It’s hard to resist seemingly good deals when we see them, whether it be a bargain home in a pricey neighborhood, a tempting cable company promotion or a $10 T-shirt. But sometimes deals that seem too good to be true actually are — although the initial investment might be low, it could end up costing you in the long term, whether through maintenance costs or missed opportunities to put your money toward a more worthwhile investment.
GOBankingRates spoke to financial experts to find out which seemingly “good deals” you should always avoid. After all, if you’re hunting down deals and steals, you want to make sure that they’re ones that will pay off.
Properties That Need a Complete Renovation
You might be able to find a great deal on a fixer-upper, but this could end up costing you more in the long run than spending more money upfront for a more move-in-ready home.
“An example is a property selling for $700,000 when neighboring finished ones sell for $1 million. A newbie buyer would look only at the cosmetic work and say, ‘I can put $100,000 into the property to bring it up to the $1 million [value] and save $200,000.’ However, it is not as easy as it seems,” said Martin Eiden, a licensed associate real estate broker with Compass Real Estate.
“You often need an architect to create and file plans — which can take months — and get city approval — which can also take months. In other words, it often takes six months of design and approval before work can begin. Construction can take another six to 12 months. During that time you cannot live there since it’s a construction site, but you still have to pay for heat, water, taxes and a mortgage. Meanwhile, you have to rent an apartment for a year. As such, there are double housing costs.”
Lab-Grown Diamond Jewelry
Laboratory-grown diamonds are said to have the same physical characteristics as natural diamonds, but they do not have the same value. So even though you can usually get them at a lower price than natural diamonds, you’re not actually getting a deal.
“Lab-grown diamonds have no inherent value or resale value, making them an abysmal investment decision,” said estate planning attorney Erach Screwvala of Screwvala LLC. “Lab-grown diamonds are neither precious nor rare, and therefore, they won’t receive a meaningful appraisal, which means as soon as you leave the store, their value will start to decrease and you won’t be able to resell them. This is unlike natural diamonds, which retain their value over time because of their rarity and authenticity — you can pass them down from generation to generation, or even sell them further down the line. If you are given the option, you should go for the real thing every single time.”
A 401(k) loan can seem like a good deal because it usually has low-interest rates — but there is potentially a very high opportunity cost that can translate to a very real loss in dollars.
“When you borrow money from your 401(k) you can often get a below-market interest rate,” said Brandon Renfro, a finance professor, financial planner and blogger at BrandonRenfro.com. “The interest you pay also goes into your account, so it can feel even cheaper. It’s not like you are losing that money, right? However, consider the potential for lost return on the money you borrow. Money borrowed from a 401(k) is no longer invested in the mutual funds or ETFs that it was in. If those investments do very well while the loan is still outstanding, you’ll miss [the potential gains]. Considering how much equities can climb in such a short period, this could be a lot of missed opportunity.”
Guaranteed-Acceptance Life Insurance
You’ve probably seen commercials on TV advertising guaranteed-acceptance life insurance, which typically has very low monthly rates, but the coverage you get with these plans isn’t even worth the $10 a month they cost.
“What people don’t realize is just how little life insurance coverage you get with these plans,” said Anthony Martin, owner of the nationwide life insurance agency Choice Mutual. “In most cases, seniors will get anywhere from $500 to $2,000 in coverage for these monthly prices. That amount of coverage is hardly enough to cover any sort of financial burden incurred by someone’s passing. These plans have no medical underwriting, which means the insurance companies are taking on a huge risk. This is why seniors get so little coverage for the price paid. On the surface, it seems like a good deal due to your acceptance being guaranteed and the low monthly starting rates. However, it’s really a terrible deal because almost everyone can get a much better deal on life insurance by applying with a company where there is underwriting.”
Leasing a Car
Leasing a car is often “more affordable” than buying a car, but it could ultimately be a worse financial decision.
“Commercials tout lower monthly payments than purchasing the vehicle, so it seems like a good deal,” said Todd Christensen, education manager at the nonprofit Money Fit by DRS, Inc. “For many reasons, leasing makes no financial sense for individuals. First, in small print near the monthly payment, you might find a large security deposit and the payment due at signing. Additionally, at the end of the lease, if you have driven more than the miles allowed per year, you will be hit with what are essentially penalty [charges] that could equate to thousands of dollars. After all those payments, the vehicle still does not belong to you.”
Used Luxury Cars
Buying is better than leasing, but there are still “deals” that aren’t worth it when it comes to car shopping.
“Some [used cars] might seem like a bargain for a luxury vehicle, but there’s a reason for that,” said Jacob Dayan, CEO and co-founder of Community Tax and Finance Pal. “Maintenance and repairs on luxury cars cost an arm and a leg, and they continue to lose value as time passes.”
Cable Company Promotions and Bundles
Cable companies will often offer promotions, bundles and premium packages with “discounted” rates. But often they’re still more expensive than cutting the cord and relying only on subscription streaming services.
“Nowadays there are so many cheaper alternatives to cable — you can literally have a few different streaming services with endless movies and TV shows, all for less than the price of cable,” said Dayan. “Not to mention that the cable company jacks your rate up after one year.”
Overdoing It on Digital Subscription Services
Streaming services will always be cheaper than cable, but if you’re not using the ones you have, you’re wasting money. Netflix starts at $8.99 a month, Hulu starts at $5.99 and Spotify Premium costs $9.99 a month. Individually, these are all “good deals,” but they can really add up when you start subscribing to multiple streaming services — and the more you’re subscribed to, the less of a chance that you’re actually using them all.
“Carrying costs add up quickly,” said Kassandra Dasent, a Generation X financial expert. “After taking an inventory of digital spending and cutting the cord on services not being fully utilized, re-direct those funds to a financial goal that you are committed to, such as maxing out an IRA or your next vacation. Every dollar counts.”
When it comes to buying clothes, it’s better to invest in a few high-quality items than to buy a bunch of lower quality and cheaper items just to score shopping deals.
“Cheap clothing can seem like a good deal at the time, but the true cost can be difficult to grasp,” said Christian Barnes, a Ramsey preferred financial coach for Do Better Financial. “One of the biggest downfalls is the need for constant replacement from wear and tear. A $5 shirt seems great when you buy it, but not so great when it has a hole only a few months later. Cheap materials also wear faster, resulting in things like pilling and fading. Higher-quality and higher-priced clothing tends to last longer, and generally fits better over time. It doesn’t mean you need to drop $500 on a shirt, but something in the $30 to $50 range will serve you much better than the disposable clothing that has become popular. If you want high quality with a more reasonable price tag, shopping sales and off-season are great options.”
Like fast fashion, fast food is something that’s cheap but just isn’t worth it.
“The drive-thru is a tempting option when you only have a few dollars and a few minutes, but the cost in terms of health can be astronomical,” said Barnes. “The short-term hits can be lethargy, oily skin and gastrointestinal distress. The long-term effects can include all sorts of chronic issues, like diabetes, heart disease and high blood pressure. Instead, try focusing on simple homemade meals that are easy to prepare, store and freeze. Another great option is using a slow cooker. You can set it when you leave for work and come home to a fresh-cooked meal.”
Buying Perishable Items in Bulk
Stocking up on groceries at Costco might seem like a good deal — but these bulk food deals could end up being a waste of money.
“Bulk buying to save money seems like a great idea in theory, but more often than not, items purchased go to waste,” said Rebecca Gramuglia, personal finance expert at TopCashback. “A survey analysis by TopCashback.com found 85% percent [of people said] the main reason for bulk buying is to save money. Yet, consumers are spending an average of $50 a week buying items in large volumes and typically see 57% of that go to waste. With food that has an expiration date, consumers must really be careful about how much they think they’ll actually use. Any food that ends up getting thrown away because it’s gone bad is money being wasted.”
How many times have you added items to your online shopping cart to make it to the free shipping minimum? Think about how much extra money you’ve spent doing this when you could have just sucked up the $3.95 shipping fee.
“While it might seem like you’re saving money, most consumers waste money by purchasing items they don’t need,” said Gramuglia. “To save money, select the ‘Pick Up In Store’ option. Not only will you limit yourself to only buying what you need, but you won’t be tempted to buy more just for the convenience of free delivery.”
Before booking a trip that bundles your hotel, flight and transportation cost altogether, take the time to do the math to find out if it’s cheaper to book separately. Many times, it will be.
“When booking an all-inclusive vacation, you are ultimately paying a fee for convenience,” said Gramuglia. “Consider all your options before booking. The key to saving money is research.”
How To Spot a Bad Deal
Many “good deals” are just bad deals in disguise. Before making any purchase, big or small, be sure to take the time to think about whether that purchase is something you really need, and whether it will serve you in the long term. And as Gramuglia said, research really is the key to saving money. Don’t just buy something on impulse because it seems inexpensive — take the time to look into your options and do some quick math to compare upfront costs and long-term costs.
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