7 Mistakes To Avoid When Your Savings Reach $100,000
According to the Federal Reserve’s 2022 report, the average American household has $62,500 saved up across various accounts — including checking and savings, money market accounts and prepaid debit cards. Considering this is the average across all income levels, however, there’s a high likelihood that many people have less money in savings than that.
See: How Much Money Do Americans Have in Their Bank Accounts in 2024?
Learn: 6 Genius Things All Wealthy People Do With Their Money
So, if you’ve saved up $100,000, you might be in the mood to celebrate. After all, you’ve just achieved a major milestone that’s difficult to reach.
But you might want to wait before you start spending your hard-earned money. Otherwise, you could end up making one of these common — but highly impactful — mistakes.
Not Investing in a Diversified Portfolio
Having a diversified portfolio is a strategic way to build wealth. So, if you have $100,000 in savings and aren’t allocating at least some of it to your investments, you could be missing out on a great opportunity.
“Keeping your money in cash is a surefire way to watch it lose value over time, while risk-managed investments may grow over time,” said Maya Sudhakaran, head of growth and acquisition at Plynk. “Diversification helps provide a balance between higher risk and reward. Over the long term, investments can outpace inflation and significantly increase your wealth. Consider putting your extra cash into a diversified portfolio of stocks, funds or other assets.”
Jeff Rose, CFP and founder of Good Financial Cents, added, “It’s crucial not to tie up all your money in one place or one type of investment. By diversifying, you’re not only spreading risk but also tapping into various growth areas. Investing in a mix of stocks, bonds, real estate and even looking at international markets can provide a more stable and rewarding financial future. Remember, different assets and regions might perform differently under various economic scenarios, so spreading your investments can help reduce your risk and anxiety.”
More: 7 Things You Should Know If You Deposit More Than $10K Into Your Checking Account
Not Having a Plan
Not having a plan for your savings is another big mistake — one that could cost you in the long run.
“If you fail to plan, you might lose your savings to inflation by failing to at least earn an interest rate that’s higher than the inflation rate,” said Todd Stearn, founder and CEO of The Money Manual. “The main idea is to be intentional with your savings. Have a long-term plan and short-term plan for your savings.
“If you’re not sure what you want to do with your savings, the easiest money move is to put your savings in an FDIC-insured high-yield savings account. At least you’ll be earning interest on your money.”
If you don’t have a plan, start with some small but attainable goals.
“Start by outlining your short, medium and long-term financial goals,” Sudhakaran said. “While these do include long-term items like planning for retirement, there will likely also be goals across your financial journey, like building an emergency fund, funding higher education or paying off debt. This mitigates the possibility of spending your nest egg too quickly.”
Allowing for Lifestyle Creep
When you have more money, you might be tempted to make some expensive lifestyle changes. While treating yourself on occasion might be fine, it’s all too easy to spend more than you should. If you’re not careful, that $100,000 can quickly diminish.
“There can be a lifestyle creep associated with having more money,” said Justin Zacks, vice president of strategy at Moomoo Technologies Inc. “Many people may be willing to spend more knowing they have saved a certain amount. This extra spending could hamper additional saving and even eat into the original savings amount. It is hard to cut back once you get used to a certain lifestyle.”
Not Paying Off Debt
On the other end, you might want to keep the entire $100,000 in savings rather than spend a dime. But if you have debt — especially high-interest debt — this could be an expensive mistake.
“It can be exciting to reach that $100,000 savings plateau quickly, but it’s not true free and clear savings if you still have debt,” Zacks said. “Pay your credit cards or any high-interest debt off first, then start to save. Paying off high-interest debt such as your credit cards will often provide a better return than saving. … Paying off credit card debt also has the added benefit of increasing your credit score over time.”
Skipping Out on Educational Opportunities
Even if good money habits have gotten your savings to where they are, you might not necessarily know what to do with all of that cash. Something you should not do, however, is ignore the possibility of improving your own education — especially as pertains to finance and investing.
“You work very hard to earn and save your money; you should also work hard to keep and grow your savings,” Zacks said. “Learning may be even more important as your nest egg grows as its earnings power in relation to your wage income increases. Educating yourself from a variety of sources is a great way to broaden your knowledge base.”
Keeping the Money in a Low-Interest Account
A lot of people still use traditional savings accounts to store their money; but, if you’re keeping your money in a low-interest account, you’re missing out on compounding interest.
“A common mistake is keeping sizable savings in traditional accounts that yield minimal interest,” Rose said. “Big banks sometimes offer interest rates as low as 0.01%, which is almost like earning nothing.
“On the flip side, there are several online and credit union banks that provide interest rates in the range of 4-5%. Sticking with the low-yield accounts means you’re losing out on earnings. Plus, when you factor in inflation, the real value of the money in low-interest accounts diminishes over time, making it essential to seek better earning avenues for your savings.”
Not Monitoring Current Investments
Investing at least some of your $100,000 is important. But it’s just as important to keep an eye on your investments and to make changes as needed to ensure your money continues to grow.
“Saving is only half the battle. Growing your nest egg through investment can compound your returns,” Zacks said. “Monitor your portfolio at set intervals and when the market makes a big move. Ask yourself if you still believe in the fundamental outlook for each of your investments. Make sure your portfolio is diversified.”
More From GOBankingRates
This article originally appeared on GOBankingRates.com: 7 Mistakes To Avoid When Your Savings Reach $100,000
