The Four Financial Regrets of High-Earning Millionaires

Summary

Owning and managing a small rental property

Self-managed real estate takes up far more time and generates significantly less return than most people expect. The tax benefits are also often overstated by online real estate influencers, especially for couples who both work W2 jobs and own just one property.

I personally don’t own and manage single properties for these reasons.

Real estate as an asset class can generate solid, passive returns that are uncorrelated to the stock market. But my preference is to access this through private funds invested in multiple property types managed by experts who have been doing this for years.

I’m also far better with a spreadsheet than I am with a wrench or hammer. Just ask my father-in-law.

• Learn more about the benefits and watchouts of Private Real Estate Funds

Over-saving for college.

A surprising number of people overfund their 529 plans. This is always unintentional.

Here’s how this typically happens.

A family with young kids gets a sudden influx of cash or jump in career earnings for the first time. They decide to put a large chunk of that into their kids’ 529 plans for a few years.

Those funds then compound over the next 12-15 years doubling or quadrupling in value so by the time the kids are in college, they’re sitting on tens or hundreds of thousands in excess 529 funds.

The easiest way to prevent this is just to make sure you model out how your 529 contributions will grow over time. Then calculate the expected future costs of college. Make sure what you put in is not greater than what you plan to take out.

You do have ways to mitigate over-funding such as rolling the excess funds into a Roth, changing the beneficiaries of the account to future grandchildren, etc.

But it’s far easier to avoid the situation to begin with.

Holding too much cash.

A lot of people I work with come to me holding far more cash than they actually need to meet their financial goals.

Usually it’s because they’re saving for something in the future, like a major home renovation or the purchase of a business.

But they’ve just let cash accumulate and haven’t really calculated how much they really need when taking into account financing options, how long until the purchase happens, etc.

Other times it’s because someone is overly conservative and wants a cash cushion just in case. But they have a fuzzy idea of what that just in case looks like and end up with more cushion than they need.

All this excess cash comes with significant opportunity costs.

Let’s say you’ve got $400k when you really just need $200k on hand to cover your emergency cash needs and a down payment on a half million dollar beach bungalow down south.

Your high yield saving account earns 3% so that extra $200k gets you $6k a year in interest.

But if your investment portfolio earns an average of 9.0% a year, that $200k could have instead generated $18k in returns.

That extra $12k could pay for that family trip to Disney. With Lightning Lane passes for everyone.

• Learn more about right-sizing your emergency funds

Buying into some kind of complicated financial product (that underperforms)

Could be a Whole Life policy. Could be a complicated derivative product designed to “protect principal while generating passive income.”

There are two mindsets that lead people to buy these kinds of products:

• A desire to protect the assets that they’ve already worked hard to build up.

• Or a feeling like they’ve “made it” and should be using more complex financial strategies “only available to the wealthy.”

Financial returns are like matter. They can be chopped up and redistributed, but additional returns cannot be created out of thin air.

The companies who create these complex financial products are getting paid somehow. That somehow comes out of your pocket. Most often from the returns you could have gotten if you kept things simple.

Many financial advisors receive very large commissions for selling these kinds of products to people. I suspect very few of them own these products themselves.

I certainly don’t.

Liked this post?

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• What Worked: 9 Things That Made Me Financially Independent Before 40
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• Or check out our 360 Financial Tune-Up, a comprehensive, expert review of your financial plan, investment portfolios, and tax strategies. Get concrete recommendations on how to eliminate your blind spots. Just $999.

If you want help avoiding these financial regrets feel free to reach out to me at the email below for a complimentary intro call to see if we’re a good fit for your needs.

Nathan
Founder & Lead Advisor
[email protected]

Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation. Employees and clients of Kangpan & Co. may hold positions discussed in our content. Past performance is no guarantee of future results.