5 Hidden Mistakes Preventing You From Being Wealthy

Many people fall in love with the idea of becoming wealthy. After all, who wouldn’t want to have all of their financial needs taken care of, and still have money some leftover for fun?

The good news is there are steps you can take to automate your wealth-building. However, there are also some things we often don’t think about that can hold us back. 

If you’re hoping to build wealth, here are some of the mistakes that could make it more difficult than it needs to be.

1. Spending too Much on Certain Items 

We’ve all heard about living within our means. You probably know you shouldn’t spend more than you earn. But what types of things are you spending on? It’s not strictly about never spending on things you don’t need. 

Sometimes it’s more about spending based on your values. It’s fine to spend on things you don’t need — as long as you’re true to your priorities and can afford the expense. 

Take a step back and consider your financial and life goals. Is your spending helping you achieve those goals? Will it enrich your life and help your family? While you might not be exceeding your income with your spending, some of your spending, if it’s not directed at the things, experiences and goals you value, can hold you back from building wealth.

For every dollar you spend, that’s a dollar that’s not going somewhere else. Consider whether that spending is keeping you from the things that matter more.

Take Action: Review your spending patterns, particularly for the big three expenses (home, auto, and food), and for recurring expenses. Ensure your spending reflects your values, and if not, determine how to reduce your spending.

2. Not Having a Plan for Emergency Savings 

Yes, you need to set aside money for emergencies. But do you have a plan for that money? Do you know what constitutes an emergency? And are your savings in an account that’s earning more than what a traditional bank is willing to pay?

There are various strategies you can use to increase the yield on your emergency savings, depending on your risk tolerance. The more you take this into account, the more you can use your emergency savings a way to help you build wealth over time. Some ideas include:

• Use a high-yield savings account that pays more than 2% APY
• Consider a CD ladder that has a mix of maturities that unlock your money at different times, with some of it getting a higher yield for longer maturities
• Put a portion of your emergency savings in a taxable investment account for the chance to earn a much higher return — and the potential for tax-deductions if you have to liquidate at a loss

You might be able to use a bucket strategy with your savings, or use a tiered strategy that keeps a smaller portion of your emergency fund in cash, while the rest is in higher-yielding assets that can be accessed as needed.

Take Action: Review your current emergency fund and your risk tolerance. When you strategize your emergency fund, you have the chance to build wealth faster while still maintaining access to assets in a pinch.

3. Not Having the Right Insurance Coverage

Insurance isn’t sexy, but you might be surprised at how important it is when it comes to protecting your long-term ability to grow your wealth. 

The idea behind insurance is to protect your assets when expensive disasters take place. For example, if you wreck your car and you don’t have adequate insurance coverage to buy a new vehicle, you have to come up with that money on your own — taking a big chunk of capital away from your ability to invest.

It’s the same with homeowners insurance and health insurance. If you aren’t adequately covered, you have to dip into your own assets to cover the costs, and that slows your ability to take advantage of investing and building wealth. 

And of course, we can’t forget one of the most important insurance policies – life insurance. Life insurance policies can ensure your family has a secure financial future should you pass away before them. 

With the right insurance coverage, as much as make sense for your situation and what you can afford, you’re more likely to protect the assets you have and be able to build on them more effectively.

Take Action: Review all of your insurance policies at least once a year to ensure adequate coverage. If needed, drop full coverage to liability only to reduce your coverage and save money. Finally, make sure you have enough life insurance to provide for your family.

4. Investing Inappropriately

Are you investing appropriately considering your current financial situation, risk tolerance and financial goals?

Carefully consider your asset allocation and make tweaks based on your situation and goals. Maybe you need to shift your portfolio to focus on growth — or maybe you have reached your numbers and would prefer to reduce risk and shift a greater portion of your portfolio to fixed income.

Another aspect of appropriate investing is making sure you’re actually setting aside enough money to accomplish your wealth-building goals. If you start investing at age 35 and only set aside $200 a month in your portfolio, there’s a good chance you’re not going to grow your wealth in a way that allows you to meet your goals, unless you’re very, very lucky.

There are plenty of calculators online that can help you estimate a reasonable rate of return and play around with investment numbers to figure out an appropriate amount to invest each month.

Take that into account, along with your asset allocation and your goals and make an investing plan. A good investment plan can help you stay the course through stock market turmoil, as well as help you figure out a good strategy for balancing when to use your assets and when to grow them.

Take Action: Review your investment portfolio to ensure it is in line with your desired goals and risk tolerance. It’s a good idea to create a written Investment Policy Statement that you can refer to on a regular basis to ensure your finances are in line with your goals.

5. Refusal to Ask for Help When Needed

We all need help sometimes. And, believe it or not, not getting financial help when needed can be a mistake that holds you back from building wealth.

Sometimes this help is in the form of accepting favors from friends and family during a tough time, or using unemployment benefits to help reduce the amount of money you have to take from your emergency fund when things go sideways. 

At other times, though, this refusal to ask for help might be deciding not to get financial planning services. Turning to a professional to help you map out a strategy or better manage your money can be a smart move that gets you the help you need to move forward and make better decisions. Don’t let your pride get in the way of recognizing and fixing the mistakes that hold you back.

Take Action: Reach out to someone if you are struggling with your finances or even if you just need a helping hand. If you are looking for professional assistance, you can reach out to National Association of Personal Financial Advisors (NAPFA), an organization of fee-only financial planners (meaning they do not work on a commission basis).