Jaspreet Singh: Don’t Let These 7 Money Traps Kill Your Wealth
Written by
Ashley Donohoe
Edited by
Jenna Klaverweiden
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The Federal Reserve Bank of St. Louis’ State of U.S. Wealth Inequality report noted that the average wealth for the bottom half of American households was just $51,000.
According to personal finance expert Jaspreet Singh, bad money choices can easily offset smart steps toward growing your wealth. For example, even if you’re working hard to boost your earnings, you might have some habits that are draining more money or adding to your debt.
In a recent YouTube video, Singh warned about seven of the largest money traps that might be killing your wealth. Read on to find out how to make financially healthier choices instead.
Lifestyle Inflation
Singh discussed how some people making $50,000 will spend as if they’re earning $55,000. When they get raises, they tend to adjust their expenses to live a fancier lifestyle, like opting for premium food or vacations. Banks also lure higher earners with loans to buy more expensive houses and cars, making the problem worse.
Lifestyle inflation often leads to struggling with debt and living paycheck to paycheck rather than building your family’s wealth. Aim to live below your means and commit to saving and investing to avoid becoming a victim.
Waiting for the ‘X’ Factor
While investing is crucial for building wealth, many people make excuses not to get started right away. Singh gave examples such as waiting until you become a higher earner, have more investing knowledge, or come across opportunities like higher interest rates or a market crash.
“The reason why so many people don’t actually make the wealth that they want isn’t because they pick the wrong investment or because they pick the wrong stock. It’s because they never start,” Singh explained.
Singh generally cautioned against attempts to time the market since it can lead to significantly reduced returns. The key is to invest now, even if you can commit only a small amount, and expect to make some mistakes and learn along the way.
Financing a Car
According to Singh, financing a vehicle is a wealth trap since the car quickly depreciates, costs you interest and lasts for a limited time.
Skipping the car loan is a smarter move for wealth building. You can use your down payment money to buy a less fancy used vehicle with cash and then put the would-be car payment amount toward investments or savings.
According to LendingTree, the average car payment in the third quarter of 2024 was $737. If you instead saved that amount monthly for five years (which is a bit less than the length of an average car loan), you’d end up with almost $48,000 if you earned a modest 4% annual return, according to the U.S. Securities and Exchange Commission compound interest calculator.
Paying the Loyalty Tax
“If you sign up for any sort of utility subscription, chances are that company is going to be raising your bill year after year … even if they don’t tell you because a lot of times they just throw that into the terms and conditions,” Singh said.
While it seems easiest to stick with what you have, shopping around for different providers can help you avoid losing money unnecessarily. Singh suggested doing some competitor shopping and politely trying to negotiate with your current provider based on your findings. You might land a deal this way, but if not, you might still save by changing to another company.
Not Acting Your Wage
Singh discussed how financial influencers often share opinions on whether people should or shouldn’t make certain spending choices, like getting Starbucks or dining out.
He said that these things are okay to do as long as you can afford them. However, they’re wealth traps if you’re in the “financial danger zone,” which Singh defined as having credit card debt and/or no $2,000 emergency fund. If you’re in that situation, avoid nonessential expenses and look for ways to improve your finances.
Not Having Any Cash
While Singh said that saving cash wasn’t a path to getting rich, he recommended having some savings to avoid missing out on opportunities for building wealth. His recommended strategy involves three separate accounts.
The first is a three- to 12-month emergency fund, depending on your life situation. This isn’t uncommon advice. Money expert Rachel Cruze, for example, advised in an article on the Ramsey Solutions website that you should aim for three to six months’ worth of savings.
Next, per Singh, you’d have an investment account with cash ready to take advantage of buying opportunities. Lastly, you’d have a savings account to avoid debt for big purchases, like a car or fancy watch.
Faking Being Rich
According to Singh, many people spend their money on status symbols, like BMW cars and Rolex watches, but don’t have that same amount of money in their investment accounts. While this might give off the impression of being rich, it doesn’t indicate actual wealth building.
In fact, according to a LendingTree survey, about 1 in 3 Americans reported feeling pressured to spend money to “keep up with the Joneses.”
Singh shared some helpful advice: “A simple rule of thumb that I follow, especially when it comes to luxuries, is my rule of five, which says if I can’t buy five of them, I can’t afford one of them.”
Keep a long-term perspective and put your money to work in wiser ways before buying flashy things that give false impressions. Eventually, you might build enough real wealth to comfortably afford such luxuries.
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