by Kimberly Palmer
Upgrading your wardrobe and car might sound like a rewarding thing to do. After all, you work hard all day, and you deserve to come home to some luxury during your off-hours. But crunching the numbers shows that these four splurges aren’t worth their additional cost. Here’s why:
A Hybrid Car
There are many reasons to buy a hybrid car: They look cool, they’re better for the environment, and they’ll save you money on gas. But before paying a premium for a hybrid – and they do tend to be more expensive – do a quick calculation to see if the purchases makes sense for you, based on your driving habits. First, check the price difference between your hybrid of choice and its non-hybrid equivalent.
Then, figure out how much per year you’d pay for gas with each vehicle, by multiplying the current price of gas by the number of miles you drive annually divided by the car’s EPA miles per gallon estimate. Take that cost difference and multiple it by the number of years you expect to own the car. Is the gap big enough to justify the price differential? If you don’t drive much, then it’s probably not.
It’s tempting to purchase a membership account at stores such as Sam’s Club or Costco. You can peruse long aisles stacked full of tempting items. But you have to pay a fee of $40 or more for that privilege, and for many shoppers, the membership never pays off.
Here’s why: According to research from Harvard Business School, shoppers are likely to buy more than they would otherwise (including massive amounts of pasta or toilet paper) when shopping at stores that charge a membership fee because they believe they are saving money. Not only might shoppers end up with more macaroni than they could ever eat, but in some cases, the authors point out, products may be no cheaper than at a local discount store, where you can shop for free.
In other words, paying more for membership into a bulk buy store might not make sense.
(Hyo’s Note – I don’t agree with this.Â I do not disagree that you can buyer cheaper at a discount store like Kmart or Walmart.Â In fact, with coupons combined with weekly sales, you could very well spend less at Kmart.Â But we use Costco mostly for non-perishables,basic items like milk and eggs plus stuff we just use a lot of.Â You would really be hard pressed to find lower prices on a day to day basis than Costco in our area (I’m assuming probably true of other membership warehouse stores).Â Plus, one buy on a great computer takes care of the membership fee.Â But everyone needs to asset and make their decisions, obviously)
A Rewards Credit Card
The average non-reward credit card carries an interest rate of just over 15 percent, according to the comparison website IndexCreditCards.com. The average rate on a reward card is 17.5 percent – a difference of almost 2.5 percent. While consumers who pay off their balance each month aren’t affected by the interest rates, anyone who carries even a small balance is paying more for their rewards card.
While rewards, which come in the form of airline miles, gift certificates, cash back, and other treats, are appealing, they are almost never worth the additional cost that the steeper interest rate imposes. Plus, researchers have found that users speed up their purchases on their credit card when they know they can earn rewards, a trend dubbed “purchase acceleration.”
The math shows that anyone with a credit card balance is better off sticking with a non-reward credit card and purchasing those so-called “rewards” with their own money.
A Stylish New Wardrobe
Want to spend money so it makes you happy? Then stay away from a luxury-lined closet. Research from the University of Chicago and University of Wisconsin-Madison found that spending money on leisure activities can boost happiness, while spending on material goods such as clothes does not. That’s because leisure spending often boosts relationships with friends and family members, and that, in turn, makes us happy.
That means the savvy consumer should skip retail therapy, and plan a vacation instead.
Reprinted from http://finance.yahoo.com