Wealth building might seem synonymous with earning a six-figure salary or hitting the jackpot in the stock market, but the truth is far simpler, and possibly more surprising. Building wealth is less about how much you earn and more about how you manage what you already have! But as with most worthwhile endeavors, small missteps can have a big impact.

Imagine this scenario, Jane makes $75,000 a year but struggles to save because of persistent high-interest debt and unchecked spending habits. Meanwhile, Mia earns $50,000 but has built a healthy savings account and invests wisely in her company’s tax-advantaged retirement plan. Who do you think will accrue wealth faster? Spoiler alert… it’ s Mia.

If we want to change the way wealth grows, we need to first identify the most common financial missteps that keep so many people stuck. Below, we break down eight key pitfalls standing in your way, plus actionable tips to sidestep them and set yourself on a smarter financial path.

Common Wealth Building Mistakes

Being Underinsured

Insurance is often treated as an afterthought, until an unexpected emergency strikes. Not having adequate health, home, or life insurance can devastate your financial foundations.

Why it Matters:  An unforeseen medical crisis, natural disaster, or other emergency can quickly wipe out years of savings. Without insurance, these unexpected expenses can leave you financially vulnerable.

Action Tip: Review your insurance policies regularly and adjust your coverage as your circumstances change, getting married, buying a home, or starting a family are key points to reassess.

Carrying Too Much Debt

Debt can feel like a hole you’ll never climb out of, especially when dealing with high-interest credit cards or predatory loans. It’s not just about the money owed, it’s about the opportunity cost of money you could have used to build wealth.

Why it Matters:  High-interest debt snowballs fast, diminishing cash flow and limiting your ability to invest or grow savings.

Action Tip:  Prioritize paying down high-interest debt before exploring investment opportunities. Tackle one debt at a time using strategies like the snowball or avalanche method. 

Nerd Note: The average American carries over $6,000 in credit card debt, accruing interest at an average rate of over 20% annually.

Holding Too Much Cash

While keeping cash on hand feels safe, inflation erodes its value over time. Too much uninvested cash won’t keep up with rising costs, effectively losing you money without you even noticing.

Why it Matters:  Inflation averages about 3% annually. Without strategic planning, cash that sits idle today may significantly underperform in five or ten years. 

Action Tip:  Keep an emergency fund around 3-6 months of expenses, with 1-2 months worth in a checking account for easy access, but invest surplus funds into high-yield savings accounts. Beyond that bonds or diversified portfolios will help fight the eroding impacts of inflation for better long-term wealth building.

Nerd Note: Inflation averaged 3% annually over the last 50 years, meaning $1,000 in cash today loses over $150 in value in just 5 years.

Having a High Portion of Fixed Expenses

Your monthly fixed expenses, rent, car payments, or subscriptions can quietly eat away at your wealth potential when left unchecked.

Why it Matters:  When a larger portion of income is spent on fixed expenses, your ability to save, invest, or handle surprises without stress is lower. 

Action Tip:  Audit your recurring expenses. Where can you downsize, negotiate, or eliminate costs entirely? Sometimes all it takes is a call to reevaluate your car insurance or cancel outdated subscriptions. 

Nerd Note:  The 50/30/20 Rule suggests keeping fixed expenses to 50% of your after tax income, 30% towards wants and 20% towards savings, but many Americans' fixed expenses exceed that. This decreases the amount left to be allocated to wants and savings.  

Maintaining a Low Savings Rate

Saving too little today creates a compounding gap in your ability to build wealth tomorrow. A small sacrifice now can mean massive financial freedom later.

Why it Matters:  The earlier you start saving, the more time your money has to grow. Pausing savings or contributing insufficient amounts delays long-term benefits.

Action Tip:  Automatically allocate at least 20% of your income toward savings accounts or investments. Don’t think of it as saving less, think of it as spending smarter.

Nerd Note: Saving just $200 per month starting at age 25 could grow to nearly $250,000 by age 65 at a 6% annual return.

Ignoring Tax-Advantaged Accounts

Failing to leverage opportunities like 401(k) plans, IRAs, or Health Savings Accounts (HSAs) is a guaranteed way to leave money on the table.

Why it Matters:  Tax-advantaged accounts grow wealth more efficiently, reducing taxable income and maximizing employer matching contributions.

Action Tip:  Contribute enough to employer-matched plans to get the full match, then prioritize Roth IRAs for diversified growth. 

Nerd Note: Over 42% of eligible employees earning less than $40,000 do not take full advantage of their company’s 401(k) match, leaving behind free money.

Panic Selling

When markets dip, it’s tempting to hit the sell button. But emotional reactions to downturns often lock in losses and miss out on eventual recoveries.

Why it Matters:  Staying invested is key to long-term financial growth. History shows that markets recover, and impatient investors miss out on compounding growth.

Action Tip:  Adopt a long-term mindset. Trust your investment strategies even during turbulent times and resist the urge to react emotionally. 

Nerd Note: During the 2008 financial crisis, the S&P 500 fell 56.8% from October 2007 to March 2009 but recovered all of the losses by March 2013.

Only Investing When the Market is Up

Trying to time the market often leads to missed opportunities. Waiting for “high” points means missing out on steady growth. It’s the equivalent of getting excited to go to the store of assets when everything is sold at a premium rather than a discount. 

Why it Matters:  Consistent investing smooths out highs and lows, allowing your wealth to grow over time with minimal risk.

Action Tip: Practice dollar-cost averaging by investing a fixed amount regularly, regardless of market fluctuations.

A Smarter Path to Financial Freedom

Here’s the truth about wealth building, it doesn’t take perfection, just progress. Regular financial check-ins, avoiding common pitfalls, and forming better habits can make a world of difference. 

You have the power to rewrite your story, no matter where you’re starting from. It’s never too late to build, protect, and grow your wealth. 

Feeling overwhelmed? Take the first step today by signing up for a free consultation with a certified HealthyInsights financial planner. Together, we’ll create a custom roadmap to help you achieve financial freedom, one decision at a time.