Sunday, July 4, 2010

5 Common Habits That Cost You Dearly

Most of us are guilty of a few bad habits during our lifetimes. There's eating too much of the fun stuff, not exercising enough to burn it off, and spending tomorrow's paycheck today. Sure, getting fit and keeping a budget can be tough habits to keep, but avoiding these five common bad habits can add some easy money to your bottom line.

1. Paying only the minimum balance. Paying just the minimum on your credit card balance every month may keep your creditors happy, but it's not helping you pay off the growing interest charges.

Credit card companies love to highlight the Minimum Payment Due on your monthly bills -- it's a trick they use to stretch out your payments for years, costing you hundreds and even thousands of dollars in interest. For example, a $5,000 balance with a monthly minimum payment of 4 percent and an APR of 18 percent will take you just over 11 years to pay off, costing you around $2,875 in total interest paid.

Don't believe me? Check out this Credit Card Calculator to get a head start today and see the real cost of paying only the minimum. Results are shocking, and you may just rethink your minimum payment habit since it can cost you thousands.

2. Buying a brand new car. If you love that new car smell then take a whiff of how much you've lost in depreciation just by driving it off the lot. According to popular car site Edmunds, "New cars depreciate very quickly when they are first sold. Drive a new car off the lot and it can lose 20 percent of its value."

The Edmunds True Cost To Own calculator shows the math behind this common depreciation. For example, a brand new 2010 Subaru Outback with a sticker price of $25,221 depreciates a startling $4,138 in the first year of ownership, $2,690 in the second year, and another $2,367 in the third. That's over a third of the car's initial value depreciating in three years.

Why pay such a steep price when there's a smarter driving habit to consider? Buying a used car can save you big! Opting for a used car over a new one will not only cost you thousands less on the initial price, but the depreciation is less drastic too. That same Subaru Outback only depreciates around $1,800 in year five, so skipping the new wheels and driving a gently used car will save you thousands of dollars a year.

If you're in the market for a newly used car, learn the gotchas in How To Buy a Used Car (without sipping lemonade). This guide on How to Sell Your Used Car Online is helpful if you're looking to sell your clunker for something with fewer miles.

3. Smoking. We all know that smoking is terrible for your health, but have you considered what this deadly habit does to your wealth? By smoking one pack of cigarettes a day at an average cost of $5.33 per pack, this common habit can cost $1,945 in just one year. After five years, you've burned through over $9,700 dollars just to light up. Not to mention the potential for steep health care costs down the road.

4. Keeping a drafty attic. If your house has an attic, then chances are it's leaking dozens of dollars a year in energy costs. Adding insulation and making the attic hatch airtight with weather stripping can reduce your year-round energy use between 20 to 60 percent, saving you hundreds a year. Try these easy 3 Attic Insulation Methods to Seal in Savings to cut these drafty leaks from your wallet. While you're looking for energy savings, consider buying a few inexpensive foam insulation gaskets and outlet plugs to Child Proof Your Electrical Outlets to Cut Energy Costs -- this is a fun and easy DIY project.

5. Ignoring your student debt. You graduated how many years ago? Stop procrastinating and pay down that student loan already. Keeping that debt around for years isn't the best way to relive your college years, especially since it's costing you dearly in interest charges to carry the balance. If you don't have a plan to conquer the debt, grab a simple calculator and look at ways to increase your payments. I wrote about my own student loan experience in How I Paid Off My Student Debt in Six Months, and managed to break free from a $17,000 loan fast. You can do it too.

Kerry K. Taylor writes at, a blog where personal finance and frugal living are sexy, delicious, and fun. Kerry is the author of 397 Ways To Save Money: Spend Smarter & Live Well on Less.


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