3 Factors That Negatively Affect Your Financial Wealth
Updated: Jun 23, 2021
Many people are striving to become wealthy but aren’t mindful of what can eat away their wealth. Here are three factors to be mindful of in your journey accumulating wealth.
The first factor that eats away at your wealth is inflation. Inflation is the decline of the currency’s purchasing power over time. This is primarily caused by the printing of money. Since the U.S. dollar isn’t back by anything to give it value (stopped being backed by gold in 1977), the government can print money. This allows more “money” to be out in the economy for use (ex. Stimulus checks) but lowers the “value” of the dollar in the process. Inflation eats about 2-3% of your money each year. A $1,000 balance in a bank account now, will be worth about 10% less in 5 years.
The second factor is taxes. Taxes are no fun as you have to pay the government for governmental funding. Large amounts of money can be taken out of your paycheck and even your investments for these expenditures. It’s valuable to educate yourself on strategies for tax incentives so you can legally pay less in taxes each year.
The final factor is not properly managing debt. Similar to the stock market, debt uses compound interest. However, debt’s compound interest takes money out of your pocket. An example is a $100,000 home loan taken out at a 6% interest rate over 30 years will have you paying $115,838.19 in interest. That’s more than what you already owe! Manage debt correctly by only taking out the money you need and work to pay off the loan early.