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Thursday, September 29, 2022

The National - How to stop wasting money and save more

By Century Financial in Century in News

The National - How to stop wasting money and...
Vijay Valecha, Special to The National September 29, 2022

It's possible that many people don't realise all the frivolous ways they are wasting money, with small mistakes cumulatively adding up to big losses.

But once you are aware of these bad money habits, making small tweaks to your lifestyle and curbing unnecessary spending could help you to reduce debt and boost savings, experts say.

About 76 per cent of 1,015 Americans surveyed by personal finance product review website The Ascent in 2019 said they paid excessive or unnecessary fees, 73 per cent paid excessive or unnecessary interest, 71 per cent resorted to impulse buying, while 68 per cent made redundant or repeated purchases.

Other common ways of wasteful expenditure cited by the survey respondents were failing to return unnecessary items after purchasing them, buying luxury items, overpaying for digital services and not comparing prices or looking for discounts, among others.

We spoke to personal finance experts to identify some of the most common ways people waste money and solutions to fix the problem.

Paying for unused subscriptions and memberships

You don’t need to have Netflix, Amazon Prime, Shahid, Disney+, OSN+ and Apple TV all at once, says Joseph El Am, deputy general manager at wealth manager StashAway Mena.

Many people also forget to unsubscribe to an app after the seven-day free trial. Those subscriptions may seem quite small (Dh20 or Dh30 per app per month), but they can quickly accumulate and waste your money, he warns.

Eighty-six per cent of people have some, if not all, of their subscriptions on autopay, according to an April survey among 1,000 individuals by US market research company C+R Research. About 42 per cent said they have forgotten they were still being charged for a subscription they no longer use.

The survey found 30 per cent of those polled underestimated their subscription costs by $100 to $199, while 24 per cent were off by $200 or more.

Fitness apps or subscription boxes with free trials can be a good way to try out a new product or service without a full commitment. While they are easy to sign up for, a free trial is also easy to forget, particularly if you use it only for a short period of time, according to Sophia Bhatti, a chartered wealth manager in Dubai.

Apps such as Truebill can help you identify subscriptions you’re paying for but not using, she adds.

“If you are not careful, it is easy to spend hundreds of dirhams per year on subscription services you are not even using,” says Rupert Connor, partner at Abacus Financial Consultants.

“Review your bank and/or credit card statements from the past year, identify subscriptions you are not using and cancel unused subscriptions.”

Impulse buying

An impulse buy is when you purchase something you weren’t planning to. Before you know it, these small, impulsive purchases could add up to hundreds of dirhams a month, experts warn.

An overwhelming 90 per cent of shoppers buy items not on their shopping list, according to an August survey by shopper marketing agency The Integer Group. The most popular reason for impulse buys is a sale or promotion, followed by shoppers finding a coupon to make a purchase.

“Coupons save you a little money, yes, but if you’re couponing just for the sake of it, you’re still wasting money,” says Vijay Valecha, chief investment officer at Dubai-based Century Financial.

“Stick to coupons for the things you already buy. The exception to this is if you’re making an expensive, but necessary, purchase that you don’t regularly make, such as a car repair you can’t fix yourself, and you’re able to find a special coupon or discount for it.”

One solution to avoid impulse purchases could be to limit the number of shopping apps on your phone and also the amount of trips you take to the mall, says Mr Connor.

It is better to shop with intention, says Mr Valecha. Whether you’re shopping for clothes or groceries, always have a list, he adds.

“Always ask yourself this: do I need it? If the answer is no and it’s not on your list, resist,” Mr Valecha says.

If there is an expensive item that you want to purchase, wait for 30 days, according to StashAway’s Mr El Am. If you still believe that you need it, then you can buy it; if it’s just a nice-to-have item, avoid it.

Use rewards and discount apps to help you save more. Some of them can get you up to 50 per cent discounts on purchases, he adds.

Hitting the supermarket when you’re hungry can also be dangerous for your wallet, Ms Bhatti warns.

Hungry shoppers are more likely to be tempted by two-for-one offers, expensive snacks and food they don’t really need, she says.

Before you go shopping, write a list of what you need to buy so that you won’t be tempted once you arrive. If you find yourself heading to the tills hungry, be sure to stop for a light snack before hitting the aisles, Ms Bhatt says.

Delivery apps

If you order takeout for most of your meals, then you have an opportunity to save money.

Sixty per cent of US consumers spend more money now on food deliveries every month than they did before the Covid-19 pandemic, according to a May survey by training platform eduMe.

About 22 per cent of respondents said they now spend an average of $50 to $99 a month on food deliveries and 11 per cent spend between $100 and $149, the poll found.

“Many restaurants inflate the cost of their items on delivery apps to account for the extra logistical headache and service fees that delivery apps charge and on your end, there’s the delivery fee and potential tip for your delivery person,” Mr Connor says.

“The key to financial health is to make takeouts a thing you do every once in a while and not for every meal. Try preparing your food at home by making supper in the evening and then making extra for your lunch the next day.”

You could also prevent daily delivery orders by dedicating one hour each Sunday to prepare food for the week. It will save you time and money, Mr El Am suggests.

Making minimum credit card payments

You should pay off your credit card balance in full if you can afford to do so, Ms Bhatti says.

“Your credit card balances quickly balloon if you only make minimum payments and carry a balance month to month,” she says.

A high-interest debt can quickly compound and become unmanageable.”

Thirty per cent of 1,249 Americans recorded an increase in credit card debt over the past two years, according to a March survey by financial services marketing company LendingTree.

Forty-two per cent of millennials and 45 per cent of parents with young children had a difficult time making credit card bill payments during the pandemic, the survey found.

It’s important for you to prioritise your credit card debt before any other transaction because it will drown you month on month if you allocate the funds to your own expenditures and also ruin your credit score, Mr El Am warns.

Take a look at last month’s credit card statements to see how much you spent in card fees and interest, Mr Valecha says.

“Try to save up enough cash before you buy something — that way, you avoid having to buy it on credit,” he says.

“Pay off debt amounts as quickly as possible: make more than the minimum payment amounts and prioritise clearing debt before making any other luxury spends. Set up debit orders to your credit card accounts to ensure you’re killing interest costs as soon as your pay cheque arrives.”

Bank fees

Extra bank fees can waste money and be avoided by putting more thought into purchases, according to Ms Bhatti.

Overdraft fees can add up if you don’t monitor your account as payday approaches, and regularly hitting a negative balance is a sure sign that something needs to change, she says.

Some banks may also charge for one-off items such as a banker’s draft, stopping a cheque, or requesting duplicate statements.

“Always ask if there will be a charge for a one-off request and think about whether what you’re asking for is really needed.”

Brunches

A fear of missing out can make it easy to buckle under the social pressure of attending multiple brunches with friends.

At an average of Dh300 to Dh500 per brunch, the expenditure can rise quickly, says Mr Connor.

If you were doing one a week, that’s up to Dh2,000 a month or Dh24,000 per year, he adds.

“Perhaps only doing brunch on special occasions or thinking of other activities to do on the weekend will bring down this cost significantly.”

Use the 50:30:20 rule for budgeting: spend 50 per cent of your monthly income on expenditures such as groceries, rent and transportation, 30 per cent on things you want such as shopping, dining out and travel, and 20 per cent on savings and investments, Mr El Am says.

Extended warranties

While extended warranties on your car or electronic devices may offset the cost of future repairs, they’re not always a great deal for consumers, says Mr Valecha.

“Sometimes the cost of the plan will exceed the cost of any potential repairs, or it doesn’t cover the issue that you have,” he says.

“Plus, many credit cards include extended warranty coverage for some purchases, so you may be paying for coverage you already have.”

Consider directing your extra cash towards an emergency account that you can use to cover the cost of repairs should they arise, he says.

If you already have a fully funded emergency account, you may be able to skip this expense, he adds.

Source:
The National