3 Key Areas of Spending That Dramatically Impact Your Wealth

If you’ve ever wondered where all your money went at the end of the month, you’re likely spending it on a few key things. While it can seem like most expenses are spread out evenly, experts say there are specific areas of spending that can dramatically impact your wealth if you’re not careful.

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Here are the three key places where your money is likely going that may be hindering your wealth-building .

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Housing

“As a financial advisor focused on high-net-worth individuals, I see several key areas of spending that can significantly impact wealth,” said Ben Klesinger, founder and CEO at Reliant Insurance Group and Helping Hand Financial . “Housing costs are often the single largest expense for most people.”

He noted that keeping housing costs low by buying less home than you can afford, or refinancing into a lower interest rate, can free up thousands each year to better invest for the long run.

Nischay Rawal, CPA and founder of NR Tax & Consulting , agreed. “As a financial consultant, I often see clients spend heavily on housing, discretionary items, and high-interest debt — reducing their ability to invest for the future,” he said. “My clients have saved thousands by refinancing mortgages at lower rates or downsizing to less expensive homes.”

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Discretionary Spending

Klesinger added that discretionary spending on things like dining out, entertainment and vacations is another big spending category. “While enjoying life’s pleasures in moderation is fine, frequent lavish spending in these areas reduces the amount available to put towards your future financial security and financial goals.”

David P. Fritch, CPA, owner of Elite Tax Strategy Solutions , observed the same with his clients. He said, “One area of significant impact is discretionary spending on items like dining out, entertainment and hobbies.”

He said trimming such budgets by even 1% to 2% a year and investing the savings in tax-advantaged accounts can generate tens of thousands in tax savings and future wealth over time. “I have helped many clients cut their tax bills by over $20,000 a year through better budgeting and shifting discretionary funds to retirement plans.”

Interest on Debt

According to Klesinger, interest paid on debt, especially high-interest debt like credit cards, is essentially throwing money away. “Aggressively paying off debt or consolidating high-interest debts to lower rates saves thousands in interest each year and accelerates wealth building.”

Rawal agreed. He added, “Paying off high-interest debts like credit cards provides an immediate return on investment. One client paid off $30,000 in cards, saving over $500 a month that now funds her retirement accounts.”

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While drastically reducing spending isn’t realistic for most, Fritch said small consistent changes make a meaningful difference over the long run. For example, an extra 1% to 2% of income invested annually over 30 years could accumulate to hundreds of thousands in retirement accounts and significantly trim your lifetime tax liability.

“Building wealth sustainably requires discipline but starts with maximizing tax-advantaged investment opportunities through smart spending choices and proactive tax planning,” Fritch said.

Klesinger agreed. “The single biggest factor in building wealth over time is saving and investing as much of your income as possible,” he said. “Small, consistent actions accumulate over time.”

This article originally appeared on GOBankingRates.com : 3 Key Areas of Spending That Dramatically Impact Your Wealth