Saving Money Is a Learning Experience

Business transactions can feel uncomfortable when there is an imbalance of knowledge between you and the person providing the product or service. If you know nothing about cars, you can’t help but feel suspicious when a mechanic recommends unexpected repairs. Unfortunately, some people try to take advantage of that discrepancy to enrich themselves at your expense.

It was a problem Harry Houdini dedicated part of his life to fighting in the 1920s. In addition to illusions and death-defying escapes, Houdini set across America to debunk psychics and mediums, who he called “vultures who prey on the bereaved.” He even offered $10,000 to anyone who exhibited a supernatural ability that he could not explain.

No one was able to claim the money. Houdini used his knowledge of science and the tricks of the trade to see through each medium’s tricks.

Some businesses engage in their own acts of deception in the form of hidden fees, either to boost profits or pass on costs to consumers.

A Consumer Reports survey found about 85% of Americans have been charged hidden fees, totaling billions of dollars.

Learning how to spot these “tricks”, as Houdini did, can be an effective way of saving money. In that sense, education is an underrated factor in building wealth.

There are variety of places you’ll encounter hidden or unnecessary fees. But these three are where you may find the biggest ones. However, they are also where a little due diligence works like magic in helping you avoid paying more than your fair share.

Investing

If you can’t readily say how much you pay in investment costs, you’re not alone.

One survey found that around 75% of Americans didn’t know what fees they were paying in their 401(k)s. More than a third mistakenly said they didn’t think they paid any fees.

There are a wide variety of investment fees, including fund expenses, management fees, commissions, 12b-1 fees and retirement plan fees.

So, if you’re saving in a 401(k) or IRA, then you are paying fees, some of which may be unnecessary. According to a Personal Capital study, an investor could end up paying more than $400,000 in hidden fees over his or her lifetime.

The more you pay in fees, the less of your return you get to keep. What is most important to know about investment fees is that they are recurring. An investor with a $25,000 portfolio balance earning an average 7% return paying 0.5% in fees can expect it to grow to $227,000 in 35 years. If that same investor paid 1.5% in fees, the balance would grow to only $163,000. Just a 1% difference in fees reduces the ending portfolio by $64,000.

Not all investment fees are avoidable, but you have the ability to control them.

How to save money on investment fees

First and foremost, always consider costs when choosing investments. Generally, the lower, the better. Also, try to avoid investments that charge commissions, 12b-1 fees and other administrative or marketing fees that may not directly benefit you.

Further, work with an adviser who can help find the appropriate investments for your goals at the lowest cost. Your adviser should be willing to openly explain all costs to you. Preferably, hire an adviser who is a fiduciary, which means the person providing financial services is legally obligated to act in your best interest. It’s better to have an adviser who is compensated for the work done for you and not for the investments sold.

Medical care

Getting sick can be costly. But when you need medical help, you’re unlikely to shop around for quotes.

Anyone who has been treated in a hospital knows the feeling when the bill comes due. You may be charged for things you didn’t expect, like Band-Aids.

A Vox report reviewed more than 1,000 emergency room bills to study how hospital fees vary. One patient was charged $238 for eyedrops. A common charge is called the facility fee, which is just for using the emergency room, ranged from $533 to more than $3,000.

Most people will simply pay their hospital bills without realizing that you can get charges reduced or entirely removed.

How to save money on medical costs

The first step is to talk to the hospital. Ask for an itemized bill that will list every individual charge. At that point, you may be able to negotiate with the billing department. Most hospital are more flexible than you may think. For those who can’t afford to pay in full, you may be able to set up a payment plan without interest. Some health networks also offer financial assistance.

Homebuying

Buying a new home is often a stressful process. But at the same time, it can be exciting when you may get the home of your dreams. In such an emotional state, it’s easier and faster to just sign the papers and close quickly.

Those signing papers though deserve a closer look. Whether you’re buying a home or refinancing, there are numerous fees known as closing costs. They include application fees, loan origination fees and inspection fees, title searches and survey fees. Most homebuyers pay 2-5% of the home’s purchase price in closing costs. 

Closing costs are part of the homebuying process, but some fees can we waived or negotiated.

How to save money when buying a home

Your lender is required to list your closing costs in the Loan Estimate you receive when you first apply for the loan and in the Closing Disclosure document you receive before signing on the home. Review these documents closely and ask questions about anything fees you don’t understand or that seem unreasonable.

Remember, lenders and real estate agents are just as eager to make a sale, so may adjust some of these fees if you ask.

There are more areas of your financial life, from buying a car to planning a vacation, where saving money can be as easy as studying the process, reading the fine print and asking questions. It’s all about learning what is legitimate or not and how much is fair. That’s why it’s important to get in the habit of educating yourself and working with honest people who will help you learn.