The Killers of Wealth, or Conversely, How To Increase Your Wealth

We hear so many infomercials, advertisements, book reviews and magazine articles about how to get rich.  We don’t much hear about the killers of wealth.  In my role, I see the personal balance sheets and income statements of my clients and although I cannot and wouldn’t reveal any specifics, I can tell you the killers of wealth that I observe.  I’m writing this just to give you, the reader, some things to think about as you do your retirement calculations.  You are doing retirement calculations, aren’t you?

Overspending - this shows up in excessive credit card debts and large auto loans and it can also be hidden so be careful.  By hidden, I mean that it can also show up as a zero savings account even if there is not credit card debt.  Student loans are prevalent with young professionals but this is a different category than spending.  Student loans can be an investment in a future income stream so long as the income stream is realized, the investment in education can be justified from a financial standpoint. 

Inflation - many people do not account for inflation in their retirement calculations.  This is a killer of wealth in that it can reduce your spending power by 2-3% per year and in some larger expenses (health, college education) by as much as 10% per year.

Taxes - when the government is taking 40% of your pay, it is very difficult to earn enough to pay for all of one’s obligations and still save. You can’t change the tax rates but you can get advice about how to structure retirement savings to be diversified from the tax man at the time you take distributions.

Divorce - this takes the income of one household and distributes over the expenses of two households.  The numbers simply do not add up when you look at paying for two homes on the same income as the family used for one home.  Divorce also causes disruptions in income, family harmony, children’s well-being and in the well-being of the two adults.  These costs show up in increased expenses and decreased income for a time.

Job (or Income) Interruption - a loss of income for 3 months or more puts severe stress on the balance sheet of many families as the expenses continue but the income is reduced.  With fixed costs so high in many families (mortgage, property tax, auto loan payments, etc.), there is often not enough room to cut expenses so that a job loss is not felt.

So, these are a number of killers of wealth.  Conversely, if you can avoid overspending, stay married, do some wise tax planning and keep improving your job skills, you can use this to your advantage to increase your wealth.