A Consumer Reports Survey found that 85% of adults have paid hidden costs in the last 24 months. And those are just the ones who’ve realized it so far!
Hidden costs are not easy to find because they’re…hidden, overlooked, or unexpected. They can also be undisclosed, appear in the fine print, or disguised in such a way that you believe they’re a normal part of doing business. Often, people pay for them on normal every day purchases but they can appear when buying a big ticket item, too.
Once you identify the places where you’re paying hidden costs, you can stop wasting money on them. This lowers your burn rate and gives you more money to invest which allows the power of compounding to work harder, so you don’t have to!
Below are 7 unexpected costs you may be paying and how you can avoid them.
Most employees realize that one of the best ways to create wealth is through their 401K. The contributions get made tax-free, reduce their ordinary income, and they get free money from their employer. And to think, this is all before they ever earn a rate of return on their investment!
With that being said, most employees don’t realize their paying hidden costs in these accounts. It’s common for you to pay fees to the 401K plan provider and the funds within the plan itself.
The US Department of Labor requires all 401K providers to disclose their fees in a prospectus. Somewhere deep within it, you’ll find the fees that you pay. They’re often listed as the Total Asset-Based Fees, Total Operating Fees, and Total Expense Ratios.
According to CNBC, the average employee pays between .37% and 1.42% of their account balance in fees to the plan provider each year!
On top of that, employees also pay the expenses associated with the individual mutual funds they hold within their 401K. The most notable one is the 12b-1 Fee. It’s used to pay for the marketing, distribution, and commissions paid by the fund. And these costs on average can range between .25% and .75% per year!
Many first-time home buyers think their only upfront cost is the down payment. But, before they receive the keys, they’ll have to pay closing costs. Many of these fees are standard, but some are complete junk, too!
When you take out a mortgage, pay particular attention to the fees charged by your lender and title company. Many banks will list application, origination, and underwriting fees, while title companies want you to pay signing, courier, and escrow fees. Most of the time, it’s normal to pay for one of these fees, but not for multiple of them!
Additionally, most home buyers will set up an escrow account with their lender at closing, too. They’re required to give the lender a cushion to cover future property tax and insurance bill hikes. Normally, this works out to be about 2 extra months’ worth of each.
Once you close and finally receive the keys, you still have to move your stuff. This can cost you anywhere from $100 for pizza and beer for your friends or up to several thousand if you hire professional movers.
Oftentimes, a new home means new furniture, too. The old couch won’t look right in the new space or now you have more square footage to fill full of stuff; both of which will cost you more money!
Once the home has been purchased, most home buyers think their only monthly expense is their mortgage payment. But, often they get caught up in the excitement of buying a home and overlook the hidden costs involved in owning it, such as maintenance, repairs, and upgrades.
On top of that, some home buyers get surprised by their first property tax bill, too. Often, they’ve purchased from someone who’s owned the home for a long time or is new construction. The tax assessed value has been low for years and suddenly jumps when it’s reassessed based on the new sales price.
Also, many people trade up and buy larger homes. They need more space or want to keep up with the Joneses which in turn causes them to have higher utility bills, too!
In most cases, you get to choose the way you pay. You’re given the option of paying overtime or all at once.
Many people don’t realize that making payments over time causes you to pay more. You get hit with interest charges and may face origination, preparation, and other unexpected fees too!
On the flip side, when you pay bills in full, you save money. Not only do you eliminate your interest expense, but in some cases, you’ll get a discount, too. Many insurance companies and car dealers will give you reduced rates when you can pay in full or in cash!
Transportation is one of your top expenses, and buying a vehicle can be costly. The dealer charges preparation, document, and delivery fees. You also get stuck paying sales tax, title, and registration fees. These expenses add up fast and we haven’t even included the hidden costs of depreciation, higher insurance premiums, and future maintenance bills!
Banks are notorious for their fine print and fees. Every month it seems like they send out a new disclosure about an existing charge and how it’s changed. They also bill you for account maintenance, overdraft, minimum balances, and ATM fees, to name a few!
You’re charged account maintenance fees when you don’t meet certain requirements, such as failing to set up direct deposit, or having too many (or few) transactions. Then, you get stuck paying the bank, so they can “maintain” the account in their electronic system!
Nothing frustrates me more than paying ATM fees. These are the hidden costs you pay for having convenient access to your money. You can pay operator fees for ATMs that are independently owned, out-of-network fees for ones that aren’t operated by your bank, and international fees for withdrawing money in a foreign country. (which likely means you’ll be required to pay foreign transaction fees, too!)
The largest hidden cost you have is inflation. It’s a fee that you pay each year that affects your entire budget. Everything you buy gets more expensive as the dollar gets weaker and weaker.
For example, imagine you have $100 sitting in the bank. If you spent that money today you’d be able to buy $100 worth of goods. But, if you waited a year and inflation was 2%, your $100 would buy you only $98 worth of goods.
As money loses its purchasing power, you have to earn more to sustain your lifestyle. For many people, this means trading more of their time for money and becoming further handcuffed to their job!
Stop paying hidden costs everywhere you can. If you can’t, then reduce the ones you must pay and try to get them as low as you can.
Once you do this, you’ll start to see your savings grow. Suddenly, you’ll have more money to invest which helps you achieve financial freedom, so you can start living the life of your dreams, faster!
Which hidden costs can you stop paying? Comment below.
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