10 Things that make you Poorer

The following is an interesting piece that I read the other day.

Mon, 13 Aug 2012 10:42:43 GMT | By Liz Pulliam Weston, MSN Money

The costs of these products increase as time goes by.
Everything you buy makes you poorer, in a sense. But some things have hidden costs that can lead you to shell out far more than you'd expected. Sometimes those continuing expenses are so high that you'll curse the day you first opened your wallet.

Not all of these products should be avoided, but forewarned is forearmed: If you have any of these in your life, they may cost you big time.

1. A smartphone

A smartphone will change your life. Once you have one, you'll wonder how you ever managed without it. The maps and GPS navigation show you where to go. The camera and video functions allow you to document your life along the way. The games and music players mean you never have to be bored if there's downtime.

And the darn thing will cost you a small fortune.

It's not just that smartphones are more expensive than other cells, even with the heavy subsidization wireless carriers offer to get you to sign a contract. The data plan typically costs $30 a month, although heavy users can spend more than $100. The apps can add up, a few bucks at a time.

But the real danger is how easy these phones make it to shop. Install a retailer's app, like Amazon's, and you can buy anywhere, anytime. Wireless carriers also want to turn our phones into wallets, so we won't even have to reach into our pockets for our plastic anymore. The whole goal of these 'frictionless transactions' is to get you to spend more.

That doesn't mean you have to give up your precious smartphone. You just have to be aware of the vast conspiracy to get you to spend, and fight back. You can use the phone's technology to do so if you:

1. Get your bank's app so you can easily check your balance (or just call the bank's toll-free number).
2. Thwart impulse purchases by taking a picture of the desired item and giving yourself a cooling-off period (three days usually works).
3. Use price-check apps such as ShopToIt.ca and RedFlagDeals.com to make sure you're not paying too much.

2. A car
We howl about high prices at the pump. But gas is just a fraction of what we pay for driving.

The costs of buying, financing, insuring, maintaining and repairing our vehicles — in addition to fuel costs and depreciation — average over $9,000 a year for a medium-size sedan and more than $10,000 for a crossover, according to the most recent driving-costs survey by CAA. If you get your first car at 18 and drive until you're 78, that means you'll pay more than half a million bucks in today's dollars for the privilege.

You can pay a whole lot more than that astronomical sum if you buy luxury cars or trade in your vehicle for a new one every couple of years.

You may not be able to do without a car, so the trick to saving money is having fewer cars — and taking better care of them. You can dramatically reduce your finance and insurance costs by owning each vehicle for at least 10 years (assuming you pay cash or finance for five years or less). With proper maintenance, today's cars can last well past 200,000 miles. Buying slightly used cars also can reduce costs.
Source: CAA; based on driving 18,000 miles annually

3. Credit Cards
Like smartphones, credit cards offer convenience. You get some great perks, including fraud protection and a third party to help with any merchant disputes. Most cards offer rewards programs that can give you free travel or cash back in return for your spending.

But like smartphones, credit cards can cost you big time if you're not careful.

Failing to pay your balances in full every month is the biggest mistake. You'll likely pay more if your credit scores aren't great.

Even worse than carrying a balance is paying only the minimum required. If your minimum is around two per cent, you could wind up paying more than $6,000 in interest on a $5,000 debt — and it would take you more than 22 years to pay it off.

If you have credit card debt and take comfort in the idea that everyone else does, too, think again. According to Equifax Canada, average credit card debt has been decreasing since the end of 2011.

4. Rent-to-own anything
Rent-to-own outfits ranked fourth in my column 'Five businesses that rip off the poor' because of their egregiously high costs. If you truly do rent to own and make every payment, whatever you buy will cost you two to four times what you would have paid in a regular store.

Of course, most rent-to-own customers can't buy what they want in regular stores, because they don't have the cash or the credit. Still, if you want nice things, you have other, better options. With a little persistence and patience, you can find similar, barely used items for a fraction of their cost new on eBay or Craigslist, or at garage sales.

5. Money market funds
The average paid on a money market account from November 2010 to November 2011 was .46 per cent. But with inflation at 2.95 per cent in 2011, you're losing ground every day your cash languishes in a money market account.

According to a 2010 Canadian Foundation for the Advancement of Investor Rights report, fund companies have resorted to cutting their fees in order to report positive returns.

If you've earmarked this money for retirement, it should be invested in something that can offer better returns over time. If you're an investment newbie, consider a lifestyle or target-date maturity fund.
If this money is your emergency fund, on the other hand, or you'll need to access the funds within a couple of years, you'll need to keep it relatively liquid.

6. Lottery tickets
The lower your income, the more likely you are to buy lottery tickets. It's a classic poverty trap, where the money you spend trying to improve your situation instead just makes you poorer.

You've heard how high the odds are stacked against you.

You're far more likely to be hit by lightning, die of flesh-eating bacteria or become a movie star than you are to win a lottery.

There's not much harm in buying the occasional ticket, unless you're doing so in lieu of saving for retirement. If you find yourself playing compulsively, check out the resources for problem gamblers.

7. Cigarettes
Smokers typically earn less, pay more for insurance and shell out more for health care. And then there's the cost of the cigarettes themselves.

If you're a smoker, you're paying from $71 to $108 (depending on the province) for a carton of 200 cigarettes.

If you invested $2,000 a year between ages 18 and 68, you'd end up with more than $1 million (at an assumed annual growth rate of eight per cent). Plus you'd likely have more years to enjoy that money in retirement, since you probably wouldn't die early of some horrible lung disease.

8. Television
Television watching is associated with obesity. The more you watch, the fatter you tend to be. Obesity is, in turn, associated with lower incomes for women (although not for men, interestingly).

Television picks your pocket far more directly, of course.

Pay television cost Canadians an average of $50 per month in 2009.

You don't pay just once. Most television is supported by advertising. Most advertising is bent on getting you to buy stuff you don't need and didn't even know you wanted until you saw the advertisements. If it didn't work, companies wouldn't spend billions of dollars doing it.

Save some money. Pull the plug.

9. Collectibles
To be truly valuable, a collectible must be relatively rare, in good condition — and greatly desired by others. Copies of the first Superman comic book have sold for seven digits because a) Superman is still popular and b) so many mothers threw out so many geeks' comic book collections.

The vast majority of figurines, plates, toys and other items produced as 'collectibles' aren't investments. They typically have limited appeal, and mass production ensures the supply will outstrip any future demand. That means if you try to sell them, you'll get only a fraction of what you paid — assuming there are any takers.

If your collection is purely for your own personal pleasure and you aren't going into debt to support your habit, then have at it. If you're ever tempted to buy a collectible because you think it will be valuable later, head over to eBay and search for 'Beanie Babies,' 'Hummel figurines' or 'Franklin Mint' anything. That should cure the urge.

10. A house
Homeownership is associated with wealth. The median net worth of homeowners was $169,000 in the third quarter of 2009, according to the Canada Mortgage and Housing Corporation.

Homeowners can benefit from the forced savings of paying down a mortgage over time, as well as price appreciation over time. A majority of Canadians households are homeowners, and many that aren't want to be.

But homeownership is usually expensive, and the unexpected costs can swamp the finances of people who aren't prepared. In addition to the mortgage, insurance and property taxes, you'll pay for:
1. Maintenance and repairs. These costs can vary a lot, but expect to spend one per cent to two per cent of the home's value each year just fighting entropy.
2. Updates. You don't have to be an HGTV addict to spend a lot updating your home. After all, just about everything in a house can wear out and need replacement: roofs, furnaces, air conditioning and surfaces (including countertops and floors).
3. Disasters. Homes in flood plains, adjacent to wildfire zones and in the likely path of hurricanes can be difficult and expensive to insure. The same goes for homes that are simply in out of the way places. Unless you're looking at an all-cash deal, going without coverage usually isn't an option, since mortgage lenders require homeowners insurance. Even then, failing to buy homeowners insurance is foolhardy, but even the best policies don't cover every eventuality.

So before you buy a home, do your best to make sure you can afford it. That means getting appropriate insurance and setting up a savings account to pay for the inevitable extra costs.