Don’t you hate it when you find out you have been taken? I sure do. I buy something the salesman convinced me was a great deal, only to find out later that it wasn’t a deal at all. In fact, I paid a whole lot more than I needed to.
There is a lot of this going around today. I get so many calls from people or organizations trying to sell me something, that I stopped answering the phone if I don’t recognize the number. Unfortunately, sometimes it is a call I need to take and I miss it.
Following are five ways connivers are transferring our hard earned cash to their pocket, often without us even realizing it.
Extended Warranties
A warranty is essentially an insurance policy for a very specific item. An insurance policy is taken out to cover expensive things that would lead to a financial catastrophe if they happened. Good examples are medical malpractice insurance and fire insurance for my house. Either of these events could cost me, suddenly and unexpectedly, hundreds of thousands of dollars. That is worth insuring against.
But if my dishwasher breaks, I can get it fixed or buy a brand new one for $600. That is hardly catastrophic and wouldn’t be a big hit to my finances. So why would I ever consider purchasing an extended warranty (insurance) for an appliance? Extended warranties are a waste of money. There is never a good reason to invest your hard earned money to insure inexpensive items.
This industry has become a 40 billion dollar business. That means that every year they siphon off 40 billion of our dollars for something none of us need. Why do they do this? Because they can.
For the companies who sell extended warranties to make a lot of money, they must sell policies that are never collected on. The reason we get a call asking us to extend the warranty on our car every week is because they are making a fortune selling them, and we are biting.
If they make a lot of money selling them, then we can save a lot of money by adding the price of the warranty to our emergency fund, instead of buying an extended warranty. When we do have an item break that isn’t under warranty, we can use the money in our emergency fund to cover its cost. So just say NO to extended warranties!
Installment Payments
It seems like a good idea when the salesman tells me I can make easy monthly payments instead of paying it all now. But have you ever thought about why monthly payments are always offered? Because they make a ton of extra money if we bite. That money comes right out of our pocket.
I remember shopping for a couch. The only price on the tag was the monthly payment, there was no indication what the buy now price was. I asked the salesman what the interest rate was on the loan. He told me there wasn’t a loan, so there wasn’t any interest. It was a rent-to-own deal. You are paying rent, not interest.
When I pressed him for the price if I paid cash, he made a trip to the back and returned with a number. I went home and calculated what the effective interest rate was on the easy rent-to-own monthly payment; it was over 20%.
When we make installment payments, it is actually another way to transfer some extra money from our wallet to theirs.
Zero Percent Financing
It seems like a no brainer to borrow money for zero percent. But think about it. Why would a company that is in the business of making a profit by selling things ever offer you zero percent financing? What is the catch? How are they making money?
They are usually using the zero percent financing to entice you to buy something you would not otherwise buy, or they have inflated the price to cover the financing. Either way, you lose money.
For more information see my article Zero Percent financing is Not Always a Good Deal.
Investment Life Insurance
It sounds so good the way the salesman explains Investment Life Insurances benefits. And why not, since hundreds of hours went into training that salesman to convince us it is a good deal. “You can make a great profit and borrow your money back tax free,” they tell me. They don’t mention that I could put my money in any bank account and take it back out tax free. These products are sold under various titles, such as: Whole Life, Universal Life, Variable Life, Permanent Life Insurance…
I met a slick salesman at a success seminar who wanted to set up a meeting with me to discuss a great new retirement plan option I should be telling my followers about called the 7702 plan. He had all the right things to say to get me interested. They always do.
During the break, I Googled the 7702 retirement plan to learn more about it. I discovered that 7702 is the IRS legal section for how cash value life insurance is taxed.
Since many of us have become wise to the investment life insurance racket, this slick guy gave it a new title so I wouldn’t run away, giving him a chance to reel me in. If they have to hide the name, steer clear.
Over 80% of the people who buy these products, by any of their various names, cancel them. That should give you pause. If the majority of purchasers, after they learn the rest of the story, back out of the deal, we should all stay away from the start.
Never combine life insurance with any form of investing, even if you think your situation might be different. It will cost you a fortune. Stick to term life insurance and buy an amount that works for your family for the period of time you will need insurance. Here is a link to my article on Calculating the Right Amount of Life Insurance.
Celebrity Endorsed Investing
Every time I see a celebrity spokesperson on a commercial I realize they must be making a fortune on this product to be able to afford to hire a celebrity for a national television campaign. But the biggest problem is usually the timing.
If I’m looking at an ad saying, “I always buy my gold from….” Then it is clearly not the time to buy gold, and they are trying to convince me it is. Why? Because they have gold they want to sell while the gold prices are up and are paying for a national ad campaign to do just that. If they want to sell so badly, it is not the time to be buying gold, it is time to be selling.
There is no way a national ad can know enough about my family’s situation and my investment portfolio to know what I should be doing right now. Never directly use generic investment advice aimed at everyone. Get your advice translated into what you specifically need to do. The advice on the TV is what they want me to do to help their investment portfolio, not to help me boost mine.
I hope you will remember the five ways hucksters are stealing your money the next time one of them crosses your path. It is your job to grow your funds and not let them be frittered away by slick talking people who want to do a transplant on you. They want to transplant your money into their wallet.
