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Ways to lose wealth

By Judy Martel · Bankrate.com
Wednesday, May 2, 2012
Posted: 7 am ET

There are two rules about building wealth the rich generally never forget. The first is to always take advantage of "found money," and the second is to avoid paying institutions or Uncle Sam any more of their hard-earned money than is necessary.

Although the small charges do add up, such as paying for expensive takeout coffee every day instead of brewing it at home, there are bigger culprits you may not have considered. Here are a few of the most common ways to lose wealth over the long term and how you can avoid them:

Pay too much monthly interest. Yes, credit card carriers, this means you. Paying the minimum every month on cards will result in getting walloped with some of the highest interest rates around, even if your credit is good -- up to 20 percent or more on some cards. Use credit only if you know you can pay in full every month. You'll still have the convenience and benefits of paying with plastic, without the revolving monthly debt.

Don't earn interest. The flip side of paying too much interest is not earning any investment interest. There's very little yield right now in safe investments, and with the Federal Reserve's pledge to keep interest rates low through most of 2014, your chances of earning more than the 3 percent inflation rate on a CD or other fixed-income investment are pretty slim. Finding higher yields means you'll have to venture out a little further on the risk curve. If you have the time horizon, take the portion of your investments that you won't need for five years or more and put it to work earning a better yield. Equities are attractive right now; just make sure you diversify, and don't invest in anything you don't understand.

Don't take advantage of tax deferral. Tax-deferred accounts provide a boost in wealth-building over the long term. If your company has a 401(k) or similar retirement account, put in the maximum, regardless of the company match. The company's contribution is an extra bonus. If you don't have a company retirement plan, contribute to an individual retirement account, so you can still get the tax deferral.

Give the government a tax-free loan. Since we're fresh off tax season, it’s a good reminder that if you're getting a big tax refund every year, you're doing it wrong. Rather than paying that money to Uncle Sam to use all year, wouldn't you rather have it working for you? Check your withholding to make sure you're paying the correct amount. Rich people do everything they can to avoid allowing the government the use of their money. They would rather owe taxes every year than get a refund.

What are some of your rules for building, not losing, wealth?

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