Top 5 Wealth Killers You Need to Avoid If You're Under 40

Today I'm sharing with you a personal reflection of mine. So for 10 years I thought I was being smart with my money when in fact there were five things I was doing subconsciously that ended up costing me a lot of money. I just did the math this morning and some of these mistakes will eventually cost me $750,000 or more over the course of my career and all of these in my opinion are avoidable so I'm sharing this with you today in order for you guys to learn from my mistakes. The first thing that I was completely unaware of was from the ages of around 21 to 26 I had fallen victim to this mentality of if I can't get rich fast then why even bother. I grew up in Silicon Valley, California and in my freshman year of college that's when Facebook had come out and it was a completely new website at that time. We were still using things like Myspace and AOL Instant Messenger. I think at this time the tech scene was just starting to grow but it wasn't so ubiquitous that you know Facebook and Nvidia were everywhere and plastered in every single news article on the Wall Street Journal or CNBC just yet. Fast forward to around 2010 to 2012 that's when I moved home from going to college in Los Angeles. For those of you that don't know Facebook IPO'd in 2012 and it was one of the biggest IPOs at the time. In fact I knew a lot of acquaintances were working at startups and some of them became incredibly rich because they were able to get a really good exit or they just got acquired by another company and they happened to be an early employee of the company that got acquired. So it was this time in my early 20s I thought well there's really no point in trying to build wealth slowly. I'm just going to try to join a company that's really hot try to be an early employee and then try to get an IPO or an exit. I literally thought that this was the only way to build wealth that or starting your own business but what I completely neglected from the ages of 21 to 26-ish was investing in index funds. I thought that investing in the market was a little bit risky. I didn't really understand that 8% was quite a lot and I thought it was a little bit boring so I wanted to get rich faster. Now fast forward to today and I actually think that Gen Z is having a hard time with this same idea. I think there's this general sentiment that I usually find on TikTok or Instagram reels that suggests to me that Gen Z has given up on the traditional way of investing slowly and building your wealth. A lot of them are going for these one-off moonshots trying to invest in a cryptocurrency and hit a 100x or doing stupid things like sports betting or even worse prediction markets. That's where you're betting on things like if there's going to be a government shutdown or literally the high temp of the New York City area on a random Wednesday. So here's where this mentality actually cost me quite a bit of money. So from the ages of 21 to 26, I just never invested into the market at all. I wasn't making a ton of money at this age. I would say my average salaries were around $40,000 per year but I was still living at home and I was saving a lot of it. Even if I had just invested $500 a month so roughly $6,000 a year, that would have been around $31,000 in total for those five years that I wasn't investing that I could have started investing. Now when I just ran the numbers this morning, it was pretty crazy. I think that $31,000 if I just left it alone in a basic S&P 500 index fund, by the time I'm 65, it would be worth anywhere from $750,000 to over a million dollars depending on the interest rate that you use. So because I chose to not act in my early 20s, the cost of this inaction was actually quite a lot. Even if you think you're waiting for the perfect opportunity, that's still a decision and the cost of that decision is deciding to earn 0%. So 0% compounded over decades, it's still 0%. I do think that these days it's still possible to budget well and get wealthy slowly. So if you are in the Gen Z cohort, please let me know in the comments how you are feeling. The second subconscious thing that I was doing that cost me a lot of money was that I had a scarcity mindset around money, maybe even up to just three years ago. Growing up, my dad liked to keep a certain amount of money in his checking account at all times. It was around $35,000 and when I asked him why he liked to keep that much money in his checking accounts, he would always just say, well, it's really safe to have some extra cash and you want this money just in case. Now, my dad was obsessed with saving money to the point where he wouldn't actually spend it on things that could actually improve our lives. He personally preferred to eat frozen meals at home when he could afford to eat out. We would leave the heater off in the winter and he sacrificed his own comfort and experiences in order to hoard more cash. He would always say it's because he grew up in a war-torn time in China, so he grew up very poor and so he developed this hoarding mentality whenever he did start to make money. Now, what people don't tell you online is that a lot of your beliefs and behaviors around money are inherited from your parents. So when it came to me and my dad, I just inherited his scarcity mindset and I kind of just went about my days without realizing I had this mindset until a few years ago. This mindset also contributed to the fact that I didn't want to invest until the age of 26 because my dad wasn't the biggest investor and he liked to keep a lot of cash on hand. So in turn, I just did what my dad did. Once I educated myself more on personal finance though, I realized that the bigger opportunity cost was simply not investing. When I really looked at the data, I realized that the market on average returned around 8 to 10% per year since 1926, but I had to actually learn to trust that data. So it was around my 26th birthday that I decided to start investing in the market and also abandoned number one, which was the get rich quick mentality. So that felt really scary at first, but over time, I think that money has grown in ways that cash sitting in a checking account never could. So I want to share with you guys one of my favorite charts ever. This shows the results of the last 20 years investing $2,000 a year with four different investing styles. The first three investors invested in stocks, but you can see that investor D kept it in cash. As long as you invest, even if you have bad timing, perfect timing, or you just lump sum all at once, even in the worst case here, you will still have way more money than investor D who keeps their money in cash. So don't make the same mistake that I did. I would say just build an emergency fund of three to six months, put your money to work after that, and then really learn to trust the data with a diversified portfolio. The third subconscious thing that I was doing that I had no idea of was that I had zero intention or purpose for my money. I just told you earlier that I didn't start investing until the age of 26. But what I didn't tell you is that even when I did start, I only invested a small portion of my total savings. I still wanted to keep some cash around irrationally. Of course, you could probably say this is also attributed to the scarcity mindset. But I also think that one thing that plays into this is that I didn't have any intention for the money that I was saving. To give you some context, I remember having around $55,000 to $60,000 saved up at the age of 26, and I was living at home, so my expenses were quite cheap. My six-month emergency fund I calculated was around $12,000. So that means at the time, I had $40,000 plus an extra cash that I wasn't using. Now, when I say I wasn't using it, I just mean I had literally no plan for it. It wasn't earmarked for a down payment. I might've wanted to start a business one day, but even then, that wasn't a concrete plan. So that money was just there. It was just sitting in a checking account, earning basically nothing. So the problem here is that money without a job, it doesn't actually work for you. It just sits there losing value. So the way that I fixed this was that I had to start being more intentional about where my money should be allocated. So first, I went onto the subreddit of Personal Finance, where I realized that I should have six months of emergency funds saved up, and that was around $12,000. So I set aside that $12,000. I then set aside an arbitrary number at that time in my checking account. I set aside $5,000. I just felt like that was a number that was nice and round, and I should never go below that number. I don't know if that was completely rational at that time either, but for me, I just felt like a good amount to have in a checking account for any types of expenses I might have. Then the remainder of that money was going to be my bucket for investing. So that's when I started to slowly invest into the market. I didn't really have a plan though. I didn't dollar cost average or lump sum the entire thing. I would just put chunks of $1,000, $2,000, even $5,000 into the market whenever I felt like it. So really, there was no system. It was just on vibes. And now looking back, I know that that was probably not the right choice. So if this is something that you do, like you have no intention for your money, then this is what you should do. So I think number one, you want to figure out what your emergency fund is and be honest about how much you actually spend and what should be in there. And the second is to ask yourself, what is every dollar for? Just in case should not be an acceptable answer, but let's say you want to save for a down payment on a house in two or three years, that would be acceptable. Anything that doesn't have a purpose should be invested or at least sitting in a high yield savings account and make sure to give each of your dollars a job. You want to pretend like you're running a company and that each of your dollars is an employee of your company and each of them needs a job in order to be productive. If you can do that, I think you'll be a lot better off in the long term. The next thing I realized in my early 20s that was killing my wealth was simply my friend group. I had friends in my early 20s and we did not care about investing. The conversations never revolved around business or entrepreneurship or how we were going to make more money. Mostly my friends and I were just kind of lost. We wanted to play video games during the week. We wanted to go out on the weekends and there was really never any education or knowledge sharing among my friends. I would call this a money ceiling and it's invisible. So when no one around you is normalizing investing, it doesn't even register as an option in your head. Now, even though I grew up in Silicon Valley in my early 20s, I would say that young people still weren't really talking about investing or retirement, but I'll tell you what changed. Basically when I became a financial advisor and started working in that industry, suddenly I became surrounded by people all day talking about what they were investing in or what ETFs they were going to put different clients in. I would get questions like, did you see the market today? Or, hey, I'm thinking about rebalancing my portfolio. What do you think? All these types of things I was hearing was causing me to be more aware of this world. I would argue that if you're watching this video right now, you're already kind of surrounding yourself in an environment where we're talking about wealth and investing. So that's really great to give yourself some credit. And I also want to say, try taking a look at the people that you surround yourself with. If none of them are talking about wealth building or investing, you might want to look at different online communities or in person where people are having these conversations that you really want to be a part of. Now, I'm not blaming any of my friends for anything. They were all great people and we're still friends to this day, but the environment that we created was just not conducive to wealth building. Now, this next subconscious wealth killer that I experienced for 10 years was that I was risk averse in the wrong way. What do I mean by that? One of the things that I was afraid of when it came to investing was simply losing money. I just graduated right after the financial crisis. So having the idea that the stock market could go down 35, 38% in such a short period of time, that was really fresh in my mind. So I was risk averse when it came to investing, as you could probably tell and understand throughout this video, but I was completely blind to a different type of risk, which was inflation risk, as well as opportunity costs. And that was the actual wealth Inflation erodes your purchasing power about 2.5 to 3% every year. So in about 24 years, that means you will lose about half the value of your purchasing power in dollars. And in terms of opportunity costs, if your money isn't invested in anything, well, that money could be working for you elsewhere, earning you actual money. And so that's the opportunity costs I'm talking about. So if you're sitting on a pile of cash right now, because you're waiting for the right time or because the market feels too risky, you need to understand that you're actually not really avoiding any risk by doing so. What you are doing is just choosing a different type of risk. That risk is inflation risk, as well as opportunity cost of that money. So that's the last subconscious wealth killer that many people come to, including me. And if you resonated with any of these things today, please let me know in the comments. And if you have a specific topic or thing that you want to know about me, please write them in the comments too. I'll be reading every single one of them. In the future, I'm going to be coming out with way more videos about my own life, as well as finances. So make sure to subscribe to this channel. I'm going to link you guys to my video on how much money you should be keeping in your bank account right here. So make sure to check out that video too. It will give you way more insight into what is the actual right amount. All right. Thanks for being here. I'll see you in the next one. Peace.