Money For Nothin’
Posted by jefferson on Jun 6, 2012 in Saving Money | 30 comments
There are few things more frustrating than when it feels like I have to pay money for nothing, especially when I don’t even get my chicks for free (although my wife *is* pretty frugal). I was going through our expenses the other day and was taken aback at the amount of money that we spend each month that really seems to fall into this category.
Of course, these expenses aren’t really money for nothing. When you pay the bank interest on your car and home payments, you are rewarding the lender for fronting you money that you couldn’t have come up with on your own. But here in the present, these expenses represent a leak in our finances that needs to be plugged.
Interest Expenses (Mortgage Loans, Car Loans, Credit Cards):
When we talk about money for nothing, interest expenses are the big hairy boogeyman in the room. In working to improve our finances, we have worked hard to eliminate interest expenses whenever possible. Any time you borrow money, you are going to be paying interest for the privilege. How much interest you actually pay, depends on the rate that you are able to procure. With current rates (and some decent credit), you can often get a home loan with an interest rate of 5% or less. If you are paying significantly more than that, you might want to consider refinancing, although your amortization table will start all over again if you do. What this means is, the longer you have been paying on a loan, the greater percentage of your monthly payment goes towards principle instead of interest.
The worst type of interest out there is that which is paid to credit card companies. Rates for credit cards can often extend well beyond 20%, and interest charges can snowball quickly if you are unable to pay your balance down to zero. There is a reason why the number one goal of many in the personal finance realm, and of both Michelle and I, is to get out of credit card debt and stay out forever.
INSURANCE
All types of insurance feel like money for nothing, if you don’t have to use them. Each month, a significant portion of my paycheck goes towards protecting my home, my cars, and the health of my family.
I haven’t had a car accident since I was 16, and yet I still find myself sending that check to State Farm each and every month. I could easily have a boat, Cardinals season tickets, and a trip to Fincon 2012 with the money that I have dumped in car insurance payments without ever filing a claim. Of course, it is the law that you maintain coverage on your car, and I think it is a pretty good law. Just because *I* am the best driver in all the land, doesn’t mean that some other jacko won’t be texting and driving on the way home from work today and crash into me. If he does, I certainly want him to have insurance to pay for my repairs!
Health care coverage is another budget blaster in my world, and one that seems to get worse each year (maybe because I keep having kids). We aren’t afraid to use our doctors whenever one of our family members get sick, and as such we do tend to get more value out of this expense than we do our home or car insurance. However, if this expense continues to rise at current rates, it could easily begin to feel like money for nothing in the near future.
BANK FEES
In years past, I never really took the time to make a proper budget. As a result, I often found myself in a cycle where my balance would drop down below zero, and I would get destroyed with overdraft fees. It always frustrated me that banks would charge me MORE money, when I obviously had NO money.
Bank Fees certainly feel like money for nothing whenever you find yourself having to pay them, but these fees can all be avoided. Most banks out there will offer you free checking, and some even allow you to earn interest on the balance in your account. You can also find protection from overdraft fees, if you are willing to shop around.
Most of us cannot afford to pay cash for our homes and cars, so obviously banks provide a valuable service to us. When we started our journey to financial sanity, one of the big items on our list was to do everything possible to avoid bank fees, and we have thankfully eliminated them entirely.
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I totally agree with you and I think the biggest money for nothing is mortgage insurance (PMI). Luckily I am finally getting our home refinanced through a VA Loan and will not have to pay that anymore. It was $106/month that literally would never help me in any way. I don’t mind paying car insurance and health insurance, but I hate when our car insurance rates go up for no reason at all. That just makes me want to shop around, which I did, and ended up saving $600/year. One thing the wife and I agreed on when we got a credit card was that we would pay it off every month. If we had one time where we couldn’t we agreed to cancel the card. Luckily that hasn’t happened yet.
DebtsnTaxes recently posted..The June Goals
We ended up getting an 80/15 with our last mortgage to avoid paying PMI, and I think that was the right decision. When we refinanced back in the fall, we combined the two loans back into one.
When we re-financed last year, our base payment went up by $160 but it took $400 from what we were paying in interest every month and switched it over to principle. That was definitely nice to see. I agree, paying interest is infuriating, but every dollar you pay off means you pay less the next month.
Money Beagle recently posted..Take Advantage Of Your Most Productive Times
Sometimes, refinancing is certainly the way to go. It sounds like it worked out well for you.
Car Insurance is a pain in the rear but it’s nice protection to have. We only pay about $66/month for our car insurance premium, but I don’t think that’s too awful though.
Jason @ WSL recently posted..Challenge the Norm – Consider Lowering Your Housing Costs
$66/month for the both of you is a really great deal. We are about $20 over that, and I thought that we were doing well.
Does that mean that the banks, credit cards companies and insurance brokers are getting chicks for free? If so, I’m in the wrong business.
I’ve made a point of trying to avoid money for nothing too. I’ve pretty much taken care of bank fees and credit card interest. There’s not a whole lot I can do about my car insurance short of downgrading to a cheaper car. I did rework my policy to have a large deductible to lower my monthly payments.
Modest Money recently posted..Pros and Cons To Investing In The Stock Market Today
Nobody gets their chicks for free except for rock stars and athletes.
It really is impossible to get rid of the insurance payment, but you certainly should be happy that you have zeroed out your cc interest & bank fees.
Another category is food waste. You spend five dollars on something and it goes bad before you eat it? Money for nothin’.
Kathleen @ Frugal Portland recently posted..Vices and Addictions are Pricey!
Another good one, Kathleen…. I *hate* having to throw out food. I will eat leftovers night after night, until the cows come home, if it means that I can avoid throwing away food.
Insurance sucks. I mean it’s good to have, but you’re right: if you never have to use it, you feel like you’re paying for nothing. But then if you do have to use it your premium goes up.
femmefrugality recently posted..What to Expect Giveaway & Link Love
I totally agree that insurance sucks. I paid 5 years for my car and when I had a minor accident I decided to let the insurance company pay. I opened the request and after I saw the amount of money that professional services charge I decided to pay from my pocket. Now the insurance company informed me that the monthly pay will increase due to the fact that they paid my service to my car. They are nuts! I told them to show me the amount of money that they paid to the service and since then I didn’t receive any answer. They suck!
gekko recently posted..Confirm everything you do
Health Insurance companies are the worst when it comes to trying to get out of paying.. I had a huge fight a few years ago with a health insurance company that wouldn’t cover a hospital visit because the doctors didn’t discover any major illnesses that were significant enough to justify admitting me. Basically, I wasn’t sick enough, altho I certainly felt like I was.
My latest money for nothing mistake was racking up a parking ticket. Duh. That’s all I can say: duh. Total space-out on my part: $7 to pay now when 10 cents would have done the job!
Christa recently posted..Garage Sale Lessons
When I worked downtown, I used to get parking tickets all of the time. But out here in the ‘burbs, they are far less common.
I used to think the same thing about car insurance…until I moved to Boston. I’ve been hit SEVEN times since moving here—it’s unreal how terrible the drivers are! One of my favorites was the woman who backed her car into mine in the grocery store parking lot then got out and said, “Umm…did I just hit you?” Duh!!! Luckily my insurance hasn’t faulted me so my rates haven’t risen. Now I take my chances on my bike…haha!
The Happy Homeowner recently posted..Confessions of a PF Blogger: A Second Chance
Wow.. Seven accidents since moving? That is unreal. It sounds like your insurance company is a keeper..
Not that I’m always paying these or anything, but I always feel that way about speeding tickets. I think late fees would definitely fall into this category as well. Finally, part of my taxes. I’ll definitely admit I need some of the government services out there, but I’ve yet to use government, thankfully, so it tends to feel like money for nothing.
JP @ My Family Finances recently posted..Good Debt: Four Types of Debt That Can Pay-Off
That is a really good one, JP. Speeding tickets have always been very frustrating to me, but thankfully- i haven’t received one in a few years.
Icompletely agree about money for nothing. Espeically when it comes to insurance. It feels like we’re shelling out hundreds of dollars a month and we get zip in return because we never take advantage because nothing goes wrong. Nothign going wrong is a good thing of course, but it’s tough sometimes to just be tossing money into the wind.
TB at BlueCollarWorkman recently posted..New Air Conditioners Really Do Save You Money
I guess we should probably feel grateful that not enough bad things have happened in our lives (accidents, health) to force us to have to file claims..
Back when I had my year without money I racked up over $500 in bank fees with Bank of America. I still get a pit in the bottom of my stomach thinking about all the food that could have bought that year…but they piled bank fees on top of bank fees. Lesson learned.
AverageJoe recently posted..7 Financial Hacks to Avoid
I haven’t been that high.. but probably halfway there. It sucks to get kicked when you are already down.
Money for nothing was a great invention. Let’s make the risk so expensive that everyone bows to the insurance companies. Necessary but evil. PMI is my current money for nothing gripe, but I guess it did allow me to buy a house quicker than I would have otherwise.
John @ Married (with Debt) recently posted..Best Personal Finance Writing – Week 23
Yeah.. Good point, John. There are a lot of people making a lot of money off of the rest of us paying for money for nothin’.
PMI is frustrating. Ours is about $120 per month. I bought our home when we were 25 so a full 20% down wasn’t an option. I will never pay it again though.
Sean @ One Smart Dollar recently posted..How Aggressive Should I be with my Retirement Planning?
I have told myself that I won’t ever buy another house unless I can afford to put at least 20% down ahead of time (hopefully more than that).
Awesome post. I always think about how much money goes towards insurance and I cringe because I rarely go to the doctor. There’s a $700 deductible for my company and sometimes I feel like I’m always paying. The monthly amount is not too bad, but still it sucks. Oh and I get free lab testing cuz I work at a lab.
Anyway, I hate PMI too so I saved 20% for a down payment. Also I think Mello Roos is ridiculous!
From Shopping to Saving recently posted..PF Link Love: Fave Reads of the Week, The I Broke My Phone Edition
No question, health insurance bites a big one. Both my premiums and my deductables are painful.
You made me laugh with the Dire Straits reference. I used to chill to that song many years ago. I have to come back more often and check some more of your posts.
Brilliant Finances recently posted..Getting Out of Debt Starts with Behavior Change