Less than obvious ways people can lose money

For personal research reasons, I am compiling a list of ways I can get myself in financial doo-doo.

I’ve came up with…
-Lawsuits, court fees, and lawyer fees
-Job terminations or lay offs

Am I missing something? I think I have covered the obvious, but probably not less obvious ways.

Spam scams.

If you’re in the US you can get sick and get kicked off your health insurance, or stay on your health insurance and have all sorts of things denied, and end up paying a lot out-of-pocket.

If you’re a homeowner you can rack up quite a utility bill if you have a water leak, electrical devices that use “phantom power” and/or inefficient insulation in your home. It’s not a grand sum but I think most people lose money this way, including me.

Medical issues (the #1 cause of bankruptcy in the U.S.) - on preview I see ZipperJJ also addressed this.

Making loans to or supporting friends and family members – it’s surprising how many people get into trouble by neglecting their own finances while helping out others.

Gadets that are sold on infomercials

You have debt on your list, but the real demon is high interest debt. A car loan at 5% is a totally different animal than a credit card at 29.9%. Especially when people get lured in with promotional rates and don’t realize when things get moved to a higher interest rate. Classic example is the “pay no interest fr 12 months” consumer financing – a lot of people don’t realize that if they don’t pay it off 100% before the 12 months are up, they’re on the hook for all the interest they would have paid (again, usually at some crazy interest rate), compounded over those 12 months.

Accumulate enough high interest consumer debt and it becomes almost impossible to climb out from under – you’re essentially working just to service the debt.

This (above) is a far more real world risk more than anything else on your list. If you have decent credit you should always have an eye out for lower interest rates on house loans, car loans, credit card APRs etc. You can often save tons of money by rolling CC debt onto teaser rate cards as long as you keep an eye on the expiration date and shop for the lowest transfer fee. Calling your house mortgage holder and telling them you are considering moving your loan, and do they have a no cost (to borrower) plan to roll the note to a lower rate. There is some paperwork involved as they essentially have to craft a new loan, but you can save thousands per year doing this just on the minor interest rate adjustments. I did this with Wells Fargo and knocked almost $ 100 a month off my fairly small house loan at no cost to me.

With rates about the lowest they have ever been historically it’s stunning how many people will float along with a house APR well above market and not even think about doing in place refinancing. It’s money (and not a trivial amount) you’re just leaving on the ground.

I was going to say **interest **as well.

Some less obvious ones:
Inflation - Not only are you earning less in real dollar value as prices increase, the real value of your investments will decrease if they are not earning a return that beats the inflation rate.

Maintenance - Repairs to your home or car

Drugs, Alchohol, Cigarettes, other ‘habits’ - Without making any moral judgement, I should point out that these activities cost money and it adds up.

  1. DUI. Just one can cost thousands between lawyer fees, court fines, increased insurance, car interlocks. Plus, it could hurt you in your career with having to take time away from work for court appearances, jail, community service, education classes, etc. Not being able to rent a car for several years or travel to Canada might hurt as well.

  2. Bad investments. Spend your whole day listening to Glenn Beck and put all your money into gold because you’re afraid of Obama’s Socialist takeover. I’d say the same if you’re a true believer in solar energy and every penny gets invested into solar energy companies.

You didn’t mention simply losing it. Every Christmas we hear the sad tale of some mom who withdrew $500 to buy her kids presents and thought she put it in her purse and accidentally left it at the ATM or something. We’ve had threads where Dopers report that they’ve found money . . . that means somebody’s lost it.

Why is ‘living large’ not on the list?

I’d wager, living beyond your means, is the number one way people get themselves into financial doo doo!

Divorce, being number two, also not on the list.

I think “having children” finishes this triple whammy!

Stick up

I would go with investments as well. Buying high and selling low, etc. I know several people who panicked when their 401k tanked at the end of 2008 and withdrew the money. I know it is scary to see those numbers go down but by selling at that point they lock in their losses. If they had left things alone and planned for the long term they would be fine.

Alternatively I also know several people who bought some stock because it was the hot stock tip of the week. If you are hearing the stock is hot, forget it, you are too late in my opinion. You will be chasing you ass all the time since you will be buying it most likely at its zenith, it will most likely go down and then most people panic and sell at the exact wrong time before it starts to head back up. In my opinion you can’t time the market–don’t try!

I also know several people who pay the minimum each month on their credit cards and then at the holidays when your cc company gives you a ‘break’ by letting you skip that months payment they take it. This is such a double whammy and they never even realize how much this skipped payment actually costs them.

Not knowing the difference between ‘good debt’ and ‘bad debt’. Credit cards, car payments, etc are all bad debts. Whereas most mortgages, stock investments, etc are good debts. Bad debt will cost you so much money in the long run as those items depreciate. Good debt at least has a chance to appreciate.

Accidentally setting it on fire.

Don’t look at me like that.

Coffee and smokes- go to Starbucks every day and buy a pack of cigarettes every day and you can be out 10 to 15 bucks. Do it every day and that’s $300-450 a month. That’s not small change.

Closely related to losing it is letting opportunities lapse.

Things like stashing checks in the desk drawer and forgetting about them for so long that they’ve gone “stale” and can’t be cashed, failing to send in rebate offers on time, not exercising stock options before they expire, etc.

Another time-related way to lose money is not paying bills on time - not only do you stand to be hit with a $35 late fee if you miss a credit card payment, your interest rate may be notched up a bit, or it may be kicked all the way up to the default rate, which is often 30-35%.

Making minimum payments makes you lose money. If you can pay off the credit card in full now, do so. If not, you lose money by carrying the principal and interest for however long.

Devaluation of assets.

Buy a car new, see how much its worth in 6 months time, pretty much everything you buy loses value, at an alarming rate.

Snacks and sugared drinks.

I have a special category of losing money called the Idiot’s Tax. It’s for stuff like you forgot to switch off the data connection while your mobile is not on an unlimited plan, buying something you don’t really need, leaving money at the ATM, taking a cab because you are running late (and you actually could make it on time)…

How about services you don’t actually use? Paying $5 a month for overdraft protection, but you’re never overdrawn; $10 a month for unlimited text messaging when you never text anyone; $15 dollars a month for Spanish Language cable TV channels, but you don’t hablo Espanol etc.