Rap legend 50 Cent's declaration of bankruptcy this summer was met with the usual knowing smiles, shocked disbelief and jocular columns.
Whether the artist is genuinely bankrupt or not is debatable, but stories of insanely rich people who squandered their fortunes abound. You may have created your own version of how the story would have ended if you had been managing all that money.
But the truth is that poor money management isn't the curse of extravagant celebrities, lottery winners and recipients of enormous fortunes. Most of us aren't as good with cash as we think we are.
Take a look at these 5 popular money-wasters and ask yourself if any of them sound familiar.
1. Carrying Credit Card Debt
You probably already know that carrying credit card debt is a pretty bad idea. Besides the fact that most credit cards compound interest on a daily basis, carrying credit card debt also negatively affects your credit score.
Exactly how popular is this wallet-wrecking pastime? Popular enough, with one out of every three US adults carrying household credit card debt from month to month and 35 million grown Americans carrying over a balance of $2,500 or more according to the 2014 Consumer Financial Literacy Survey released by the National Foundation for Credit Counseling.
2. Not Refinancing An Expensive Fixed Rate Mortgage
Transferring to a new bank is a hassle to say the least, and most of us just don't have time for hassles. But in some cases the extra effort will pay off in dollars and cents, thousands of them. Being loyal to the lender that set up your 30-year fixed rate mortgage at the 8.21% rate that was the norm back in January, 2000 may seem like the most convenient option, but refinancing your mortgage at the July 2015 average rate of 4.05% could cut the amount of interest you pay over the next 15 years in half.
3. Using Your Credit Card To Access Cash
What could be more convenient than using a credit card to withdraw cash you don't quite have right at an ATM? If you are used to spending on credit and want to buy something at a restaurant or shop that doesn't accept credit cards, getting a cash advance may seem like the way to go. But each time your get a cash advance with your credit card you pay hefty fee, usually $10 or 5% of the amount of cash you get (whichever is more). Do that every day and you could end up paying hundreds of dollars in cash advance fees every month.
4. Buying Stuff On Installments
A $2,000 TV may add a nice touch to your living room and make for fascinating gaming, but if you can't afford to pay those $2,000 up front, you may be better off waiting until you can. Buying stuff on installment payment plans can cost you up to 50% more than the cash price, making that $2,000 TV a $3,000 TV. Some stores offer 0% interest for a certain amount of time when you spend a minimum amount on purchases, and if you are sure you can pay your purchase off on time then using a time payment plan like this can help you take advantage of one-off deals if you don't have savings to dip into. Otherwise your wallet would be better off avoiding time payment plans.
5. Buying Unnecessary Insurance
Insurance policies are usually a long-term commitment and form the backbone of a multi-billion dollar industry, which is why insurance companies, agents, retailers and anyone else getting a piece of the pie do everything they can to convince you that you need more insurance.
Many Americans buy travel insurance, phone insurance, car rental insurance and insurance coverage for things they buy when their credit cards already give them this coverage when they charge their travel bookings.
Another example is taking out boat insurance or coverage for other items that are already covered by your homeowner's or renter's insurance policy. Dental care may be covered by your health insurance, so dig into the fine print of your health insurance policy before getting dental insurance.
If you buy a property on mortgage and don't put down a 20% down payment, the law requires you to get private mortgage insurance (or an FHA-insured loan) but if you don't refinance your mortgage after achieving 20% equity in your home, you will automatically continue paying up to 1% of your total mortgage each year for that useless insurance. This could add a 30% markup to the cost of buying your home, with no benefit to you whatsoever. Unless you can get double benefits from both policies covering the same thing (most insurance policies forbid this), getting overlapping insurance is a complete waste of money.
There are many other money-wasters out there, but these are the most common because the rules governing popular financial products are buried in jargon and fine print.
Check the rates and fees governing your credit cards and make sure you have a good understanding of the benefits your insurance policies give you, and what they don't.