Hit $100K In Savings? Avoid These 5 Costly Traps That Could Derail Your Financial Future

The average American household savings stands at $62,500, according to the latest Survey of Consumer Finances by the Federal Reserve. This means when you touch the $100,000 savings mark, you've outperformed the average American household and have a milestone to celebrate.

But the next challenge is keeping yourself above this mark, and growing your savings. It's far easier to lose savings that you've toiled for several years, which makes it all the more important to avoid some of the most common mistakes people do.

Here are five mistakes you should avoid when your savings touch $100,000.

Stop Saving Money

Representative image of a person stopping saving money | Photo generated using Dall-E

Some people tend to neglect savings after reaching a certain milestone. It's possible to be proud of yourself for saving $100,000, but it's worth remembering that this is not the last milestone you need to reach.

Making Expensive Lifestyle Changes

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Another common mistake is many people make sudden and expensive lifestyle changes after reaching a certain level of savings. People can get comfortable knowing they have $100,000 in their bank account and investments, but it's easy to spend it all away.

It's easier to spend away all your savings than it is to save it again.

Keeping All Your Money In A Savings Account

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Savings accounts are not the best place to keep your money, especially when you have a large sum such as $100,000. Leaving all of that in a savings account with a relatively lower rate of interest than other assets with better returns is doing yourself a disservice.

Given how inflation reduces the purchasing power of money, it's important to make sure the rate of return beats it.

Not Diversifying Your Investments

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It's easy to put all your money in a single investment or asset if you think it will double or triple or give you multi-bagger returns. However, it's important to avoid that temptation and diversify your investments in a risk-managed portfolio.

This will strike a better balance between the risk and reward. It allows you to capture other possible growth areas while reducing the possibility of a speculative investment wiping out all your savings.

Not Planning Your Finances

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Financial planning is just as important as saving money. After you touch the $100,000 savings mark, it's essential to have a plan to increase it.

This can be done in two ways – investing in assets that deliver better returns than inflation and increasing the rate of savings.

If you were saving 15% of your monthly income, it's time to step it up to 17%, 20%, and so on. The more you can save, the better it is for a rainy day, and eventually, your retirement.

Photo courtesy: Unsplash

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