes from people whose education has little or nothing to do with the job for which they are applying. A master’s degree in history is great if you want a career teaching history, but it won’t prepare you to own your own business. For many, it’s best to delay going to college until you know what education you need.

Ironically, some of these ways of wasting money are easy to overlook because they’re so big. But learning to spend more consciously in large transactions, from taxes to tuition, can save you enough to buy all the veggies you could ever want to eat.

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2 Responses to Waste Not, Want Not

  1. Jim Boensch July 20, 2010 at 12:23 pm #

    Hi, Rick. I’m currently serving as the leader of the local Independent Order of Odd Fellows. We fund the charity work we do through investing our $100k as well as we can. We are in the middle of brokers right now. While we made money by investing right as the market bottomed awhile ago, I think we need to be more cautious now. Any suggestions? I would imagine that your official help would be more costly than our modest means would allow. Please advise. Thanks, Jim

  2. Rick Kahler July 20, 2010 at 12:26 pm #

    Jim,

    My best advice is to read the chapter on investing in “Conscious Finance.” I have a copy that I can loan you if you don’t have one. It lays out a simple asset allocation strategy that is comprehensive, yet easy to implement. Take a look at that and give me a call if you need more information.