Your net worth – simply described as what you own minus what you owe – is hands-down the most popular gauge for wealth. There are people in this world that have never earned more than $50,000 in a given year, but they’re worth millions. And then there’s a whole other class of people that earn $200k+ a year and are worth absolutely nothing. Whether you earn hardly anything or you make a ton, there are 10 things that will absolutely kill your net worth and I strongly urge that you watch out for them, avoid them, and prosper heavily because of it.
10 Things That Will Absolutely Kill Your Net Worth
When I was 23 years old and living on my own, I made a profound realization that changed the course of my life forever.
- The bums living near my neighborhood earned very little, they owned practically nothing, and I assume most of them had very little debt. Their net worth was basically zero.
- Then, there were couples in their late-30’s that lived in my development that owned a nice house, had a couple of nice cars, and often took a lot of vacations. But, with their student loans and credit card debt, their net worth was actually -$50,000 or worse!
…The homeless man had a better net worth than the educated “rich people”.
This happens all the time, but many of us don’t stop to think about it. We just see people’s shiny stuff and immediately assume they’re doing incredibly well financially. It’s often not the case. You know why? Because they weren’t aware of these 10 things that will absolutely kill your net worth. Either that, or they just stupidly chose to ignore them…
Don’t be an ignoramus. Take note of the 10 things that will absolutely kill your net worth below and avoid them like the plague.
1) A New Car
How much does a new car’s value really go down once you drive it off the lot? According to Trusted Choice…11%. And then how much will the car depreciate after just 3 years? 46%.
So, a brand new $35,000 car will be worth about $31,000 two minutes after you’re handed the keys. Ouch, that’s an expensive 2 minutes!! Then, after just three years, your car plummets down to a value of $18,000.
You single-handedly lost $17,000 just by driving a car. Yikes! Not to mention all the extra money you spent on maintenance and insurance because you have a more expensive car. All in all, by driving a new car (even a “cheap” domestic car), you’ll lose roughly $7,000 a year! Yup, this move will absolutely kill your net worth!!
2) Expensive Home
Houses are great…until they suck all your money away from you….for 30 years. Womp wommmm…
According to a recent CNBC publication, the median home price is $200,000 today….which means that quite a few people (25% or more) own houses that cost $300,000 or more. If they borrow $300,000 from their bank at 4.5% over 30 years, guess how much they’d pay each month? And guess how much in total they’d pay in interest?
- Payment per month: $1,520 + property taxes + home insurance = $2,000 a month
- Total paid in interest: $247,000
So there are two reasons your expensive house will kill your net worth:
- It’s leaving you cash poor each month because your mortgage payment is more than 25% of your take-home pay (that’s a lot!)
- Half of the money you put toward your “house payment” actually goes straight into the bank’s pockets in interest!
Related: How Much House Can I Afford?
You know that spaghetti dish you get at your favorite Italian restaurant? It costs you $14, which doesn’t sound too bad…until you realize you could have made it yourself for $6 (or less).
And those potato wedges that you could just die for? $8. But, only $2.50 at home.
When you go out to eat and buy a meal, you’re not just paying for the food, you’re paying the:
- Chef’s wages
- Waitress’s earnings
- Busboy’s hourly salary
- the building’s mortgage, taxes, and upkeep
- as well as the owner’s profits!
For every meal you buy at a restaurant, you could have easily made it yourself for less than half the cost.
So how much does this kill your net worth?
Probably more than you realize.
According to a fantastic write-up by Simple Dollar, the average person spends $232 on food outside of the home. If there’s two of you, your monthly spend is $464. That means every year, you’re blowing $5,500 of your hard-earned money on restaurant meals. What if you invested that money instead of spending it for convenience? How much money would that develop into over 40 years?
You seriously don’t want to know… (but I’m going to tell you anyway because I just can’t help it… $2.1 million)…
4) Delaying Investments
So you’re eating out, you’ve got a nice car, and you live in a better-than average house that you probably don’t need. This of course means that you’re not investing like you should either.
Most financial experts advise people to invest 15% of their monthly earnings for retirement. Guess what the average is? 3.8%. That’s pretty sad. And it’s exactly the reason this country is headed for a crisis. More people will need help in their retirement years than those that can provide it…all because of stuff that’s forcing us to delay (or ignore entirely) our retirement saving.
And, as you learned from the above example, $464 a month can get you $2M into your retirement in 40 years. What if you waited just 10 years of the 40 and started investing then? You’d still have $1.5M, right?
Instant gratification can really cost you… Instead of $2,000,000, if you spent your money today and starting investing just 10 years from now, you’d only have….
$827,000 in retirement…
This is one that most people don’t think that much about, but I certainly don’t take it lightly. Living too far from work means:
- Less time for myself,
- Fewer precious moments with my family, and
- Less opportunity to make side-hustle money!
Am I just that special? Am I just that brilliant? No…it’s all because I live just 5 minutes from work. So, instead of listening to music and the news and wasting two hours of my life each day in the car, I’m making money and piling it into my net worth!
6) No Delayed Gratification
We live in a society today that tells you,
- “You only live once!” (aka “YOLO”…)
- “Watch out for numero uno!”
- “Live for today because you never know if you’ll have a tomorrow!”
While it can be healthy to treat yourself in the moment once in a while, living by these principles each and every day will almost certainly mean a pretty crappy tomorrow.
What do I mean by this?
Well, if you’re constantly upgrading your car for the newest model, putting mini-vacations on your credit card, and treating yourself every night for this and that (ie. going further in debt), then you’ll never have any money saved for when you’re older. Soooo, when you’re 75 years old and can’t work anymore and the only income you have is Social Security (which will pay you about $1,800 a month…whoopie), your life is going to flat out suck until you die.
Learn to delay gratification and you might actually have some money (and some fun) when you’re older.
7) Staying in Debt Too Long
I can’t believe how many 50 and 60 year-olds I’ve heard talking about their mortgage payments. I paid off my student loans when I was 27, and then I had my house paid off before I was 30. No matter what those fancy financial advisors say, I’m a huge believer in getting rid of all your debt as quickly as possible. Today, my wife and I have absolutely no bills other than property tax, insurance, utilities, our phones, and food. That’s it.
So what do we do with the thousands of dollars left over each month?
- We invest the majority of it,
- Give a fair amount away to those in need, and
- We have a ton of fun with the rest of it (vacations to Sanibel Island, many weekend trips up to Northern Michigan, and pretty soon we’re going to buy acreage and horses! (that exclamation mark on the horses was for my wife…not necessarily for me :))
If you want to grow wealthy, one of the best ways to do it is by kicking your debt to the curb as quickly as possible and then investing heavily for your future.
8) Excessive Recreation
Most people are freaking stressed. They’ve got car payments, a house payment, student loans, maxed-out credit cards – they just need to get away from it all sometimes to get their minds off of it. So what do they do? They sign up for softball!
So…this debt that will kill your net worth can be solved by spending more money and taking up all your available time where you maybe could have made some more money…?? Yeah, that sounds logical.
If your net worth is next to nothing and it’s really starting to freak you out, then it’s not time to recreate. It’s time to find an extra job, make that extra money, and clear out your debts!!
9) Investing Too Aggressively
About one out of every 40 people (based on my non-scientific observations) think they’re God’s gift to the stock market. They believe that they can hop in the market at the exact bottom and out of the market at its peak. Not only that, but they also think that their stock picks always beat the market.
According to Andrew Hallam in his book, “The Millionaire Teacher,” people that jump in and out of the market earn far less than those that just stick with an index funds — 5% vs. 8-9%. Sure, you might have a few big wins that you’ll remember for life, but on average, you’re losing.
10) Paying Too Much in Taxes
Paying taxes here and there won’t kill your net worth, but ignoring your tax liabilities all together certainly will.
Let’s say you earn $100,000 a year. If you do absolutely nothing, you’ll owe about $20,000 in taxes (between federal and state), leaving you with $80,000.
Now what if you actually paid attention?
- And maxed out your 401k contributions for you and your spouse ($18,500 per person in 2018)
- Maxed out your HSA contributions ($6,900 for families in 2018)
- Claim your $2,500 tax credit for college expenses
Just these simple acts will reduce your taxes from $20,000 down to approximately $4,000. It pays to pay attention.
Related: Never Pay Taxes Again
Don’t Kill Your Net Worth – Start Paying Attention Instead
To be completely honest with you, it’s pretty easy to lose focus and grow stagnant on your net worth. Heck, any one of the 10 things above could derail your net worth growth if you’re not careful. What you’ve got to do is:
- Decide that you’re going to grow your net worth
- Set a goal for what you’d like your net worth to be in retirement
- Then, set mini goals every year or so to make sure you’re staying on track
It really is that simple, but by no means is it easy!
Don’t kill your net worth. Decide, set a goal, and track it!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.