6 Common Money Mistakes Keeping You Below $100K in Net Worth, According to Humphrey Yang
The most well-prepared and well-informed financial planners aren't exempt from the occasional blunder. Even the legend himself, Warren Buffett, admitted to regretful mishaps with investing, according to GOBankingRates.
There is, however, a difference between an inevitable "oopsie-daisy" and a wholly preventable train wreck of errors. A lot of us are making money mistakes that are potentially hurting us but can, fortunately, be avoided or corrected.
Here’s where great contemporary money minds like Humphrey Yang come in. In a YouTube video, Yang, who courts millions of followers, broke down common money mistakes keeping you below a net worth of $100,00. Let’s look at the six of those mistakes that are the most common and learn how to get on the right track, according to Yang.
Find Out: 15 Assets That Can Help Grow Your Net Worth Over Time
Keep Learning: How Middle-Class Earners Are Quietly Becoming Millionaires — and How You Can, Too
1. Overspending on Housing
Housing is a nonnegotiable expense as everybody needs a roof over their head, right? Right; however, this is an essential spending category where we tend to overspend.
To avoid overspending on housing, Yang recommended abiding by the 35% rule (a modern twist on the old 30% rule). “Your rent or housing payments should be no more than 35% of your take-home pay,” he said.
2. Prioritizing Your Side Hustle Over Your Main Job
For millions of Americans, the only way to make ends meet is by working a side hustle in addition to our traditional job. Taking on a gig to supplement your primary income is usually a savvy and responsible move, but it can also be a slippery slope and possibly even a financial setback.
Yang asserted that “grinding a ton of hours” on a side gig is a mistake when it holds you back from putting the time, energy and focus into getting a raise or higher-paying role at your main job.
3. Under-Budgeting for Discretionary Spending
You may know exactly how much you need to set aside each month for your essential expenses (things like housing, transportation and food), but do you know how much you need to set aside for nonessential/discretionary expenses?
A vague idea of how much fun money you need doesn’t suffice. Get specific with the math, be brutal with cutting splurges you can’t afford and plan for any and all indulgent spending ahead of time.
4. Buying a New Car
A shiny new car sure looks — and, oddly, smells — good. But buying one is quite often a perfect way to ruin your chances of building a net worth beyond $100,000 anytime soon.
“The average new car payment in the United States is $770 per month,” Yang said.
That $770 does not include the other costs of car ownership, which can easily bring the total monthly bill to over $1,000. Get real and buy a car you can afford, which, according to Yang, should cost under 10% to 15% of your take-home pay per month.
5. Letting Cash Sit Idle in the Bank
An emergency fund of six months worth of living expenses is fantastic. A savings account with enough cash in it to cover two years of living expenses is a disaster. Even in a high yield savings account (HYSA) with a high annual percentage yield (APY), cash savings will not stand the test of time (aka: the reality of inflation). To leave excess cash in a bank is to slowly strip away its purchasing power and let your net worth stay at rock bottom.
Yang championed the following “three-bucket” system with your cash.
A bucket for monthly spending, kept in a checking account
A bucket for your emergency saving, kept in an HYSA
A bucket for investing in low-cost, broadly diversified index funds
6. Not Taking Advantage of Your Employers 401(k) Match
The vast majority of employers who offer a 401(k) offer some type of 401(k) match, according to Ubiquity. Put simply: your employer matches a percentage of what you contribute into your 401(k). Terms and conditions vary and some employers mandate a minimum contribution percentage for them to match.
The bottom line, as Yang underscored, couldn’t be bolder: Take the match. It’s money for retirement which most Americans desperately need and hey, it’s on the boss.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion: