5 Stupid Things You Spend Your Money On

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We all buy dumb things.

I’m reminded of that every time I see the closet full of purses I just had to have. They’re all lovely, but then I look in the mirror and remember I only have two arms and one wallet.

While we all have our individual weaknesses, some stupid purchases seem to cross boundaries. You may have a good reason to buy one of these items, but the following are five things we collectively seem to lose our ability to think rationally about and get sucked into spending our money on something dumb.

1. Gym memberships

You knew this was going to be on the list, right?

There’s a good reason for it: Some statistics indicate that as many as two-thirds of gym memberships are never used. Even some club owners – who are probably more likely to be optimistic about their membership – say 25 percent of members go inactive after six months and half give up on the gym by a year.

Really, unless you are doing some form of training that involves specialized equipment, hit the pavement rather than the gym. And if you can’t resist a membership, at least skip the contract and look for a gym with a month-to-month option.

2. Extended warranties

Now, I know the stores get us at our weakest moment.

You’re going through the checkout, spending your hard-earned cash, and the clerk asks if you want to add the extended warranty. It’s only a few dollars more, and it will protect you in case anything should happen to your new treasured purchase.

Or at least, that’s what we hear. In reality, these warranties come with a laundry list of exclusions.

Plus, they may not be all that extended. Many items come with perfectly good manufacturer warranties. If the manufacturer gives you a year warranty and the extended warranty is covering the same year, what’s the point of paying extra?

3. New cars

I can fess up to buying gym memberships and extended warranties, but I have yet to be seduced by a new car.

Despite what I can only assume is the thrill of being the first and only person to be behind the wheel, I can’t get over the massive depreciation that occurs the minute you drive off the lot. Edmunds.com estimates the value of a car drops nearly 10 percent with the first mile.

Rather than spend through the nose for the privilege of driving new, wait three years for the depreciation drop to level off. Not only will you save money, you may even still get a warranty because many manufacturers offer basic plans that are good for four or even five years.

4. Credit card interest

I don’t care how good your credit card rewards are, paying interest for last month’s groceries and gas is stupid with a capital “S.”

The only time it makes sense to pay credit card interest is when you are self-financing a purchase for less interest than it would cost through a conventional loan. Even then, it might be smarter to save up some cash and skip paying interest, period.

5. Life insurance for your children

Finally, I know those Gerber life insurance commercials and mailings tug at your heartstrings.

After all, what sort of parent are you? Don’t you care about your child’s future? The implication is, of course, that if you really loved your child, you would most definitely be starting their college fund right now by buying a life insurance policy.

Emotionally it might make sense, but financially it’s hard to make a case for child life insurance. The whole point of life insurance is to replace lost income and unless your child is the next Shirley Temple, I’m guessing the kid isn’t pulling in much of a salary at the ripe old age of 3.

You might want to buy a policy if your child has a pre-existing condition that might make it difficult for her or him to buy coverage as an adult. Otherwise, take a pass.

And if you’re feeling guilty about their college fund, start a 529 plan or Coverdell savings account instead. Both offer tax benefits and typically have returns that beat the pants off a whole life policy.

One of the beautiful things about Money Talks News is we have a diverse set of intelligent readers from all walks of life. I’m sure one of you can give a compelling argument as to why everyone should have a new-car experience. Or maybe you can think of another dumb purchase I didn’t mention.

Share your insights and perspective in the comments below or on our Facebook page.

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Comments & discussion

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  • Dale

    I’ve only purchased one new car – because I wanted the not-insubstantial experience of not buying other people’s problems, accidents, mistakes, etc. I’ve had that experience so now it’s NEXT! Financing another new vehicle is no longer an option.

    That being said, though, it’s not a small thing taking on someone else’s driving and car maintenance habits. I don’t think I’d wait three years for a new vehicle to be exposed to another’s questionable habits. It’s a balance of depreciation vs further exposure for me. I’d pick up a used vehicle between years one and two off the dealer’s floor.

    You say that all of these habits are “stupid”. Doing all or multiples of them IS stupid – but one of them might be your little spot of happiness. Everything’s relative and YMMV.

  • Faith

    Why wouldn’t one want to buy a small policy for their children to pay for final expenses in case of the tragedy of their child dying? No need for a 6-figure policy, but a small $25,000, whole-life policy that will cover them for life can be under $10/mo. and builds a savings on the side as well. To our family, it’s a no-brainer. And it’s a way to start some kind of savings for children in families that don’t have a couple hundred extra bucks a month yet to start a college plan.

    • Gars

      Read The Invisible Banker by Andrew Tobias, chapter on Gerber Life – Like Taking Candy from a Baby.

  • BayronPosas

    I have been reading your articles for quite a while now and agree with a big number of them. Now, to say that buying a gym membership and buying new cars is stupid, I think is TRULY stupid. Why? one because buying a gym membership may be silly for some people but if you use a few times a week, get nice little perks like spa, sauna, basketball court etc…
    If you are getting your money’s worth my friend, go for it and exercise and enjoy your gym time; those who don’t exercise die young and fat.

    Buying a new car can be great for a lot of people, I am one of them…
    If you think buying a new car is stupid, then let me tell you again that you’re pretty stupid yourself for telling people that; it may not be smart for you but it is for MILLIONS of people. If you buy a new car, negotiate and get a great deal on it, buy new over used if you can afford it and then keep it for a long time… Yes, the vehicle will depreciate, but what do you think will happen to the used car with 50k miles the minute you drive off the lot? It depreciates just as bad and You just lost thousands of USDs on that second hand vehicle as well. If you don’t believe that is true, try going back to the dealer the day after you bought it and tell them that you want to trade it for something different and see what your vehicle’s actual cash value is. Now, if you buy new/used and trade too soon, that is pretty stupid, but if you buy new/used and drive your car for a long time, you will get your money’s worth, only if you buy new you now where the vehicle has been and how it’s been maintained, plus you get free full factory “bumper-to-bumper” and powertrain warranty and in a lot of cases free maintenance for a couple of years. Buy used and you have no clue how that vehicle has been maintained and how many times it has been wrecked (I know there is Carfax, well, Carfax does not tell the whole story, Carfax only shows what’s been reported to CarFax, what about what hasn’t…?) and get little or no warranty.
    Bottom line – Just because it doesn’t work for you, it doesn’t it can’t work for someone else. If everybody followed your advise there wouldn’t be any gyms or cars in the world (There is no such thing as a used car factory).

  • Jcatz4

    I am 70 1/2 now and I have 2 small paid up life ins. policies that my parents bought when I was a child. I checked a few yrs. ago and found out that there is some cash value to the policies that I could tap in to if I really needed it. I can remember the insurance man coming to the house (either weekly or monthly) to collect the payments. That was probably in the late 40’s through the 50’s. My brother (who is 60) also has a paid up policy that my parents had purchased.

  • Kailasa Ishaya

    I’ve had two extended warranties on used automobiles (I’m a car dealer’s son and I ONLY buy used cars)- and both of them ended up paying for themselves AND MORE in the warranty coverage I received. Especially with all of the electronics and computer-assisted/operated systems on modern cars anymore, a typical car owner can greatly benefit from an extended warranty if you plan on keeping a car for a number of years.
    You HAVE to shop around for a good COMPANY…there are a LOT of trash “extended warranties” out there. There are websites easily googled on the subject – get a company with a 4-star rating and you’ll be happy. If you also get a transferrable warranty, that is a plus if you do later on sell your car

  • http://www.paisatalks.com/ ritzpru

    Life insurance for your children is really a foolish thing…insurance is never for investments..and that too for a kid who is not earning..i wonder why people take it

  • countFlorida

    You forgot to mention bank Christmas and Vacation Clubs, a minor but telling feature of the banking industry that proves these bandits didn’t just turn to larceny to garner a bit more money, they just upped the scale a bit.

  • Mike Arienti

    Life insurance is not only meant to replace lost income. It’s meant to pay death expenses. Funerals cost over $5000 now.