7 Key Signs You’re Wasting Your Wealth
Written by
Andrew Lisa
Edited by
Gary Dudak
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When you think about wasting money, irresponsible splurging and lifestyle inflation probably come to mind — but you can squander your financial security just as easily through the actions you don’t take.
“Often, the signs of wealth being wasted aren’t as overt as extravagant spending sprees but can be subtler, rooted in what we fail to do rather than what we do,” said David Rafalovsky, CEO of the financial platform Oxygen. “Understanding how we manage our wealth is crucial for long-term financial security and growth.”
With that in mind, here are seven key signs that you’re wasting your wealth.
You Have Too Much Cash in Savings at the Expense of Diversified Investments
Cash in an emergency fund is essential to wealth protection because, without it, you’ll have to sell investments or go into debt to manage a crisis. But there is such a thing as too much savings — and hoarding cash instead of putting it to work wastes potential wealth.
“One clear indicator is a lack of diversified assets and investments, both big and small,” said Rafalovsky. “A lot of people don’t realize how keeping large sums in a savings account with low interest rates can effectively erode their wealth over time due to inflation.”
You’re Under-Insured
One of the most dangerous ways to risk your wealth is to leave it vulnerable and exposed by failing to protect it with the right insurance coverage. “I’ve observed the crucial link between astute risk management and financial robustness,” said certified insurance counselor Griff Harris, founder of Griffith E. Harris Insurance Services.
“A common sign that individuals are inadvertently wasting their wealth is the lack of proper risk management strategies,” he said. “For instance, underinsured assets can lead to significant out-of-pocket expenses when unforeseen events occur, eroding wealth that could have been protected with more comprehensive insurance coverage. It’s not just about having insurance. It’s about having the right kind and amount of insurance tailored to your specific needs and risks.”
You Have Too Few Assets and Investments To Show for Your Income
If you earn more than a subsistence wage, you should have wealth-generating mechanisms up and running.
“Another nuanced indicator is a noticeable discrepancy between income and asset accumulation,” said Garrett Smith, a veteran financial advisor and CCO of Ascend Investment Partners. “If someone earns a substantial income but has little to show regarding assets or investments, it may indicate that their wealth is not efficiently managed or invested. Another sign is the absence of a diversified investment portfolio.”
You’re Not Taking Advantage of All Available Tax Savings and Breaks
The rich continuously strategize for tax efficiency because they know that to leave it to chance is to waste wealth. You should take a page out of the 1 percent’s book.
“I’ve encountered numerous instances where individuals fail to leverage their wealth effectively, primarily due to a lack of proactive tax planning,” said John F. Pace, CPA, founder of Pace and Associates CPAs. “For instance, one significant sign of wealth wastage is when individuals or businesses neglect to structure their assets in tax-efficient ways, such as not utilizing tax-deferred accounts or failing to claim available deductions and credits. This oversight can lead to paying more taxes than necessary, diminishing the potential growth of their wealth over time.”
He added, “In my role, I’ve advised clients on structuring their investments and business activities to optimize tax outcomes, which has significantly preserved and enhanced their financial positions.”
You Borrow From Your Retirement Accounts
As the name implies, retirement accounts are meant for retirement. If you’re taking tax hits and penalties by tapping your nest egg prematurely for quick cash, you need to get your financial house in order.
“Borrowing from retirement accounts, such as 401(k)s or IRAs, is a clear indication of financial mismanagement and lack of foresight,” said Michael Ashley, a personal finance expert and founder of Ashleyinsights.com. “These accounts are intended to serve as long-term savings vehicles for retirement, and tapping into them can deplete retirement savings prematurely. Furthermore, early withdrawals from retirement accounts often incur hefty penalties and taxes, further eroding the individual’s wealth.”
He continued, “Instead of relying on retirement funds for immediate financial needs, individuals should focus on building an emergency fund and developing a comprehensive financial plan that includes strategies for managing expenses without resorting to retirement savings.”
You’re Overinvested in Depreciating Assets
If you spend your money on stocks and real estate, you’re building wealth. If you spend it on cars and jewelry, you’re wasting it.
“Buying things that lose value without investing in assets that appreciate is a common misstep,” said Rhett Stubbendeck, CEO and founder of Leverage Planning. “Sure, luxury items are nice, but they won’t grow your wealth over time.”
You Don’t Have Goals or Strategies for Reaching Them
If you’re winging it, you’re wasting money.
“One of the most obvious signs I see on initial reviews with new clients is individuals who lack clear financial goals or objectives are more likely to waste their wealth on short-term gratification rather than long-term financial security,” said registered investment advisor Angela Ashley, founder and CEO of Unique Investment Advisors.
“Prioritizing asset accumulation and preserving wealth is a developed habit that takes commitment. It’s not easy, but it’s the first important step in money management. People I see who don’t engage in proper financial planning or budgeting are more likely to waste their wealth. By not having a clear plan for managing their money, they may miss opportunities to grow their wealth through strategic investments. Many individuals I meet with spend more time planning for vacation than their financial future.”
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