Sidestep These 6 Money Traps as Your Net Worth Grows, George Kamel Says
Most people want to build their net worth as they age, but personal finance experts like George Kamel warn that money traps get more dangerous the more wealth that you build.
Whether you are broke or a millionaire, it may seem like someone is always coming for your money. Here’s what to watch out for on your path towards building your nest egg, according to Kamel.
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1. The Buy Now, Pay Later Spiral (Net Worth Under $10K)
The popularity of this seemingly helpful payment strategy has ballooned in recent years, but under the harmless looking exterior lies a big money trap. Kamel points out that one in four people have already missed a buy now, pay later payment, which can trigger late fees, overdraft charges and high interest.
If you have a lot of smaller, “no-big-deal” purchases stacked on top of one another, they can amount to a real dent in your paycheck, especially if you’re paying excess fees. If you're stacking BNPL plans, that's the first sign the strategy's using you, not the other way around.
2. The Car Payment That Eats Your Future ($10K to $100K)
Once money loosens up a little, a nicer car is often on the agenda. But with new cars costing about $50,000, Kamel notes the average new car payment has climbed to $767 a month. If you were able to invest that money instead of spending it on a depreciating asset every month, it could grow to over $1.7 million after 30 years of compound growth. That turns the real cost of your vehicle into a potentially life-changing nest egg.
3. Get-Rich-Quick Trends ($10K to $100K)
Another thing to watch out for, particularly in this net-worth range, is the idea that you can get rich quick by investing in things that “banks and rich people don’t want you to know.” As Kamel puts it, trends like options trading and crypto schemes are almost always marketed as “secrets of the ultra-rich,” but the reality is that most people following them tend to lose more money than they earn.
When it comes to successful investing over the long-run, avoid the trap of buying “the next big thing” and stick to what has worked again and again over time. Invest consistently in “boring” choices like S&P 500 index funds and automate your savings. It’s not glamorous, but no matter how bad things have gotten in the stock market, the index has historically always gone on to make new all-time highs.
4. Lifestyle Creep ($100K to $500K)
Once your paycheck and net worth really begin to grow, a very common danger appears on the horizon. Lifestyle creep is the tendency for spending to increase in line with income, and it’s a natural phenomenon.
After months or years struggling to earn a living wage, once you finally get “excess” money in your pocket, it’s tempting to buy a newer car, get a bigger house, even just start eating out more or taking more expensive vacations.
Kamel cites data showing 40% of households earning $300,000 a year or more still describe themselves as living paycheck to paycheck. While that might seem incredible to someone earning $50,000 per year, the truth is that the pull to spend more is very pronounced as soon as you earn more.
The important lesson to draw from this is that more income doesn't necessarily translate to a higher net worth. You still need to work at building that yourself.
5. Raiding Your Home or 401(k) ($100K to $500K)
One of the problems with building a net worth of between $100,000 and $500,000 is that it can feel like a piggy bank ready to be raided for everything from home renovations to expensive splurges. Kamel warns that pulling from a HELOC or a 401(k) loan comes with penalties, interest and years of lost growth on money that was supposed to be working for you. It can also put your home and retirement at risk.
6. Overconcentration ($1 Million and Up)
Those who amass a net worth above seven digits often get there through success in a single stock or other investment. But keeping all of your assets tied up like that can be a real danger, even if that’s how you built your wealth in the first place.
Kamel explains that for every meme stock or successful company that takes off, plenty more crash and burn. For this reason, he endorses diversified index and mutual funds spread across large-cap, mid-cap, small-cap and international holdings. This type of diversification can help minimize risk while still accessing long-term growth.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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