In the Raleigh, N.C., News & Observer the other day was an article by Tony Pugh on hidden fees. Fees have become big business in recent years; many banks, for example, charge $35 for bounced checks. Check out these numbers:
- "Commercial banks were on pace to reap $38 billion in fees from deposit accounts in 2007, according to the Federal Deposit Insurance Corp." Consumer Reports has estimated that the financial services industry takes in more than $200 billion in fees. Yikes!
- The hotel industry, according to PricewaterhouseCoopers, is taking in $2 billion annually in fees, up more than 250% in just five years.
Pugh offered an example that might have been amusing, had it not been rather outrageous. He told of a vacationer at a fancy Florida resort who enjoyed being spritzed with cool water by the pool. He assumed the staffer's misting services were included in his regular rate, but discovered at check-out he'd been levied a fee for all the spritzings.
If you're flying, be prepared to face another fee if you're checking an extra bag -- it may cost you $25. If you use a cell phone, you face fees for going over your various limits, and fees as much as $200 if you want to cancel your service. Renting a car? Prepare to pay two or three times your local gas station's rate for gas, and to be charged extra fees for insurance. Did you send your credit card payment in a little late? That'll be up to $39.
A better reaction
Consumers are becoming more and more irate at charges and fees they see as blatant nickel-and-diming. They write letters, they contact their congressional representatives, they blog, and they vent to friends and passersby.
I'd like to propose another reaction, though: If you can't beat them, join them. Why should all these companies be the only ones that profit from charging fees? I encourage you to start charging yourself fees! Don't laugh -- this can improve your financial health. After all, most of us wish we were saving and investing more, don't we? Well, we can, with some clever fee impositions.
Here are some examples:
- Do you feel a little guilty when you pay $4 for a cup of coffee every weekday morning? If so, then charge yourself a luxury fee of perhaps $1 or $2. If you buy 250 coffees in a year, that will result in $250 to $500 extra in your savings and investments.
- Do you have trouble coming up with the money to make a maximum IRA contribution? (The maximum for most of us is $5,000 in 2008, and $6,000 for those 50 or older.) Every time you fill up your gas tank, charge yourself $5. You may be able to put aside $300 to $500 this way. With a trip to the gas station costing many of us $30 or more these days, what's another $5? Make it $10, if you can, and you'll be able to save nearly $1,000.
- Do you kick yourself now and then for dragging your heels about tending to your finances? Well, set some goals, and for each month that goes by with no action, charge yourself the kind of late fee that credit card companies charge: $39. If you put off opening that IRA or signing up for your company's 401(k) for a whole year, you'll have charged yourself $468.
Put it to work
You get the idea. Just from the examples above, you stand to make more than $1,000, if not more than $1,500. Best of all, it's win-win. If you don't buy the expensive coffees, and you manage to conserve gas, and you tend to your financial garden, you'll reap less in fee income, but your finances will get a boost. If you fail at those efforts, your finances will still get a boost from the fees. The fees might seem high, but remember that they're going to you!
Park that money in an effective mutual fund, and it can do wonders for you. The Bridgeway Aggressive Investors 2 (BRAIX) fund, for example, has a five-year average annual return of 20%, enough to have turned a $2,000 investment into nearly $5,000. The fund recently included Lockheed Martin
Learn of more great funds in our Motley Fool Champion Funds newsletter -- I've found a bunch of winners there myself.
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