I’m a Financial Advisor: These Are the 3 Habits That Quietly Kill Your Net Worth
Written by
Cindy Lamothe
Edited by
Amen Oyiboke
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When it comes to building wealth, it’s usually not one big mistake that derails you — it’s the little habits that sneak in and quietly chip away at your net worth.
The kind of stuff you don’t notice until you step back and wonder, where did all my money go?
Financial advisors see these patterns all the time, and the good news is that once you spot them, you can start turning things around. A few small tweaks to how you manage your money can make the difference between feeling stuck and actually watching your wealth grow.
GOBankingRates spoke with Joseph Favorito, certified financial planner and managing partner at Landmark Wealth Management, to discuss the habits quietly killing your net worth.
Overspending in Retirement
According to Favorito, most people who retire in their mid-60s need to limit their spending to no more than 4% of their liquid net worth to account for the inevitable negative years.
“When those years happen early in retirement, they are more impactful,” he said.
But he noted that many investors assume that if they have an 8% average return on their investments, they can then spend 7% and be 1% in the positive all the time.
“Unfortunately, eight minus seven does not always equal one in financial planning due to what is known as the ‘sequence of returns risk’ which can quickly derail your results.”
Credit Card Debt
Favorito said this is often true with younger people who don’t fully appreciate the power of compounding.
“While that compounding is greatly beneficial to your investments, it can work in reverse when your debt is compounding at ridiculous interest rates on credit card balances.”
Credit cards are valuable tools for establishing your credit rating and accumulating points, but Favorito explained they can be disastrous to those who don’t have the discipline to pay off the balance.
The Inability To Save for the Future
CNBC reported that Americans are more worried about running out of money in retirement than dying.
“The first bill you pay is yourself,” Favorito said.
Once you hit the workforce, he said, you should target at least 10% of your gross income as a savings goal towards retirement.
“Many people live for today, accumulate very little in savings as they focus on buying what they want, and not just what they need.”
That attitude makes it harder later in life when you’re not able to relax and enjoy the fruits of your labor.
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