Most Common Killers of Wealth

[mb196]

What are the most common ways we sabotage our savings?

I see my friends and family and notice that those who drive a new car every 2 or 3 years, tend to have less savings.

What are the major destroyers of wealth?   I know it's not lattes.

[Schaefer Light]

Divorce.  Or, more specifically, alimony.

[londonstache]

Consumer credit.

"Hey, future me can grab the bill on this one whilst present me gets the reward!"

[BFGirl]

Divorce and not asking for alimony.

[Khan]

Hedonic adaptation
Weak nerves and unfit risk allocation, causing poor/terrible/holy shit stop decisions at the very worst times
Divorce(all of it, the legal costs and splitting up assets, custody battles and alimony)
Fund fees, hedge funds, IPO's and hot stocks, short term ownership and churning of stocks, taxes generated thusly
Home ownership and lack of review of the costs(traditional middle class view of it), interest rates and effects, and actual fit to ones needs, as well as real estate transaction costs
(See also Second Mortgages and living beyond ones means for the consumerists)
Vehicle ownership, new vehicles, luxury vehicles, changing out vehicles often

Yes, lattes, fast food, restaurants(which are caused by hedonic adaptation or never having paid attention to the annual added costs of every unminded transaction. As a luxury rare treat in small doses, it's negligible. A daily average $10 cost is a 3650 annual cost, which over 20 years comes out to somewhere around 150k in lost wealth, and would require the stash equivalent of 91k in additional savings to cover.

[WhiteTrashCash]

Peer pressure and/or image crafting. "Everyone else is paying for microwaved chicken at Applebee's, so I should do it too, so I won't feel left out" or "Look at this filtered photo of my feet on a beach in the Bahamas! Don't you wish you were me?"

[TartanTallulah]

For me, it was having lots of children, a large house to keep them in, and a divorce in which I was stripped of most of my assets but kept all the children. I could have had a new clown car every year and a Starbucks breakfast every morning and not come close to squandering the amount of money I poured down the drain with bad major life decisions.

I hope my children never, ever have reason to think I'd rather have had the money than had any one of them, and my only regret with the divorce is that I didn't do it several years earlier.

[MsSindy]

Choosing the wrong life partner:
 - divorce is expensive
 - always fighting can lead to stress eating out
 - spendy partner is hard to combat
 - partner who has no life skills is expensive (i.e. no cooking or fixing things)
 - a slacker who can't / won't hold a decent job

Getting stuck in the trap of doing things because "you're suppose to"
 - big student loans (without the career potential to justify)
 - big weddings / rings with debt
 - having kids before you're finacially prepared
 - buying a too big house to prove wealth (or for future kids)
 - buying of cars every couple of years

It's really any of the big ticket items that could have been avoided, but are often commonplace in our society.  Just think of the money that could have been invested early and allowed to grow.

[katstache92]

I bought a condo that was too expensive and too big 3 months before I discovered MMM.  Still kicking myself for it.  I'm still in it, for now.

The other thing is my cats, I love them dearly and they are family, I will continue to treat them well, even though it's expensive.  Turns out I'm now massively allergic to cats, so no more pets after these two.  I don't need any suggestions for how to get rid of them, thanks.

Health costs. $75 appointment here, $50 prescription there adds up quickly, let alone catastrophic events or illnesses.

[OurTown]

I would say divorce, mostly because I've done it twice. 

[Capt j-rod]

Divorce... The wrong life partner will never get you anywhere. I was always taught that it takes 10 good decisions to erase one bad decision.
Cars.... Nothing costs more and returns less
Fear... People spend way too much money on what "might" happen
Lack of discipline... AKA pissing away your money on stupid shit
Image... When you spend your money on what others think you look like
Restaurants... 300% mark up for "convenience"
Not investing early enough... The money needs time to work. Saving your paycheck at age 55+ is too little too late
Finally interest. Einstein quoted once:  - Compound interest. Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it. Compound interest is the most powerful force in the universe.

[joonifloofeefloo]

Undiagnosed or unsupported disability in self or child.

[little_brown_dog]

Major destroyers for middle class, educated people who have had plenty of opportunity to get off to a good start in life? For me that would be the following in no particular order:

1.   Debt, and its accompanying complacency (ex: the people who think it’s normal and financially fine to carrying CC balances month to month, leasing new cars every couple years, etc)
2.   Personal catastrophes resulting in sky high bills or loss of earning potential (divorce, death, disability, illness)
3.   Excessive generosity when they can’t afford to be (ex: funding college funds or paying bills for elderly relatives when the person themselves is already in questionable financial shape)
4.   Sense of entitlement (a sense that you “deserve” luxury items priced for a wealthier clientele despite lack of ability to actually afford it without going into debt or drastically reducing your ability to save)

Ask me how I know – my parents, bless them, have 1, 3, and 4 going on. They should be millionaires, if not multimillionaires, without much effort based on their income level but they aren’t. All that extra money went to financed new cars, expensive vacations, luxury home upgrades, servicing their credit card debt, college for their kids, assisting their elderly parents who ran out of money in retirement, etc.

[Bracken_Joy]

Houses:
-Buying too big of a house
-Buying a house when you have no inclination/ability/desire to DIY
-Buying a house when you're going to move soon

Cars:
-Buying too often
-Wrong car for your needs
-Using cars as a status symbol

Partner:
-Divorce
-Having a bad marriage/partnership which leads to all sorts of expensive, self destructive behavior, and poor money management

Health:
-Not taking care of your health, and losing money and earning potential to chronic conditions that could likely have been avoided
-UNAVOIDABLE health problems

[Michael in ABQ]

For most people I think it's vehicles that destroy their wealth. I've never bought a new car and don't even intend to. The depreciation is an absolute killer. That and the utility of a vehicle that's a few years old is virtually identical to the brand new one but at about half the cost. This is especially apparent with big trucks.

Let's say you decide to finance a new pickup truck that costs $50,000 and you get an ok rate of 5% interest but have to stretch it out over 7 years to “afford” the payments. Those payments are just over $700 per month ($703.76). If you actually kept it until it was paid off you could probably sell it for around $15,000. Of course you paid almost $60,000 with interest over that time. If you kept doing the same thing, or more typically, bought a new vehicle every 4-5 years you would be in even worse shape. If instead you invested that $700 per month and earned even a modest 7% per year for 30 years you would have $860,000. At 8% it goes up to $1.05 million.

I’m in the National Guard and I hear a lot of guys talking about their vehicles, especially big trucks. I don’t think they realize that driving new big trucks for the next few decades will literally cost them a million dollars. Meanwhile, my used small pickup truck cost me $2,700 paid for in cash and for 98% of the time will do everything their $50,000 huge pickup truck accomplished. The other 2% of the time I can go rent a U-Haul or a big truck for $50-$100.

My parents always bought brand new (modest) cars and would usually keep them for about 7-10 years. I wonder how much they would have saved if they had simply bought the same model but 2-3 years old as a lease return. It’s not like 30,000 miles on a vehicle makes much of a difference these days when cars can routinely go 100-50k miles with only regular maintenance. Especially if you sell it off at 100-125k and use that money and cash to buy another used vehicle.

[little_brown_dog]

I don’t think they realize that driving new big trucks for the next few decades will literally cost them a million dollars.

Vehicles are definitely a big one. Throughout my childhood, my parents would get new cars every few years…every single one financed. They have 3 cars between the 2 of them currently…2 paid off (after years of financing), and one luxury vehicle they barely use (currently financed because...what do you do when you pay off one car? You run right out and finance a new one of course!).

If you add up all the money they spent on these vehicles, they probably easily lost over 200k in wealth over their adult life just on cars. If you add in their credit card debt habit (carrying balances), and the luxury upgrades to their home they paid for with a HELOC (rather than paying for the renos in cash as they could), it isn’t unreasonable to say that they probably lost anywhere from 500k-1mil over their lifetimes – just from these 3 bad habits alone. The saddest part is that they don’t even realize it – instead they think the reason they don’t have more money saved for retirement because of us kids (having multiple kids and helping us with college). While the decision to have multiple kids and help with college certainly set them back to some extent, the reality is even with those expenses, they’d still have a crapload more money if they weren’t so complacent with debt and so into buying shiny new things with it. The sad truth is that my parents didn't lose out on being millionaires because they had alot of kids or were generous, they lost out because they overspent and carried too much debt for too long.

[TimmyTightWad]

Kids

[infogoon]

Buying a large home, far from work, and an expensive car to make the commute.

[partgypsy]

Ditto for either the bad marriage or divorce. Though having a good marriage accelerates ones path for happy and fruitful life.

Caring for elderly parents who have made bad life decisions and/or are sick/disabled.
Caring for adult children who have never learned how to care for themselves.
Medical crises or disability of family members or the breadwinners of the household.

Unemployment or other job issues

"middle class" lifestyle, of bigger house or having to live in nice neighborhood, newer cars, activities/camps/sports for children, expensive vacations.


Generally, short term thinking above long term planning.

[gggggg]

Not having a plan, or a budget. Also not getting educated on money matters.

[Gone Fishing]

I've seen bank trust departments kill some serious wealth via fees and poor investment choices.

[skip207]

Kids.  Price per child in the UK is £230,000 from 0 to 21 years.

[GenXbiker]

Child support after a separation/divorce.

[bobechs]

What... no hate for taxes?

Maybe we can get a two minutes hate rolling if we just visualize those taxes going to support kids and ex-spouses in some way or other.

[joonifloofeefloo]

I like my taxes, and they don't kill my wealth :)

[afulldeck]

I guess you don't live in Canada....where taxes are out of control....

[kite]

Booze.

I read that something like 80% of the alcohol sold is consumed by someone with a drinking problem.  It's tons of money down the drain and has far reaching wealth killing side effects beyond the dollars spent getting drunk. 
DUI's, jacked up insurance, lost jobs, bad decisions made under the influence, legal fees, relationship problems, inevitable health consequences that sometimes include death.  There is no wealth killer quite like booze.  $25 can wind up costing $25k when all is said and done.  And it can cost many times that if one loses a job. 

[GenXbiker]

What... no hate for taxes?

Maybe we can get a two minutes hate rolling if we just visualize those taxes going to support kids and ex-spouses in some way or other.

Taxes came to my mind right away, since mine keep going up faster than my income, but since the OP mentioned sabotaging ourselves, I felt taxes didn't fit what he was asking.

[KMMK]

I guess you don't live in Canada....where taxes are out of control....

My apologies if this was sarcasm.
If not, I'm compelled to respond the previous poster is Canadian and so am I. I LOVE paying taxes. They help me obtain and preserve wealth much more than lose it. I love taxes for 2 reasons:

#1 - If I'm paying income taxes that means I'm earning above a poverty level (my definition) so yay! Sales taxes, excluded of course in this, but not a big deal if you don't spend much in the first place.

#2 - The amount of free services I get from taxes is amazing. I use the infrastructure every single day. I have had an unusual year in that I needed a lot of medical services and also had almost no income. The amount of money Alberta government has paid for me this year is amazing. I'm so grateful. I've certainly paid a reasonable amount in taxes in previous years, but nowhere near the amount of money to pay for the services I've used.

[joonifloofeefloo]

Yeah, to me taxes (though a WILDLY imperfect system, with one gazillion serious flaws) are similar to charitable giving. I'm funding roads, a few aspects of health care, etc. I was so happy when I finally began earning enough to pay them!

since the OP mentioned sabotaging ourselves...

Oh! Didn't even notice that part. I was answering only the second of the OP's questions, then.

[Zikoris]

In my demographic (Millennials living in big cities), people eat and drink their wealth away in restaurants and craft breweries. That's the #1 biggest money suck I see in my peers. People often spend as much on that stuff as they do on housing.

[PhrugalPhan]

What no hate for commercial television? Sure, its free, but it makes you want bigger houses, new cars, the most expensive medical services possible, the best schools for your kids, fancy clothes, newer spouses, jewelry galore, the best craft brews imaginable, it makes you think you can beat the stock market, and on and on.  I haven't watched TV for probably 10 years (except for NFL) and my desire for expensive items has plummeted while I have zeroed in on my financial independence.  In many ways, TV advances most of the causes of loss of wealth.

[Michael in ABQ]

In my demographic (Millennials living in big cities), people eat and drink their wealth away in restaurants and craft breweries. That's the #1 biggest money suck I see in my peers. People often spend as much on that stuff as they do on housing.

About a decade ago I visited Vancouver for a day with my roommate to meet up with some people from another internet forum. I think the lunch might have been paid for by a wealthy guy who was hosting the meetup but we spent the rest of the afternoon/evening bar hopping until a big fireworks show that evening. All told I spent about $100, which was about equal to $100 US at the time. By far the most I've ever spent on a night out on the town. I think at one place I bought a drink for another guy we were hanging out with (Irish car bomb - shot of Irish whiskey dropped into a pint of Guinness) and it was $27 for the two drinks.

Nowadays going out to eat means stopping at Chick-fil-A during a long morning/afternoon of grocery shopping and errands. Our restaurant budget is less than $100 a month and I haven't set foot inside a bar in many years. I spend about $30 a month between a bottle of wine for my wife and a few 6-packs for myself.

One of my best friends is a completely stereotypical millennial living in San Francisco and he and his fiancé seem to eat out probably every single day. They have the income to support it but I'm sure it adds up.

[Zikoris]

In my demographic (Millennials living in big cities), people eat and drink their wealth away in restaurants and craft breweries. That's the #1 biggest money suck I see in my peers. People often spend as much on that stuff as they do on housing.

About a decade ago I visited Vancouver for a day with my roommate to meet up with some people from another internet forum. I think the lunch might have been paid for by a wealthy guy who was hosting the meetup but we spent the rest of the afternoon/evening bar hopping until a big fireworks show that evening. All told I spent about $100, which was about equal to $100 US at the time. By far the most I've ever spent on a night out on the town. I think at one place I bought a drink for another guy we were hanging out with (Irish car bomb - shot of Irish whiskey dropped into a pint of Guinness) and it was $27 for the two drinks.

Nowadays going out to eat means stopping at Chick-fil-A during a long morning/afternoon of grocery shopping and errands. Our restaurant budget is less than $100 a month and I haven't set foot inside a bar in many years. I spend about $30 a month between a bottle of wine for my wife and a few 6-packs for myself.

One of my best friends is a completely stereotypical millennial living in San Francisco and he and his fiancé seem to eat out probably every single day. They have the income to support it but I'm sure it adds up.

Our restaurant spending has consistently been around $250/year (mostly artisan donuts) for several years, so I'm not even sure what a normal amount is anymore. $100 seems like a lot for one night, but I wouldn't be surprised if that's standard Vancouver rates. Lots of ripoffs here - I'm glad I don't participate.

[koshtra]

It would interesting to see some hard numbers about this. I wonder.

My guesses: for the getting-off-the-ground phase, buying an automobile before you can actually afford one, or accumulating a large student debt without gaining marketable skills.

For the working-toward-retirement phase, probably divorce, or a health crisis, or having chronically ill or disabled dependents.

& all the way through, of course, just not paying proper attention to the impact of daily, weekly, & monthly costs.

[ElleFiji]

Divorce and not asking for alimony.

Did that dumb one, and the one where you just take some stuff, and some of the chequing account and none of the other money.

In my demographic (Millennials living in big cities), people eat and drink their wealth away in restaurants and craft breweries. That's the #1 biggest money suck I see in my peers. People often spend as much on that stuff as they do on housing.

Hey! We can do that in the suburbs too you know!

Undiagnosed or unsupported disability in self or child.

Yep yep yep yep yep. Even 'supported' disabilities cost $$$$ our proportion of spending on health stuff is way out of line.

The other big one I see is housing, there's a reason housing is Step 1 on the ERE fix.

[Goldielocks]

I like my taxes, and they don't kill my wealth :)

Umm,,,  It is a progressive tax system, where some receive more than they pay in taxes, and some pay a hefty percentage.   That said, even the top tier still gets to keep more than half.

How much you like taxes would depend on where you sit on the scale.

__________
DH had a few fast answers that were great.

Divorce.
Low income, or specifically, when your expenses exceed your income.
Depression.

I was thinking about health issues as well, (saw that destroy a grandparent's family wealth).  Also,  War (a friend's family wealth) and even having a business with a law or cultural change causing it to suddenly fail.  (Bombing of the trade towers destroyed one business I know, the elimination of beer purity laws destroyed another family wealth / business, etc).

[fredbear]

Not saving assiduously.

Failing to divorce a profligate saboteur.

Convincing yourself you are smarter than the data.

Letting the tax system stay mysterious.

Wrecking your health.

Living short. 

[Step37]

I guess you don't live in Canada....where taxes are out of control....

My apologies if this was sarcasm.
If not, I'm compelled to respond the previous poster is Canadian and so am I. I LOVE paying taxes. They help me obtain and preserve wealth much more than lose it. I love taxes for 2 reasons:

#1 - If I'm paying income taxes that means I'm earning above a poverty level (my definition) so yay! Sales taxes, excluded of course in this, but not a big deal if you don't spend much in the first place.

#2 - The amount of free services I get from taxes is amazing. I use the infrastructure every single day. I have had an unusual year in that I needed a lot of medical services and also had almost no income. The amount of money Alberta government has paid for me this year is amazing. I'm so grateful. I've certainly paid a reasonable amount in taxes in previous years, but nowhere near the amount of money to pay for the services I've used.

Completely agree, KMMK. I once had a (very well off) boss who commented to an employee, who was bitching about taxes, "it's a privilege to pay taxes; it means you're not poor." It changed my perspective. I definitely have a high appreciation for infrastructure, health care and education.

[joonifloofeefloo]

mm,,,  It is a progressive tax system, where some receive more than they pay in taxes, and some pay a hefty percentage.   That said, even the top tier still gets to keep more than half.

Exactly. And when keeping even just more than half still leaves one with shiploads of cash -and far more of it than a lot of other people in your country- there's a lot of value in what remains.

[Stubblestache]

Interesting to read some of the answers as some variation of 'not investing aggressively enough'.

I'm fairly newly self employed so I have a pretty big stack of cash in the bank sitting earning nothing and am currently trying to work out how much I would feel comfortable putting into non-cash equivalent assets (ie. funds).

I've got around a year's worth of easily accessible money at the moment. I wonder if that is far too fearful and i should put more in the market to get compounding to work at as high a rate as possible, as early as possible.

[Fomerly known as something]

Being scared of Math/not willing to look at the big picture.

We all know building wealth begins with putting aside that first dollar but most people can't see the path from $1 to $1million so they never start.  That is what leads to the I'll never get rich I might as well finance that $50,000 pick-up syndrome. 

[talltexan]

With all of the posts talking about marrying the wrong person, my question is: why aren't all you single people already financially secure?

[joonifloofeefloo]

We are!

[RetiredAt63]

With all of the posts talking about marrying the wrong person, my question is: why aren't all you single people already financially secure?

And some of us divorced people are a lot more financially secure now too!

[GenXbiker]

With all of the posts talking about marrying the wrong person, my question is: why aren't all you single people already financially secure?

I'm single and financially secure.  But some single people may have been married previously or have kids, which could put a serious damper on the finances.

[techwiz]

Playing the stock market thinking you can pick winners.  I still have scars from Bre-X, and Nortel.

[Tetsuya Hondo]

The most common killer of wealth among 1970s drug lords and entertainers anyway.

[Jtrey17]

For me, it was having lots of children, a large house to keep them in, and a divorce in which I was stripped of most of my assets but kept all the children. I could have had a new clown car every year and a Starbucks breakfast every morning and not come close to squandering the amount of money I poured down the drain with bad major life decisions.

I hope my children never, ever have reason to think I'd rather have had the money than had any one of them, and my only regret with the divorce is that I didn't do it several years earlier.

I could have written this response! Divorced, large-ish (2400 ft) Victorian house, 4 kids who are with me almost full-time with no support from their father. They are expensive and I regret nothing!!

[koshtra]

Interesting to read some of the answers as some variation of 'not investing aggressively enough'.

I'm fairly newly self employed so I have a pretty big stack of cash in the bank sitting earning nothing and am currently trying to work out how much I would feel comfortable putting into non-cash equivalent assets (ie. funds).

I've got around a year's worth of easily accessible money at the moment. I wonder if that is far too fearful and i should put more in the market to get compounding to work at as high a rate as possible, as early as possible.

Not sure what you mean by a year's worth. I think you should keep enough cash or cheap credit around to live for six months -- not like a prince, but enough that for six months you can keep body & soul together & show up looking decent for a job interview. For me where I live, that number would sit around 15K. (By "cheap credit" I mean, in my case, an equity line of credit on my house. If I need cash I can borrow it and have in my bank account this afternoon.)

I would never hold more cash than that. Never.

Dunno if you know the magic number 72? Divide your rate of return into that, and that's how many years it takes to double your money (if you reinvest the returns). So at 10% you'll double your money in a bit over 7 years. At 6%, in twelve years. Not very long. It works with depletion, too: if inflation is running at 3%, you'll HALVE your money in 24 years. (The Fed shoots for 2% inflation, by the way.)

So that's why holding cash makes us old-timers twitchy. It shouldn't just be sitting there dwindling, it should be working its heart out for you :-)