Re: how do you know that your money is being wasted on adwords.
Welcome to the community!
To answer this question, first analyze, for what purpose you are running Google AdWords. And if your purpose isn't meeting by running ads on Google AdWords then you are wasting your money.
If you are tracking your ROI then analyze if your cost is affordable or not. I would suggest you to go through this video as it may help you in understanding Bidding Options. http://www.youtube.com/watch?v=jRx7AMb6rZ0