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One thing that really interests me is the mistakes people make when it comes to making their money grow. After years of making my own mistakes when it comes to saving and planning for retirement, I was able to stick to a strict budget and make waves with my own financial strategy.
As I continue to accumulate my wealth, I’ve recently found myself curious about what’s holding people back from taking their net worth to the next level — especially going from six figures to seven. That’s why I asked some financial advisors to share the biggest setbacks they’ve seen their clients suffer trying to reach this level.
1. Forget the Roth IRA backdoor option
A big part of growing your money is knowing what tools exist that you can use to your advantage. Brian Colvert, a financial planner, said one of the biggest mistakes he sees wealth-building clients make is not taking advantage of a Mega Backdoor Roth IRA — or failing to do so sooner.
“A Mega Backdoor Roth IRA allows high-income taxpayers to create a permanently tax-free Roth IRA, even if their income exceeds the amount of traditional Roth ownership,” Colvert said.
Colvert said someone with a six-figure salary could use this tool to amass an IRA worth up to $10 million after a few decades of steady investing if they strategize correctly.
“Start as early as possible to realize the full power of compounding,” he added.
2. Failing to address risk tolerance
When building your wealth, it can be tempting to say yes to investing in the new fad or an opportunity that’s too good to be true. Billy Mondor, a financial adviser, says to be careful and be aware of the risk.
“I can definitely relate to FOMO with all this new crypto[currency] millionaires are running around,” Mondor said. “Just remember that success stories make headlines – you rarely hear about failures.
Mondor said your “best ally” in generating wealth is simply lots of time.
“Have an investment strategy, stick to it and enjoy your life – stop checking the markets,” Mondor said. “Short-term fluctuations don’t matter. If you’re saving money for your retirement in 20 years, why do you care that the market is down 3%?”
3. Not having adequate insurance
While you might not be concerned about this when building your net worth, Jay Zigmont, a financial planner, says it’s important to think about having the right insurance coverage to protect against avoidable losses.
“Make sure you have proper auto, home and umbrella coverage to protect your assets,” Zigmont said. “The last thing you want is for an accident to jeopardize your hard-earned net worth.”
However, he added that as your income continues to rise, there may be some areas where you can now take more risk, such as adjusting your life insurance plan.
4. Avoid the temptation to spend impulsively
As you continue to grow your wealth, financial planner Christy Matzen advises you to watch out for impulse spending, as it can be a big setback.
“Break [seven figures] is a huge accomplishment, but allowing lifestyle creep to influence your actions will shatter your net worth even faster,” Matzen said. that is what you really want rather than what you want. you think others are expecting or will be impressed by.”
5. More money means more debt
Matzen also believes that another thing that can prevent a person from reaching a 7-figure net worth is taking on additional debt.
“[After gaining more wealth] mortgages are available in larger amounts, lines of credit are more attractive, and it’s easy to get caught up in the call,” Matzen said. .”