4 Dangers of Trying To Build Wealth Fast
Written by
Quinlan Grim
Edited by
Zuri Anderson
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A notable Harris Poll survey conducted in 2022 found that as many as six in 10 Americans want to become a billionaire — and around 44% believe they have the resources to do so (with crypto investors making up a large portion of that group).
This increasingly common mindset might be more harmful than you think. As tempting as it is to build wealth quickly, it can be incredibly dangerous for your financial well-being.
Trying to earn money as fast as possible leaves you vulnerable to lifestyle creep, overinvesting your savings falling into debt and other risks. Here are four common dangers of building wealth too quickly and how you can avoid them.
Lifestyle Creep
If you’ve ever felt like you can never earn enough, you might be succumbing to “lifestyle creep.” This phenomenon occurs when someone suddenly has more expendable income than they’re used to.
Without a careful budget, it’s easy to slip into the habit of spending more to keep up with what you see as an ideal lifestyle, whether it’s a nice car, a bigger house or little things like more subscription services and meals out.
One of the risks of trying to build wealth quickly is that even if you succeed in the short term, if you don’t take steps to avoid lifestyle creep, whatever you earn will still not feel like enough. This can lead you to continue spending or gambling with your earnings rather than securely saving them for the future.
Here are some tips to keep lifestyle creep from draining your income:
- Stick to a monthly budget that sets aside at least 20% of your earned income for savings.
- Take pride in living below your means.
- Set annual savings goals and try to exceed them.
- Avoid comparing your lifestyle to others’, especially on social media.
Falling for Get-Rich-Quick Schemes
If an opportunity seems too good to be true, chances are it is. Common get-rich-quick schemes you might encounter today include:
- Investment scams promising a high return
- Multi-level marketing (MLM) recruitment offers
- Work-from-home opportunities requiring little or no experience
These opportunities may not immediately stand out as scams. They may also be perfectly legal.
For example, multi-level marketing is a legitimate business structure despite the fact that as many as 99% of MLM participants lose money, according to Forbes. Dolling out risky investment advice on social media is also legal even if it’s unfounded.
To avoid falling for dangerous get-rich-quick schemes, you may need to adjust your expectations. Take some time to research every opportunity you come across. Remember, if it were really that easy to earn fast money, everyone would be doing it.
Having No Backup Savings
When you’re eager to earn, you may be tempted to invest everything you have instead of saving. Around half of Americans live paycheck to paycheck, meaning they don’t have savings to fall back on in case of an emergency.
Investing your money is almost always riskier than saving it. With no backup savings, a medical emergency or other unexpected cost could put you into serious debt, making it even harder to break the paycheck-to-paycheck cycle.
Instead of investing everything you can spare, aim for the 50-30-20 rule: 50% of your income should go to monthly needs, 30% to things you want — which may include stocks and other investments — and 20% should go to savings.
That ratio serves as a general guideline and can be adjusted if your monthly costs account for more than 50% of your income. For example, a ratio of 75-15-10 can also help you save while slowly building wealth.
Gambling With Money You Don’t Have
How much money do you have to invest? It might be less than you think.
Remember that all forms of investment come with some level of risk. Whether you’re putting money into real estate, stocks or a business, if something goes wrong, you likely have no way of getting those funds back.
That’s why it’s important to set an investment budget before you enter any financial venture. Draw a line between money you can invest and money you can’t. Avoid gambling with:
- Money you need to pay a monthly bill.
- The 20% (or whatever ratio best suits your budget) that should be set aside for savings each month.
- Borrowed money.
- Money that could be used to pay down debt.
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