Building wealth is a goal many of us share, but the path to financial success is often littered with pitfalls that can set us back years or even decades. Avoiding these wealth traps is crucial if you want to accumulate wealth quickly and sustainably. Ryan Scribner, a well-known personal finance educator, highlights the top 12 wealth killers that you absolutely must steer clear of to get ahead financially. Here’s a comprehensive guide to these common money mistakes and how to avoid them.
1. The New Car Trap
Many people assume that having a car payment is just part of life, but this is a major wealth killer. According to CNBC, the average car payment in 2024 is around $760 per month. When you add insurance, maintenance, and other costs, many are spending over $1,000 a month on their vehicle.
Highly successful individuals often choose to drive reliable, paid-off cars and invest the money they save elsewhere. Buying a certified pre-owned vehicle with an extended warranty can be a smart alternative to a brand-new car. If you do take out an auto loan, aggressively pay it off as quickly as possible by making double or triple payments.
2. Relationships That Drain Your Finances
Relationships can either enhance your happiness and wealth or become a significant financial burden. If you’re with someone who spends freely without financial discipline, this can hold you back. Divorce statistics are sobering: 40-50% of first marriages and up to 67% of second marriages end in divorce. Splitting assets multiple times can cost you half of everything you’ve built.
If you’re young, make sure your partner shares your financial goals and values. The right relationship can be a wealth-building asset, while the wrong one can be a costly trap.
3. Gambling
While a little gambling for entertainment is fine, it becomes a wealth killer when you start spending money that’s not budgeted for fun. NerdWallet found that one in five Americans spends over $1,000 a year on gambling, with serious addicts spending tens or even hundreds of thousands annually.
Don’t fall into the trap of buying scratch-offs or lottery tickets hoping for a windfall. The odds are stacked against you—your chances of winning the lottery are far lower than being struck by a meteor or having identical quadruplets.
4. Lifestyle Inflation
As your income grows, it’s tempting to upgrade your lifestyle by buying luxury cars, bigger homes, or dining out more often. This “lifestyle inflation” is a wealth killer because it prevents you from accumulating assets faster.
Instead, use raises and promotions as fuel to invest more aggressively and build your wealth. Discipline in minimizing costs while increasing income is a key driver of financial success.
5. Student Loans
Student loans can be a massive financial burden, especially if you don’t have a clear career plan or don’t finish your education. The average student loan debt in the U.S. is over $40,000, yet the average graduation rate is just 62.2%.
Taking on debt without a clear purpose can trap you in years of payments without the benefit of a degree. Consider community college as a cost-effective alternative to pursue your education without massive loans.
6. Poor Health Decisions
Failing to maintain your health is one of the most costly mistakes you can make. Small, regular expenses like dental cleanings (around $100 each, twice a year) are far cheaper than costly procedures like root canals, which can cost $2,000 or more.
Good health habits reduce long-term medical costs and improve your quality of life. Investing in your health is an essential part of wealth building.
7. Drinking and Smoking Habits
Routine alcohol consumption and smoking (including vaping) drain your wallet in multiple ways. A 2015 study found that the average lifetime smoker spends $1.4 million on cigarettes, related health costs, and lost wages. Meanwhile, the average heavy drinker spends about $22,000 a year on alcohol.
Bad habits formed early in life can haunt you financially and health-wise for decades. Avoid these costly habits to protect your wealth and well-being.
8. Instant Gratification Mentality
Building wealth requires delayed gratification, but many fall into the trap of “doom spending,” where they spend freely without regard for the future. This mindset can leave you with little to no assets by the time you hit your 30s.
Instead of financing purchases with credit cards or “buy now, pay later” services, budget and save for what you want. Use credit cards responsibly—only to build credit and earn rewards—and always pay the balance in full to avoid interest charges.
9. Credit Card Mismanagement
Abusing credit cards can ruin your credit score, making it difficult to qualify for mortgages or other loans. Good credit and cash savings are both essential to buying a home or investment property.
The average rent in the U.S. has surged to $1,988 per month, 30% higher than in 2020, making perpetual renting a costly long-term trap. Protect your credit and save diligently to eventually own your residence.
10. Perpetual Renting
Renting indefinitely can prevent you from building equity and wealth. Without good credit and cash savings, buying a home can feel out of reach, but it’s important to plan toward homeownership as a key financial milestone.
With rising rents expected to continue, owning your own home becomes increasingly beneficial for financial stability and wealth accumulation.
11. Having Children
Children bring joy but also significant financial responsibility. According to Bankrate, the average cost to raise one child in 2024 is about $26,000 annually, or just under $2,200 per month. Childcare and associated expenses only continue to rise.
If you haven’t reached major financial goals like buying a house or building an emergency fund, it may be wise to wait before starting a family to avoid financial stress.
12. Owning Pets
Pets enrich our lives but come with ongoing costs. The ASPCA estimates pet owners spend about $1,400 annually per pet. For households with multiple pets, this can quickly add up to hundreds of dollars each month.
Evaluate your financial readiness before bringing pets into your life, especially if you’re still working toward foundational financial milestones.
Conclusion
Avoiding these 12 wealth killers is essential if you want to build wealth efficiently and sustainably. From steering clear of new car payments to managing relationships and habits, each decision you make impacts your financial future. Discipline, planning, and smart choices today can set you up for success tomorrow.
Remember, wealth-building is a marathon, not a sprint. Focus on delayed gratification, maintain good health, build strong credit, and invest wisely. With these strategies, you can avoid common financial traps and accelerate your journey toward financial freedom.
What do you think about these wealth killers? Are there any others you’d add to the list? Share your thoughts and experiences to help others avoid these pitfalls and thrive financially.