Currently, there are 5 “wealth killers” that might be causing you to lose money without you even realizing it. Personal finance expert and former professional financial advisor Humphrey Yang stated on his YouTube channel that he estimates the average household loses between $4,000 to $8,000 per year due to these “invisible wealth killers”. If this money were invested, it could accumulate to hundreds of thousands of dollars over 30 years.
Surveillance pricing is a practice where companies use your personal data to determine what price to show you.
Have you ever purchased a flight ticket online and noticed the price mysteriously increased when you checked again? Or have you and your friend searched for the same hotel room on your phones but found that your friend saw a lower price? This is not a glitch, but surveillance pricing at work.
These companies conduct large-scale experiments using your personal data, purchase history, location information, and even the device you use (Mac user vs Windows user) to test the highest price you are willing to pay for a product.
As early as December last year, the US fresh grocery delivery company Instacart was found to be implementing surveillance pricing. The investigation found that for certain fresh foods, different Instacart customers could pay prices that differed by up to 23%.
Instacart even responded to this investigation, confirming that the results accurately reflected its pricing experiments and strategies. Therefore, this is not a conspiracy theory; many other companies have actually adopted this strategy.
The US House Oversight Committee launched an investigation into “personalized pricing” earlier this year. At the time, they investigated Uber’s pricing mechanism and found that two different users received quotes that differed by 221% for the same trip during the same time period. One user’s quote was $76.82, while the other was $23.92, a difference of around $53.
If you do not compare the quotes you receive with others, you would have no way of knowing about this situation. Additionally, surveillance pricing is not limited to the US; it also exists in countries and regions such as the EU, Canada, and Australia.
This practice is currently in a legal gray area in most countries. Although countries are considering tightening regulations, until such practices are explicitly prohibited in your area, you need to fully understand how to combat “surveillance pricing” to avoid bleeding your wallet.
Firstly, Yang recommends that when shopping online, log out of your account or use incognito browsing. This way, you can compare prices of items like flights or everyday groceries. If you find price discrepancies, consider checking out directly in the incognito browser to save some money.
Secondly, for larger expenses, he suggests having your friends check prices on their devices because sometimes the results on their phones or computers may vary drastically.
Thirdly, be sure to regularly clear your cookies. Cookies are text files that websites use to track your browsing habits. If you do not clear these files, the website will know that you have been checking prices and may implement dynamic pricing for you. Clearing these files before making significant purchases might help you save some expenses.
Fourthly, make sure you are aware that you may encounter “surveillance pricing,” so sometimes it is best to make a purchase after the first search for a product.
Another stealth wealth killer is being a loyal customer. This may sound counterintuitive because we believe that being loyal to a business should earn us rewards.
For example, if you are a loyal customer to a store or a frequent visitor to a coffee shop, you may sometimes receive additional discounts and benefits. However, many service providers today may actually charge you higher fees as your usage time extends. If your internet, phone bill, streaming service, and insurance are set up to auto-debit, over time, you may end up paying more than new customers. For instance, if you have been subscribed to Netflix for a long time, have you noticed that the monthly fee has increased from $16.99 to $24.99?
Therefore, being loyal to a service or company does not necessarily mean you will get the most favorable conditions. These companies know that switching service providers is a hassle for everyone.
However, if you are willing to spend some time comparing services to find higher value for money, you could save a significant amount over the year. Humphrey cited data from Consumer Reports, showing that car owners who compare multiple car insurance plans could save an average of $666 annually, and that is just in the car insurance category. Therefore, by comparing new internet plans, cell phone tariffs, home insurance, or streaming services, you could save one to two thousand dollars a year.
Humphrey recommends selecting a specific date each year to spend about 2 hours calling all service providers to negotiate the best rates. Before calling current service providers, make sure to obtain quotes from other providers to use as negotiation chips.
This way, you can say to your current provider, “I received a quote from another company with the exact same services. Can you match this price, or should I switch companies?” If they do not budge, you should be determined to change service providers, and you can repeat this process annually. If you are willing to spend some time and effort, you can save a considerable amount in the long run.
The last but certainly not the least on the list is when you let too much cash idle in your bank account, which incurs an “invisible tax”. Having excess funds that are not properly planned can become a huge wealth killer.
If you deposit $20,000 into a large bank with only a 0.01% annual interest rate, you would only earn $2 in interest per year. However, if you put this money into a high-yield savings account or a money market fund with an approximately 4% annual interest rate, you could earn about $800 per year. This $800 difference each year, until you reach the age of 65, could accumulate to a substantial amount.
Assuming you are currently 25 years old with a 40-year compound accumulation period, simply depositing this money into different types of accounts could generate an additional $76,000. Of course, this is based on a 4% interest rate assumption, but even at lower rates, your funds could still generate some earnings.
The fourth wealth killer Humphrey mentions is related to paying for convenience but doing so without proper planning or laziness.
For example, if you have not planned your post-work meal arrangements and, once home feeling tired and lethargic, you pick up your phone and order an expensive Mexican burrito through DoorDash; or if you need to book a flight for a wedding in December and wait until the last minute, only to find that ticket prices have soared to the highest point; or rushing to buy gifts right before Christmas and paying extra for express shipping.
Imagine if you do not change this habit, and you spend extra money for not planning ahead your whole life, the amounts can accumulate significantly over the decades. Essentially, you are paying the price for delaying decisions in life.
Of course, if you have a high hourly wage, spending money for convenience, such as hiring a cleaner or using food delivery services, is justified because you are essentially “buying” time for yourself.
However, if you are spending money out of pure laziness or convenience, then if you want to save money, it is worth spending 30 minutes on a Sunday to plan your dinner menu for the upcoming week. You can even delete all food delivery apps from your phone. You do not need DoorDash or Uber Eats; you just need discipline and planning.
If you wish to retain some flexibility and convenience in your life, consider setting a clear budget, such as $50 per month. This way, you can spend this money freely without feeling guilty.
The fifth “invisible wealth killer” is when you find yourself in a tough spot without comparable prices as a reference.
For instance, when you go grocery shopping, you usually know how much a gallon of milk costs. Therefore, if one day you walk into a new supermarket and find a gallon of milk priced at $20, you would immediately know that this deal is not cost-effective.
However, it becomes challenging when it involves 401k fund fees, medical bills, flight prices, insurance rates, etc., and finding a basis for comparison is difficult to judge these costs easily.
No one will tell you how much an MRI scan should cost unless you work in hospital billing. Similarly, when it comes to your 401k retirement account, no one really knows how much the fees should be. This lack of knowledge creates these “invisible wealth killers”.
Recently, Humphrey discovered while helping a viewer examine their financial situation that the expense ratio of the Fidelity “Freedom 2065” fund they were using was abnormally high at 0.68%.
Humphrey stated that passive target-date funds generally have expense ratios of only 0.05% or 0.15%, meaning this investor was overpaying by at least 0.5% annually. If they continue holding this fund until retirement, the impact on their investment portfolio will be significant, with hundreds of thousands of dollars being consumed by fees.
To avoid this situation, check your investment accounts to ensure you are not paying excessively high fees. For medical bills, industry analysts estimate that up to 80% of medical bills contain at least one error, potentially costing you thousands. Few people challenge medical bills because no one truly knows the reasonable prices for various services. Among those who do challenge the bills, approximately 38% are successful in reducing the bills.
Humphrey warns not to rely on surface information, especially when you are not deeply knowledgeable in the relevant field. Some industries deliberately blur or conceal fee details to confuse consumers.
He suggests taking the following measures to avoid financial loss:
For medical bills, request a detailed bill from the provider and then cross-reference it with your insurance explanation of benefits. This explanation typically lists the amount you are supposed to pay for specific medical services.
Regarding 401k retirement plan, check the expense ratios of each fund in your 401k account. This information should be available on your 401k service provider’s website. Ensure that the fund’s expense ratio you hold is as low as possible, avoiding ratios close to 1%; ratios below this, such as 0.3% or 0.25%, are typically acceptable.
Lastly, for any non-emergency matters, always seek a second quote. For example, if your teeth require root canal treatment, and one dentist quotes $1,500, you should call another dentist to understand their charges.
By spending some time conducting proper verification, you can save a significant amount over time and gradually accumulate wealth.