5 Wealth-Killers To Avoid at All Costs, According to Personal Finance YouTuber Tae Kim

Everyone has lifestyle habits that impact their finances. Habits like driving an affordable car and spending according to a budget can help protect or improve your financial well-being. Other habits, called wealth-killers, drain your finances and hamper or deteriorate your financial health.

YouTuber Tae Kim of Financial Tortoise says you should avoid the following wealth-killers at all costs. Here’s a look at how costly these habits can be.

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Money mistakes the super wealthy never make - that you might be doing now.

1. The Desire To Get Rich Quickly

Kim considers the desire to make money quickly one of the worst wealth-killers. He said, “It makes us do some stupid things when it comes to wealth-building.” Get-rich-quick schemes include:

• Opportunities that promise a 100% instant return
• Investing in confusing and hard-to-understand products
• Taking unnecessary financial risks

It’s crucial to be aware of the dangers of get-rich-quick schemes. Some are scams cleverly disguised as investment opportunities. While legal, others come with significant financial risk or only result in a large payout to a few lucky investors.

Like many financial experts, Kim recommends long-term investment opportunities for building wealth. Any type of investing comes with some risk, but conventional investing typically doesn’t come with as much risk as get-rich-quick opportunities promising instant or unbelievably high returns.

Check Out: I’m a Financial Advisor: 6 Steps To Take If You Have $1,000 To Invest

2. Buying a Big House Too Early

Kim said homeownership is a wealth-killer if you buy a home you can’t afford. It could mean buying a home before you have the income to comfortably cover the many associated costs or choosing a house bigger than your budget allows. Kim explained that it may be tough to sell an unaffordable home depending on the housing market. You could be stuck for months struggling to cover housing expenses, making saving for other financial goals and building wealth more difficult.

Some financial experts recommend committing no more than 28% of your pre-tax income to housing expenses. Others recommend using your annual household income as a benchmark and buying a home worth no more than three to five times your yearly income.

Whichever homebuying rule of thumb you use, you want to ensure homeownership won’t strain your budget. Kim said, “A right home at the right price can help appreciate your wealth, but a wrong home at the wrong time can kill your wealth.”

3. Not Investing

Kim said that without investing in the stock market, you can’t reach your full wealth potential. Even parking money in high-yield savings and CDs long-term limits your earnings.

Suppose you invested $10,000 in S&P 500 stocks on Jan. 1, 2013, and reinvested all dividends. By Dec. 31, 2023, you would have about $39,772.87, or a return of 13.37% per year. The average annual return on stock market investing is 10%.

Now consider that high-yield CD. Some of the best rates on 10-year CDs are a 3.60% to a 3.95% APY. If you invested that same $10,000 in a high-yield CD with a 3.60% APY for 10 years with interest compounded daily, you’d have $14,333.08 after 10 years — or $25,439.79 less than if investing that money.

4. Interest on Debt

When you save and invest money and earn a return over time, you use compound interest to build wealth. However, as Kim pointed out, interest costs you when you have debt.

The latest data from the Federal Reserve has the average credit card APR at 22.76%. If you have a $10,000 credit card balance at the average 22.76% APY and make a $500 payment each month, you’ll pay $2,571.45 in interest by the time the card is paid off. If your monthly payment is only $250, the interest paid jumps to $6,213.58.

Kim said it is challenging to build wealth when debt has compound interest working against you.

5. Expensive Friends

Kim advises staying mindful of how expensive friends impact your wealth. Whether your friends have more discretionary income than you or are spending beyond their means, you could put your financial goals at risk or fall into debt trying to keep up with their spending habits.

Sometimes, you must say no to unaffordable invitations to protect your finances. But you don’t have to give up seeing your friends altogether. Invite them to do things that align with your budget. Start an entertainment fund and save up to treat yourself to an occasional expensive outing.

The key to protecting your finances is being mindful of the opportunity costs of your spending decisions. As Kim pointed out, if your friends are “impacting your ability to save and invest for the future, they are wealth-killers,” just like the other lifestyle choices on this list.

This article originally appeared on GOBankingRates.com : 5 Wealth-Killers To Avoid at All Costs, According to Personal Finance YouTuber Tae Kim