Whenever you make a financial transaction, there’s someone on the other side of it. If you’re not careful, you may end up helping to make that person or business rich — at your own expense.
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Many times, these lopsided transactions are not obvious to consumers, as they believe they are getting something in return and aren’t necessarily paying attention to what is happening on the other side of it. But here are some of the biggest money mistakes that you should avoid so that you don’t make other people rich.
Paying Interest on Credit Cards
Thanks to some careful marketing, it might seem as if credit card issuers are generous. After all, you can hardly get through a day without hearing about a credit card that offers you 100,000 points just for opening an account, or one that provides you with a $300 cash bonus.
However, the reason these companies can offer such generous bonuses is because they make literally billions of dollars off credit card users, through a combination of annual fees, interest and transaction fees. When you carry a balance on your credit card, you’re typically paying 20% or more in interest to the bank issuing the card. That’s helping make those companies rich, as there’s no other investment, from bonds to the stock market, that consistently provides a return of more than 20% per year.
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Financing Purchases In-House
Generally speaking, any financial move you make out of expediency will end up costing you while the party on the other side of the transaction gets rich. Think about in-house financing when you buy a car, for example.
While some good promotional rates are available to those with top-tier credit, in-house car financing will typically cost you more than you would pay at a bank or credit union. But buyers often get caught up in the moment of getting a new car and just want the transaction to go as rapidly and as smoothly as possible.
The same is true when you’re at a retail store and are offered an in-house credit card. While you might be attracted by the sign-up bonus, which may offer you 20% off a current purchase, the interest rates on these cards typically approach 30% or more. You might even end up spending more at that store if you have a dedicated retail card. Either way, you’re helping to make the card issuer rich.
Buying More Car or House Than You Need
Unless you have extreme financial discipline, it’s all too easy to get seduced into buying more of something than you need. For example, when you’re at a car dealership, you might think you want the practical choice, but when you see a car with fancy bells and whistles, it’s easy to get distracted. A salesperson will likely tell you that you can “have it all” for “only a few hundred dollars more per month,” and before you know it, you’re sitting in a car that costs $10,000 more, and the dealership and salesperson end up making more money.
The same is true when you are house shopping. Maybe you’ve decided that your small family only needs a 2-bedroom, 1-bath house, but your agent provides you with listings for beautiful homes with 3 bedrooms and 2 baths and convinces you that it’s the more practical choice. Ultimately, you end up paying more in commissions to your agent, paying more in interest to your mortgage lender and paying more in upkeep and maintenance.
Renting an Expensive House
In some cases, renting can make more sense than buying, especially if you are just starting out in life. But if you can afford to buy a home, it makes sense to avoid paying high rent and enriching a landlord.
When you own your own home, a portion of your monthly mortgage payments goes directly into the equity of your own home, rather than into someone else’s pocket. If you’re renting an expensive house, you’re likely paying even more than you would pay to own your own home, so it’s worth looking into whether you’re making someone else rich while you could be investing in your own home instead.
Paying Too Much in Investment Fees
Over the past few decades, the cost of investing has plummeted. Nowadays, you can easily open a brokerage account, even with major banks like Chase, and trade stocks and exchange-traded funds commission-free. Mutual funds and other investments that charge annual expenses have also gotten much more affordable.
While there will always be a place for financial advisors who charge fees or commissions for their services, be sure that you are really getting value out of what you are paying. If you understand the markets or are just buying a simple S&P 500 index fund, for example, there’s no reason for someone else to get rich off your account when you’re doing all the work.
Working for Someone Else
It’s true that most people need to work for someone else, whether an individual or a company, but it’s almost a certainty that your employer is making more off your efforts than they are paying you. This is particularly true in the case of a large company.
While this is somewhat of a controversial topic — and it’s not really a “mistake” in the sense that not everyone can survive by running their own business — it is worth considering. This is especially true if you don’t feel like you are being paid what you deserve while working for someone else.
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This article originally appeared on GOBankingRates.com: 6 Biggest Money Mistakes That Make Other People Rich
