A high salary doesn't guarantee that you'll escape a life of living paycheck to paycheck. Approximately one-third of Americans making $250,000 per year are one missed paycheck away from falling behind on expenses.
The higher cost of living has made it difficult for most people to stay afloat, but the impact on high earners is astonishing. However, the cost of living isn't entirely to blame, especially for most Americans who earn more than $250,000 per year.
Financial guru Ramit Sethi recently laid out some of the most common money traps that can make it harder to become debt-free and build wealth. Knowing these money traps can put you on the path to a six-figure net worth and result in more ambitious goals in the future.
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Get Rich Quick
Sethi started his list by pointing at get rich quick schemes. While side hustle culture has brought forth plenty of training courses that promise riches, Sethi expanded the definition to meme stocks and buying Airbnb properties without considering the downsides.
These schemes sound too good to be true, and they often are. The get rich quick route is bad for your finances since the misguided sense of hope can result in reckless investments and wasting a lot of time that could have been spent on something more productive.
The best opportunities take many years to materialize. It's very difficult to get rich in a few months, but you can become rich in several years with the right mentality.
Toxic Frugality Extremism
It's good to stay on top of your finances, have a budget, and say no to various purchases. Although this is a healthy practice, every good thing has an extreme.
Seth defines toxic frugality extremism as penny pinching and not spending money, even when it would make sense to do so. Some people end up with fat bank accounts but very little to show for their lives. That's an effect of toxic frugality extremism.
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Spending money on things and experiences that you enjoy can inspire you to make more money. It's good to play defense with your budget, but financial discipline gives you permission to go on the offensive sometimes and spend money on things that matter. Most people talk about the dangers of impulsive spending, but it's not as common for people to discuss the downsides of hoarding their money and ending up with poor living conditions.
"I Missed My Chance" Syndrome
You will miss out on some good opportunities. Some people think about how their lives would be different if they bought Nvidia NVDA or Palantir PLTR five years ago. It's also common for people to miss out on career opportunities or use their money in suboptimal ways.
Some people may bemoan these shortcomings and say that they missed their chance, but Sethi disagrees. He emphasizes that you can get started with building your financial future right now, even if you're late to the party. Focus on what you can do now and the opportunities that are in front of you instead of sulking about missed opportunities and believing that you missed your chance.
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The Optimization Spiral
Optimizing your finances is good, but too much optimization can turn into a burden. For instance, some people switch savings accounts every six months just to earn a slightly higher interest rate. It's similar to how people open new credit cards every few months just to get the welcome bonuses.
While these optimizations will put you ahead, they're not worth the time. You can make more money by using that same time to develop new skills that let you advance in your career. Professional development can open far more doors than switching bank accounts and opening new credit cards. Boosting your income from $50,000 to $100,000 will do you a lot more good than switching to an account with an extra 0.20% APY.
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