Spending Wisely A cardinal rule for preserving wealth is never overpay for anything.
The more money you keep, the more you can save for your retirement.
People regularly overpay for things... whether it's buying things you don't need, paying fees on services like credit cards and brokerages, or paying too much for your cable bill.
Today, we're covering three things you might be overpaying for, and how to make sure you never overspend or waste your money on them again.
No. 1: Never Buy a New Car
Most people have heard that when you buy a new car, it loses a big chunk of value as soon as you drive it off the lot... But how much?
We ran a quick test using the top-selling sedan in the U.S. – the Toyota Camry.
According to the Kelley Blue Book independent vehicle-valuation service, you can buy a new 2015 Camry for $21,314. The "fair price" for a used 2015 Camry in excellent condition: $17,230. The car drops in value by 19% those first 5,000 miles.
Is it worth an extra $4,000 just to be the first to drive this car? No way.
You can see how big your savings are going from new to used when you look at a few more years in this table below. The table below shows the current prices you could get on the following model years and mileages for a Camry, according to the Kelley Blue Book.
| Model Year | Miles | Current Price | Change |
| 2015 | 0 | $21,314 | |
| 2015 | 5,000 | $17,230 | -19% |
| 2014 | 15,000 | $15,621 | -9% |
| 2013 | 30,000 | $13,897 | -11% |
Don't ever pay extra for the "new-car premium." The savings of $8,000 every six or seven years over a few decades of driving adds up to $40,000 extra money in retirement. The dividends from investing that money over time could allow you to drive a (nearly) new car and do other things with the extra money in your retirement. But spend it early, and you'll be broke in your later years.
And speaking of cars...
No. 2: Never Buy Travel Insurance or Damage Waivers on Rental Cars
Many rental-car companies will pressure you to accept their insurance when you pick up one of their cars... Don't fall for the hard sell.
The premium adds $10-$30 extra a day. Instead, just pay with a credit card (which is required in most cases anyway)... Many cards offer collision-damage coverage on domestic (and even foreign) car rentals. Visa, for example, will cover theft and damage, towing charges, and loss-of-use charges imposed by the rental company.
You just need to do a few things to make sure you're covered. Most credit-card companies will require you to use the card that offers the coverage to pay the rental in full. You also have to decline any coverage the rental company provides.
Visa, MasterCard, American Express, and Discover all have slightly different policies. And not every card offered by the company has this coverage. Just call the company's customer service department to determine if you have coverage, learn the terms, and save hundreds of dollars a year in fees.
Also, it's likely much of the coverage you have under your regular car-insurance policy carries over to your rental car. Just call your insurance company to find out their coverage policy before you rent your next car.
No. 3: Never Buy Extended Warranties
In general, people pay too much for peace of mind. That's why stores love to sell you extended warranties. When you look at the likelihood of something breaking, extended warranties just don't make sense.
I recently looked up a full-size stainless-steel microwave on the website of electronics and appliance retailer Best Buy. On a $209 unit, the store offers an extended warranty that will cover the microwave for four years for an additional $39.99.
The microwave already comes with a one-year warranty from the manufacturer, which is standard for small appliances.
After that year, for the extended warranty to make financial sense, the microwave would need a 19% chance of breaking – ($39.99/$209) x 100 = 19. Have 20% of your home appliances broken in their first four years? Would LG or any reputable brand be in business if one out of five of its appliances croaked so fast?
Do what I do and check your credit-card benefits. Many credit cards offer purchase protection in the first 90 days, and mine actually doubles the warranty at no cost.
[optin_form id="286"]
What We're Reading...
- Magazine Car and Driver ranks the top 10 best cars of 2016. (I recently drove the Mazda 3 and loved it. I plan to drive several of these cars over the next six months.)
- Would you brave one of the most dangerous roads in the world?
- Something different: Your feel-good brain chemical is responsible for enjoying sauerkraut.