Photo: The Ewan/Flickr
The recession has actually been good for changing how Americans handle their money, making them less likely to overspend and more likely to pay off debts. But there are still a number of common money moves that are just plain dumb. Here are four of the most counterproductive things we do with our money and how you can be smarter.Also see: Smartest things you do with your money
1. Bouncing checks: Overdraft laws were rewritten two years ago, allowing consumers to block banks from charging massive overdraft fees without any advance warning. But consumers are still bouncing checks and paying some $30 billion per year in fees as a result. To be sure, banks have set the odds of collecting heavy overdraft penalties in their favour by instituting some sneaky policies – such as “reordering checks” – that are now the subject of lawsuits and regulatory inquiry. But it takes two.
To be charged an overdraft fee, you actually need to spend more than you’ve got in your checking account. If you don’t do that, you don’t get charged 35 bucks every time you spend $5 on a latte. Admittedly, some people are just poor — or starting out — and their finances are close to the edge. But if you have more than a few bucks sitting in an emergency fund, and you still overdraft, you’re making a big mistake. Either put that money in your checking account (and learn not to spend it) or link the savings account to your checking account to cover the overdrafts more cheaply.
2. Splurging on sales: How many times have you heard somebody say that they “saved” a fortune by buying a bunch of stuff that was on sale? We are psychologically geared to be fooled by “benchmarking,” which is comparing the “original price” on the tag to the supposed mark-down price. And retailers know it. Thus they may mark products up in price before they mark them down. And yet, when you see a sale, you’re likely to think that you’re saving big by buying bigger. When, of course, you’re buying big. Period.
The Internet and bar codes have made price comparisons pretty simple. Make sure you do your homework before you shop. And then only buy products that you need, regardless of whether they’re on “sale” or not. Really want to “save” money? Don’t spend it.