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Wealth might seem out of reach to you right now, but financial planners know that often, the reasons people don’t achieve the wealth they seek is because of poor financial decisions and unnecessary spending. While you won’t get rich just from reducing your spending, you can save a significant amount of money by cutting back, and then learn how to invest your savings in other ways.
Here are 10 things to stop wasting money on so you can be rich in ten years:
We live in an era where you can subscribe to just about everything with the touch of your finger to an app. According to Ivan T. Thornton, founder and managing partner of Fiduciary Management Group, “The abundance of streaming and service platforms has led many to accumulate unused subscriptions. By being judicious, one might save around $600 a year.”
Imagine how $600 a year could grow in an investment fund instead.
The pandemic got a lot of people into the habit of ordering everything online or through apps, and food delivery can be easy, convenient and a relief at the end of a long day. But it’s also an expensive habit.
Thornton said, “Relying heavily on food delivery services can considerably inflate food costs. Moderating this habit can lead to an estimated $2,700 a year in savings.”
As income grows, so does the temptation to expand lifestyle costs, Thornton pointed out. This can look like buying more expensive brand names, splurging on items you don’t need but that you can now afford, and other forms of money waste. “Resisting this urge could channel an extra $2,000 a year towards investments,” Thornton said.
If you are already wise enough to be investing, you might not realizing that you’re losing money in a sneaky way.
R.J. Weiss, a certified financial planner and founder of the personal finance site The Ways to Wealth, explained, “One of the most overlooked areas where people waste money is high investment fees. These fees significantly erode your returns over time. Always opt for low-cost index funds or ETFs, and be aware of any additional fees your investment platform may charge.”
Another common way that people waste money, Weiss pointed out, is they “fall into the trap of accumulating debt because they think they can manage the monthly payments.” Ultimately, this leads to not only your debt adding up, but your interest mounting, “hindering your ability to save and invest for the future. Always aim to pay off high-interest debt as quickly as possible,” Weiss said.
Investing can seem like a quick way to get rich, but Weiss finds that “many people are tempted to invest heavily in individual stocks, thinking they can beat the market. While some may experience short-term gains, very few consistently outperform the market over a 10-year span.”
Instead of risking your financial future on the performance of a few companies, he recommended diversifying your portfolio with low-cost index funds for more reliable long-term growth.
High Housing Costs
While homeownership is a goal for many, overspending on housing, whether through a mortgage or rent, can strain your finances, said Solomon Asuquo, chartered accountant/CEO with infotechwealth.com. “Striking a balance between comfortable living and reasonable housing costs leaves room for investment in assets that appreciate over time.”
While some kinds of insurance are essential, such as car, home and health insurance, Christopher Stroup, certified financial planner for for Abacus Wealth Partners, explained that some insurance is a waste of money. “Paying for insurance that you don’t really need is often an overlooked source of wasteful spending. This could include children’s life insurance, travel insurance [and] rental car insurance, among other things,” he said.
The term “retail therapy” wasn’t coined for nothing — shopping can often bring a kind of temporary relief, an adrenaline high that boosts your mood, but also drains your bank account.
“Yielding to emotional spending too frequently can get you into debt and throw off your budget,” Stroup said. “Rather than succumbing to every emotional impulse, try spending on small things or something that you have budgeted for in advance.”
You might think that taxes are a given, so how can you possibly spend less on them? Well, according to Glenn Sanger-Hodgson, a registered investment advisor with Shonan Gold Financial, LLC, “The easiest way to reduce that particular expense, and to build wealth at the same time, is to make sure you are taking full advantage of any qualified retirement accounts available to you.”
Tax advantaged accounts like 401(k) or 403(b) plans are a way to take money out of your taxable income. “Depending on your income level, [by] also contributing to a traditional IRA, you can simultaneously reduce your tax bill and turbocharge the wealth building process at the same time,” he added.
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