Building Wealth: Simple Steps, Avoiding Common Pitfalls

Building wealth is a straightforward process when you stick to the basics: set clear goals, live below your means, save consistently, and protect yourself from risk. It also helps to avoid simple, but costly mistakes. While everyone makes financial missteps at some point, younger generations are especially prone to them. This isn’t the kind of mistake where my 5-year-old swallows’ dimes (though, considering how often he does it, I might start thinking it’s intentional). I’m talking about adults in their 30s, a group that still has plenty of time to correct small mistakes before they turn into big problems. So, what common financial mistakes are these individuals making?

1. Not Working with a Professional

One of the biggest mistakes we see in this age group is not working with a financial advisor. Why is this happening? The financial services industry has been structured to serve wealthier individuals, and its commission-based compensation model is more suited to those with substantial assets. However, many people under 40 are now managing self-directed retirement accounts and making major financial decisions early on. The excuse often given is that “young people don’t have money,” but in our experience, they do—what they often don’t have is trust in how financial advisors are compensated. Without professional guidance, young investors may miss opportunities or make mistakes that can be avoided with expert advice.

2. Failing to Invest in Their Own Income and Future

Another common mistake among people in their 30s is not investing enough in their own careers and futures. I’ve noticed a distinct divide among 30-year-olds I work with: some are well-paid, and others are struggling with employment. The disparity in wages is stark, and this age group sees the greatest amount of wage growth in their 20s and 30s. However, a large number of 30-year-olds are unemployed or underemployed, often due to a reluctance to fully engage with their careers early on. These individuals tend to settle down later in life and prioritize other things over career advancement, which can lead to having to play catch-up financially as they get older. Taking careers seriously from the start is crucial for long-term financial success.

3. Mismanaging Retirement Contributions and Investments

Many 30-somethings are only contributing to their 401(k) up to the employer match, which isn’t fully utilizing this tax-deferred retirement vehicle. The 401(k) contribution limit for 2016 was $18,000 (with an additional $6,000 catch-up contribution for those 50 and older). By only contributing enough to meet the employer’s match, they’re not taking full advantage of this valuable resource. Unlike an IRA, 401(k) contributions don’t roll over from one year to the next, meaning if you don’t max out your contributions, you miss the opportunity for that year. The goal should be to contribute the maximum amount possible to ensure a well-funded retirement, not just meet the employer match.

Moreover, many individuals focus solely on saving in their 401(k) and neglect other retirement savings vehicles, such as Roth IRAs or 457 plans. Depending on your income level, tax status, and other factors, it might be smarter to diversify your retirement savings by using multiple accounts. Don’t limit yourself to the most common option—explore all available resources to maximize your savings potential.

4. The Mistake of Paying Off Low-Interest Debt Too Quickly

Debt can be a burden for many, prompting people to pay it off as quickly as possible. However, when the debt is at a low interest rate (typically below 4%), it may actually be more beneficial to pay it off over time. If you can earn a higher rate of return in the market than the interest rate on your debt, it might make more sense to invest that extra money instead of rushing to pay down the debt. This is known as the equity risk premium: the idea that stocks, being risky, must return significantly more than the interest rate on your debt to justify the extra risk. Making this decision can be complex, so it’s wise to consult with a professional who can assess your specific situation, risk tolerance, and time horizon.

5. Holding Too Much Employer Stock

Another common mistake is holding too much employer stock in your portfolio. While it’s common for employees to receive stock as compensation, it’s crucial to remember that these stocks are not gifts—they’re part of your compensation package. Companies offer stock in place of cash because it doesn’t drain their balance sheet the way cash payments would. Holding too much employer stock, especially when it’s also tied to your job and retirement benefits, creates a dangerous concentration of wealth. From an investment standpoint, this lack of diversification exposes you to unnecessary volatility based on your employer’s fortunes. It’s important to balance your investments to avoid overexposure to a single company, particularly one you rely on for your income.

Avoiding Mistakes with Expert Guidance

At Gainplan, we help individuals avoid wealth-destructive mistakes and make informed decisions that align with their financial goals. All advisors are not created equal—especially when it comes to suitability and fiduciary standards. When working with a firm like ours, you can trust that your best interests come first. We offer unbiased, personal advice and service, ensuring that you make the right choices for your financial future.

This website commentary reflects the personal opinions and analyses of Gainplan LLC employees. It does not describe Gainplan LLC’s advisory services or client investment performance. Views in the commentary may change anytime without notice. Nothing here constitutes investment advice, performance data, or recommendations for specific securities, transactions, or strategies. Mentioning a security or its performance is not a buy or sell recommendation. Gainplan LLC uses various investment strategies, not all discussed here. Investing in securities carries risks, including loss. Past performance does not guarantee future results.

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