20 Ways to Waste Your Money

Whether a newbie or seasoned budgeter, nearly everyone has spending holes -- leaks in your budget that drain money with you hardly noticing.

These small drips can add up to big bucks. Once you find the holes and plug them, you'll keep more money in your pocket. That spare cash could be the ticket to finally being able to save, invest, or break your cycle of living paycheck to paycheck.

Here are 20 common ways people waste money. See if any of these sound familiar, and then look for ways to plug your own leaks.

How to waste your money

1. Buy new instead of used. Talk about a spending leak -- or, rather, a gush. Cars lose most of their value in the first few years, meaning thousands of dollars down the drain. However, recent used models -- those that are less than five years old -- can be a real value because you get a car that's still in fine working order for a fraction of the new-car price. And you'll pay less in collision insurance and taxes, too.

Cars aren't the only things worth buying used. Consider the savings on pre-owned books, toys, exercise equipment and furniture. (Of course, there are some things you're better off buying new, including mattresses, laptops, linens, shoes and safety equipment, such as car seats and bike helmets.)

2. Carry a credit-card balance. If you have a $1,000 balance on a card charging 18%, you blow $180 every year on interest. That's money you could certainly put to better use elsewhere. Get in the habit of paying off your balance in full each month.

3. Buy on impulse. When you buy before you think, you don't give yourself time to shop around for the best price. Resist the urge to make an impulse purchase by giving yourself a cool-off period. Go home and sleep on the decision. If you still want to make the purchase a day or so later, do your comparison shopping, check your budget and go for it. Oftentimes, though, I bet you'll decide you don't need the item after all.

4. Pay to use an ATM. A buck or two here and there may not seem like a big deal. But if you're frequenting ATMs outside your bank's network, the surcharges can add up quickly. Put that money back in your pocket by using ATMs in a surcharge-free network such as Allpoint or Money Pass.

5. Dine out frequently. A habit of spending $10, $20, $30 per person for dinner can be a huge drain on your wallet. Throw in a $6 sandwich for lunch and a $4 latte in the morning, and you've got quite a leak. Learn to cook, pack your lunch and brew your coffee at home and you could save a couple hundred bucks each month.

6. Let your money wallow. If you are stashing your savings in your checking account or a traditional bank account, you are wasting money. You could put it in a high-interest online savings account and get paid to save. You can even get an interest-bearing checking account through such reputable companies as Everbank, Charles Schwab, E*Trade and ING Direct.

7. Pay an upfront fee for a mutual fund. Selecting no-load funds can save you more than 5% in sales charges. Of course, no matter how well a fund has done in the past, you can't be sure how it will perform in the future. But if you pay a load, you'll begin the performance derby in the hole to the tune of the load. See the Kiplinger 25 for our favorite no-load funds.

8. Pay too much in taxes on investments. Are you investing in a tax-sheltered 401(k) or Roth IRA? If you're not maxing out those accounts before you invest in a taxable account, you're spending too much.

9. Buy brand-name instead of generic. From groceries to clothing to prescription drugs, you could save money by choosing the off-brand over the fancy label. And in many cases, you won't sacrifice much in quality. Clever advertising and fancy packaging don't make brand-name products better than lesser-known brands (see Similar Products, Different Prices).

10. Waste electricity. Of the total energy used to run home electronics, 40% is consumed when the appliances are turned off. Appliances with a clock or that operate by remote are typical culprits. The obvious way to pull the plug on your energy vampires is to do just that -- pull the plug. Or buy a device to do it for you, such as a Smart Power Strip ($31 to $44 at www.smarthomeusa.com, which will stop drawing electricity when the gadgets are turned off and pay for itself within a few months.

11. Pay banking fees. Overdraw your checking account and you'll pay $20 to $30 a pop, so it pays to keep tabs on your balance. Plus, are you still paying for a checking account? Free deals abound -- but make sure they're really free. For instance, will the bank charge a fee if your balance drops below a certain level or if you download your info into a personal-finance software program? That's not free.

12. Buy things you don't use. This sounds like a no-brainer to avoid, but how many times have you seen something on sale and thought you couldn't pass it up? Even if something is 50% off, you're spending too much if you don't use it. href=Couponing, for instance, can be a great way to save on your grocery bills. But if you buy things you wouldn't have purchased in the first place simply for the sake of using the coupon, you're wasting your money. The same goes for buying in bulk. A bargain is no bargain if it sits unused on your shelf or gets thrown away.

13. Own an extra car. Okay, so a car is a necessity for most people. But face it -- cars are a huge drain, from their loan payments to insurance fees to gas and maintenance costs. Own more than one car and you'll double or triple those expenses. Ask yourself if that second or third car is really necessary. Are you holding on to an old car for sentimental reasons? Can you or your spouse carpool, take public transportation or bike to work?

14. Ignore your local dollar store. Shopping at the dollar store can be hit-and-miss, but it's not all kitsch or junk. If you know what to buy, you can find some real bargains. For instance, my local dollar store charges 50 cents for greeting cards versus the $3-plus at a drug store or gift shop. (I have a big extended family so I figure this saves me more than $100 per year.) You can also score a deal on cleaning supplies, small kitchen tools, shampoos and soaps, holiday decorations, gift wrap and balloon bouquets.

15. Keep unhealthy habits. Smoking is not only bad for your health, it burns up your cash. A pack-a-day habit at $6 a pack costs $180 a month and $2,190 a year. A junk-food or tanning-bed habit can be costly as well. Not to mention the money you'll waste on medical bills down the road.

16. Be complacent about insurance. Your bill arrives and you pay it without a second thought. When was the last time you shopped around to determine whether you're getting the best deal? Rates vary widely from insurer to insurer and year to year. Reshopping your auto, home or renters insurance might save you hundreds of dollars.

It also pays to evaluate your insurance needs. For instance, upping your out-of-pocket deductible from $250 to $1,000 can save you 15% or more on your car insurance. Consider using the same insurer for your home and auto insurance -- you could snag up to 15% off for a multiple-line policy. And make sure you're not paying for insurance you don't need. For instance, you need life insurance only if someone is financially dependent upon you (such as a child).

17. Give Uncle Sam an interest-free loan. If you get a tax refund each April, you let the government take too much money in taxes from your paycheck all year long. Get that money back in your pocket -- and put it to work for you -- by adjusting your tax withholding. With a little discipline, you can use that extra cash each month to get started saving or pay down debt (or make ends meet to avoid going into debt in the first place). You can file a new Form W-4 with your employer at any time.

18. Pay for something you can get for free. Dust off your library card and check out books, music and movies for free (or dirt-cheap). Don't pay to receive your credit report when you're allowed to get it at no charge by law. Take advantage of kids-eat-free promotions. And dial 1-800-FREE-411 for free directory assistance.

19. Don't use a flexible-spending account. Your employer may allow you to set aside pretax dollars to pay for medical costs not covered by insurance. You can use the money for expenses such as therapy, contact lenses, insurance co-payments and over-the-counter drugs. You may be able to do the same for child-care costs.

20. Pay for unnecessary services. How many cable channels can a person watch? Do you really need all those extra features for your cell phone? Are you getting your money's worth out of that gym membership? Are you taking full advantage of your subscriptions (such as Netflix, TiVo or magazines)? Take a look at what you're paying for and what your family is actually using. Trim accordingly.

Copyrighted, Kiplinger Washington Editors, Inc.

The Investment Secrets in Common Stocks and Uncommon Profits

In his book, Fisher laid out fifteen things that a successful investor should look for in his or her common stock investments. Here’s a rundown of what they are. (Do yourself a favor. Run out to your local store or navigate to your favorite online book retailer and pick up a copy of Common Stocks and Uncommon Profits – this basic summary of the book can’t possibly do justice to all of the excellent information in its pages.)

1. Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years?
2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potential when the growth potential of currently attractive product lines have largely been exploited?
3. How effective are the company’s research and development efforts in relation to its size?
4. Does the company have an above-average sales organization?
5. Does the company have a worthwhile profit margin?
6. What is the company doing to maintain or improve profit margins?
7. Does the company have outstanding labor and personnel relations?
8. Does the company have outstanding executive relations?
9. Does the company have depth to its management?
10. How good are the company’s cost analysis and accounting controls?
11. Are there other aspects of the business somewhat peculiar to the industry involved that will give the investor important clues as to how the company will be in relation to its competition?
12. Does the company have a short-range or long-range outlook in regard to profits?
13. In the foreseeable future, will the growth of the company require sufficient financing so that the large number of shares then outstanding will largely cancel existing shareholders’ benefit from this anticipated growth?
14. Does the management talk freely to investors about its affairs when things are going well and “clam up” when troubles or disappointments occur?
15. Does the company have a management of unquestioned integrity?

Fisher also had five “don’t” rules for investors, which were:

1. Don’t buy into promotional companies
2. Don’t ignore a good stock just because it is traded over-the-counter
3. Don’t buy a stock just because you like the tone of its annual report.
4. Don’t assume that the high price at which a stock may be selling in relation to its earnings is necessarily an indication that further growth in those earnings has largely been already discounted in the price?
5. Don’t quibble over eighths and quarters

Finding Good Stocks to Buy

Compare Stocks to Peers, Industry Sector to Measure Performance

By Ken Little, About.com

It is never easy picking good stocks, however during very difficult economic times it becomes more important than ever.

When the economy and the market are racing for the bottom, they can drag down good companies along with the bad.

A troubled economy tends to strip away any growth weak companies enjoyed in previous growth cycles.

However, because good companies may suffer also, investors need a way to judge a company’s performance.

One way investors can take the pulse of a potential investment is to compare how the company is performing relative to its peers.

Yahoo! Finance offers a way you can compare how a company is doing relative to its industry sector and its peers.

Click on the “Investing” tab and choose “Stocks.” On this page, look for the link to “Sector/Industry Analysis.”

This link takes you to a page that compares the various industry sectors. Other online providers may have a different way of identifying sectors.

Here’s how you can use this information.

Let’s say you are interested in IBM. Click on the “Technology” tab. IBM is in the Diversified Computer Systems sub-group.

If you don’t know where a company is classified, look up its quote and go to the Profile page. How Yahoo! classifies a company is listed in its profile.

Click on the Diversified Computer Systems and you will find a list of the companies in that sub-group. Each company will have a number of financial ratios listed.

At the top of the list are the corresponding numbers for the whole Technology sector as well as numbers for the Diversified Computer Systems group.

You can compare IBM or any other company with the sector and sub-group as well as comparing the company with its peers – such as comparing IBM and Hewlett-Packard.

If you want, you can download this information to a spreadsheet such as Microsoft’s Excel.

This is not a recommendation for IBM or Hewlett-Packard and other online providers of financial information offer similar capabilities as Yahoo!.

Always check current news about a potential investment for any late-breaking announcements and so on that may impact your decision.

Investors have a tremendous amount of information at their fingertips. There is no excuse for making investment decisions in the dark.

Know the Difference Between Value Stocks and Cheap Stocks

Investing in Value Stocks Is a Proven Strategy

By Ken Little, About.com

There is a difference between a value stock and a cheap stock. If you don’t know the difference, you may end up owning a stock that will not respond when the market and economy rebound.

A value stock trades below what analysts think it’s worth. Of course, in the middle of a raging bear market it seems like almost every stock fits that definition.

What distinguishes a value stock from a cheap stock is the quality of the company.

Even good companies get beat up when the market is free styling down the price slope. And here is where problems come in for investors.

It is easy to become overwhelmed by the low prices on a large number of stocks.

Those low prices seem to suggest that these are bargains too good to pass up.

However, a cheap stock may not have any bounce left if the company has been severely injured by the economy.

The brutal truth is a number of companies are lost every time the economy takes a strong dip.

These companies suffer a large loss in revenue and customers. Compounding their problems, larger and stronger competitors may take market share.

When the economy recovers and customers begin buying again, these weak companies are so financially decimated they cannot recover.

While both value and cheap stocks may be trading at historic lows during an economic crisis, only the strong companies have a chance to recover.

How do you tell a value stock from a cheap stock?

There is no single magic answer, but here are some indicators that may help:

• Debt is below its sector’s average
• The company is generating enough cash to avoid refinancing
• The company has a successful brand that will survive economic slowdowns
• It should trade at a P/E below industry averages, but not at rock bottom

This article can help you find this comparative information.

Being a good value investor is a proven strategy that has worked in good times and bad, however it takes about the same amount of work no matter what the market and economy are doing.

Reasons You're Not Rich

Many people assume they aren't rich because they don't earn enough money. If I only earned a little more, I could save and invest better, they say.

The problem with that theory is they were probably making exactly the same argument before their last several raises. Becoming a millionaire has less to do with how much you make, it's how you treat money in your daily life.

The list of reasons you may not be rich doesn't end at 10. Caring what your neighbors think, not being patient, having bad habits, not having goals, not being prepared, trying to make a quick buck, relying on others to handle your money, investing in things you don't understand, being financially afraid and ignoring your finances.

Here are 10 more possible reasons you aren't rich:

You care what your car looks like: A car is a means of transportation to get from one place to another, but many people don't view it that way. Instead, they consider it a reflection of themselves and spend money every two years or so to impress others instead of driving the car for its entire useful life and investing the money saved.

You feel entitlement: If you believe you deserve to live a certain lifestyle, have certain things and spend a certain amount before you have earned to live that way, you will have to borrow money. That large chunk of debt will keep you from building wealth.

You lack diversification: There is a reason one of the oldest pieces of financial advice is to not keep all your eggs in a single basket. Having a diversified investment portfolio makes it much less likely that wealth will suddenly disappear.

You started too late: The magic of compound interest works best over long periods of time. If you find you're always saying there will be time to save and invest in a couple more years, you'll wake up one day to find retirement is just around the corner and there is still nothing in your retirement account.

You don't do what you enjoy: While your job doesn't necessarily need to be your dream job, you need to enjoy it. If you choose a job you don't like just for the money, you'll likely spend all that extra cash trying to relieve the stress of doing work you hate.

You don't like to learn: You may have assumed that once you graduated from college, there was no need to study or learn. That attitude might be enough to get you your first job or keep you employed, but it will never make you rich. A willingness to learn to improve your career and finances are essential if you want to eventually become wealthy.

You buy things you don't use: Take a look around your house, in the closets, basement, attic and garage and see if there are a lot of things you haven't used in the past year. If there are, chances are that all those things you purchased were wasted money that could have been used to increase your net worth.

You don't understand value: You buy things for any number of reasons besides the value that the purchase brings to you. This is not limited to those who feel the need to buy the most expensive items, but can also apply to those who always purchase the cheapest goods. Rarely are either the best value, and it's only when you learn to purchase good value that you have money left over to invest for your future.

Your house is too big: When you buy a house that is bigger than you can afford or need, you end up spending extra money on longer debt payments, increased taxes, higher upkeep and more things to fill it. Some people will try to argue that the increased value of the house makes it a good investment, but the truth is that unless you are willing to downgrade your living standards, which most people are not, it will never be a liquid asset or money that you can ever use and enjoy.

You fail to take advantage of opportunities: There has probably been more than one occasion where you heard about someone who has made it big and thought to yourself, "I could have thought of that." There are plenty of opportunities if you have the will and determination to keep your eyes open.

Real Estate Investment Trusts: Are They For You?

If you once invested in the Nairobi Stock Exchange, chances are that you have made excellent returns over a short period of time. Sadly though, you stand the risk of exposure to an array of factors characterized with investing in non diversified portfolio. If you have considered diversifying your investment portfolio but didn’t know which one to go for, then Real Estate Investment Trusts may be an option to consider. But again, you may ask; are they really right for me.

Majority investors today consider investing in real estate as the ultimate investing goal. To the wealthy individual, it is merely an investment like any other; buy today, cash in tomorrow. That just goes as far as direct real estate investing is concerned. But now, there are the Real Estate Investment Trusts, commonly known as REITS.

Simply put a REIT is a pool of funds that is invested in real estate. Funds are drawn from investors and put under the management of a fund manager who then decides on the kind of real estate investment to go for based on the amount raised by subscribers for the trust. REITs will typically invest in real estate or real estate related assets. These can vary from shopping centers to office buildings, hotels and mortgages secured by real estate.

There are three types of REITs but the most common one is an equity REIT. The REIT basically entails having investors’ pool funds by way of buying shares of the REIT and getting an income out of it. This income is mostly paid on an annual basis.

The other type, a mortgage REIT basically entails lending money to owners and developers or investing the money in financial instruments secured by mortgage or real estate.

A hybrid REIT combines both the features of a mortgage REIT and the equity REIT. An investor in this category has his portfolio well diversified against the downturns in each category.

The United States has the most developed REIT market in the world. Other rapidly expanding REIT markets include Australia, France, Japan, Canada, the Netherlands, Singapore and Hong Kong. In Australia, the REIT concept was launched in 1971 with the General Property Trust being the first REIT to be listed in the Australian Stock Exchange (ASX). There are over 60 REITs listed today and Australia has the largest property trust in the world after the United States. Germany planned to introduce REITs in 2007 but the legislation is seemingly yet to be passed. There are already 7 REITs in Hong Kong. In the United Kingdom, 7 companies converted into REITs in 2007 after the Finance Act enacted a legislation allowing them to do so.

In Africa REITs are also gaining popularity in some key African nations where financial markets are well developed. Key in Africa is South Africa which, according to Ernst and Young was the top performer in the world in terms of total return over three year period giving a return of 34%. The number of public REITs in South Africa was 7 by end of 2006. However, the market had the lowest leverage among the key markets in the world.

Kenya’s market is slowly coming of age. Bora Real Estate Investment Limited (BREIL) was launched late last year at a point when Kenyans felt that the property market had completely sidelined the starters in the investment maze. One of the reasons behind setting up BREIL, according to Joe Macharia, the CEO of Bora Capital (the company behind BREIL) was to provide an investment option that works for small savers who cannot afford to put up a payment to acquire property or build a house.

The BREIL structure is a hybrid REIT but private (not listed in any market). Investors invest in the fund by subscribing to shares of BREIL and getting a regular income on an annual basis.

One of the advantages of investing in REITs is the tax advantage enjoyed by the investors. This is so because REIT investing allows for tax rebates on gains.

There is the old saying that you can never go wrong on land. Same applies to property as it can only appreciate in value. An investor therefore looking for gains over the long term would benefit from investing in REIT as it offers stability over ones investment.

One challenge with investing in REIT is that the target groups, mainly those within the age bracket of 25 to 45 are excited about short term gains. This is not a common feature with REITs which are illiquid and have an investment time span of more than one year.

REITs may just be what your investment portfolio needs. However, do observe caution in taking on REITs, contact your Investment Advisor for more information on the risks and benefits to your investment portfolio.

What are the basics of starting an investment club?

Let us begin by understanding what is an investment club. An investment club is a group of people who come together and embark on investment activities, while learning more about investing.

An investment club is not for the get-rich-quick at heart, but for the individuals who want to be financially better in 5-10 years, depending on the club’s long term objectives. An investment club is also not a merry-go-round initiative.

The overall objective of an investment club is to make money using a pool of equal member-contributions.

When establishing an investment club, one of the most important things for the group to decide is its purpose. Without a purpose, there will be as many objectives as there are members.

Whatever the objective, the members should discuss guidelines to selecting and making wise investments, to avoid particular people driving in their personal objectives into the club. For example, investing in the stock market is a long-term proposition and one that should not be taken lightly .

Discuss, agree and document minimum number of members needed at each meeting to make a decision.

At the earliest time possible, the group should establish several ground rules on which to run the club.

Discuss and decide how it will operate - it is best advised that you get registered at some time. Without being registered, it may limit the club’s investment opportunities and/or force the group to conduct their transactions using a person’s name.

With registration, the members need to agree to their club name, which will be used to register the club either as a partnership or social club. Assign a committee to develop the potential club agreement then, review it with members.

This will force you (members) to make decisions that will help the club function well in the future. Matters such as entry requirements for new members or conditions that must be met before a member can officially pull away from a club, could make or break it if dealt with them as they arise.

By all means, let the members sign to an agreed partnership document. In most cases a lawyer will be necessary to finalize the legal partnership agreement.

Having done this, the members can discuss and agree to finer details such as monthly meetings date and place, minimum periodical individual contribution, and penalties if any. Finding a time that works for everyone can be a real challenge, but attendance is important.

Because investment clubs encourage you to invest regularly and knowledgeably, and to understand the various risks associated with investing, they add on your individual financial intelligence that you could use as a family.