7 Net Worth Killers

Posted on May 4, 2007

CNNMoney.com recently had an interactive feature that denoted the seven major net worth killers. These are larger than just buying that extra cappuccino or new shirt. Included in this lists are major choices that if not addressed can deteriorate financial well being especially during life transitions such as graduating college, starting a family, or entering retirement. The seven major net worth killers CNNMoney.com pointed out were:

Ignoring your money. This includes setting aside long term savings in a low interest bearing account instead of investing in a higher earning index fund. Likewise putting emergency fund savings into a risky, aggressive stock is not the best idea. Both long and short term savings should be monitored as well as should support an overall investment plan.
Buying too much house. This seems to be all too common given today’s real estate market and the dramatic increase in home prices over the last three or four years. As a standard, CNNMoney.com suggests not spending more than 2.5 times your income on a home. For a household bringing in 90K, that would mean buying a 225K house. I am well aware in most urban markets that is on the low end for a safe, family neighborhood or a trendy, two bedroom condo. It can be very tempting to be lured by upselling here. For example, thinking that if only I had a 50K more I could get so much more house. Resist that temptation and stay within budget here.
Driving too much car. After graduating college and getting that first decent paying job, the next step is to get rid of the old college car and upgrade. I have seen friends with car payments as long as 72 months, and have even known of someone to have a 20% interest rate on an eight year old car. Buy within your means, the BMW can wait until you are much more stable in your career and your income.
Paying the IRS, and not yourself. This is a big one for the self employed. It typically makes sense to develop a good relationship with a CPA if you are a small business owner.
Always getting what you want. There has to be some sacrifice. I guess that seems self-explanatory, but the first lesson in personal finance 101 is to spend less than you earn. If you can master that early on, it will only get easier later in life.
Letting your assets linger. Hanging onto assets too long that are either not earning money or are costing too much in maintenance can be detrimental to long term cash flow. Be aware of total cost of ownership of your assets.
Letting your debt lie. If you have credit card debt, pay it down as quickly as possible and in the mean time look for lower interest rates to transfer the debt to. Never ignore the debt. Remember it’s not a good idea to cancel the credit card after it is paid off or it may hurt your credit score.