6 Things That Kill Your Net Worth
Financial advice can be overwhelming simply because there are so many things you’re supposed to do.
It might be easier to focus on the biggest and most expensive mistakes to avoid instead.
The following financial missteps are common and costly hits to your net worth.
A recent Vanguard study revealed a self-managed $500,000 investment grows into an average $1.7 million in 25 years. But under the care of a pro, the average is $3.4 million. That’s an extra $1.7 million!
Maybe that’s why the wealthy use investment pros and why you should too. How? With SmartAsset’s free financial adviser matching tool. In five minutes you’ll have up to three qualified local pros, each legally required to act in your best interests. Most offer free first consultations. What have you got to lose?
1. Not having an emergency fund
Few of us truly have complete control over our financial situation. At any time, you could get robbed or severely sick. Somewhat more likely, you might have something break down, like an appliance or vehicle.
One way to offset these burdensome expenses is with an emergency fund. If you’ve set sufficient money aside, unexpected situations don’t become financial emergencies — which means you won’t need to do something costly like taking on debt or borrowing against your future by making early retirement withdrawals. (More on that soon.)
2. Keeping up with the Joneses
As Money Talks News founder Stacy Johnson has said, “You can either look rich or be rich, but you probably won’t live long enough to accomplish both.”
Impressing people may actually be easier when you aren’t pouring time and money into following and acquiring the latest, greatest and shiniest things. That’s a never-ending game, and once you stop playing it, you may find yourself happier and with more money to spend on things you want instead of things you’re “supposed” to want.
3. Using debt/borrowing money to buy depreciating assets
Example: a new car. This is a triple whammy. First, you’re taking on debt, which means you’re opening yourself up to interest charges. You’re likely to end up paying more than you borrowed.
Second, it also means you’re locking up some of your income to make payments until the debt is gone. You’re paying the opportunity cost of everything else you could have done with that cash. Meanwhile, the money itself is losing value to inflation over time instead of earning more (or at least keeping pace) in a savings account or investment.
4. Buying more house than you need or can afford
While it’s true houses generally become more valuable over time, it’s not guaranteed. And even if a home is gaining value, that doesn’t mean much if you can’t afford the associated and sometimes hidden homeownership costs, from simple utility bills to property taxes.
Plus, the other points we just made about debt are even more true here: Interest costs more, and the opportunity cost is much bigger.
A recent Vanguard study revealed a self-managed $500,000 investment grows into an average $1.7 million in 25 years. But under the care of a pro, the average is $3.4 million. That’s an extra $1.7 million!
Maybe that’s why the wealthy use investment pros and why you should too. How? With SmartAsset’s free financial adviser matching tool. In five minutes you’ll have up to three qualified local pros, each legally required to act in your best interests. Most offer free first consultations. What have you got to lose?
5. Making early retirement account withdrawals
When you’re facing a major financial issue — such as job loss or medical bills — it can be tempting to crack the biggest piggy bank of them all: your retirement fund.
You can borrow against your retirement fund without paying financial penalties in certain scenarios, but in general, if you’re under the age of 59 1/2, you should be prepared to pay income taxes on the withdrawn amount and a 10% penalty.
Even if you manage to avoid any penalties, you’re once again paying an enormous opportunity cost. You can put the borrowed principal back into your account, but you can’t make up for the lost time your investments would have spent growing.
6. Panic selling
When it comes to investing for retirement, mastering your emotions is crucial. Sooner or later, the market is going to crash — and on paper you’ll lose a lot of money.
Once you sell, that money actually is gone. But as we explain in “7 Top Costly Mistakes Investors Made Last Year,” history shows “new bull markets always have followed downturns.” In other words, if you get scared off, you’re likely to miss out. Doing nothing in this situation will not only save you money, it also could make you much more over time.
A recent Vanguard study revealed a self-managed $500,000 investment grows into an average $1.7 million in 25 years. But under the care of a pro, the average is $3.4 million. That’s an extra $1.7 million!
Maybe that’s why the wealthy use investment pros and why you should too. How? With SmartAsset’s free financial adviser matching tool. In five minutes you’ll have up to three qualified local pros, each legally required to act in your best interests. Most offer free first consultations. What have you got to lose?
