21 Money Traps Smart People Still Fall Into

22:12And so you need to make sure that if you are taking on or borrowing money, it is something that you are taking on good debt and not bad debt. There's a lot of situations for that. So credit card debt is a terrible thing to take on. I'm not saying don't use credit cards. It's great to use credit cards if you pay them off every month. But if you can't pay off that credit card every month, it is not worth using it for some luxury item. Number nine is failing to plan for big expenses. So not proactively saving for predictable large costs like college tuition or weddings or major home repairs or big purchases leads to panic or high interest debt for a lot of smart people.

22:46And 70 % of parents have no full plan to pay for their kids' college, according to Sally Mae. And 28 % of homeowners cannot cover a$5 ,000 repair without borrowing. So here's how I want you to think about this. For a lot of people out there who are smart, they'll say they're overly optimistic. So they'll say, okay, we're going to figure this out later. But instead, I want you to use the bucket method. So think about some of the big things that are going to come up. I don't care how small the amount is that you can save. Go look and see how much you can save. And I like to use high yield savings accounts that allow you to segment or buckets or budget inside of that high yield savings account.

23:18Okay. So you have a category for weddings. You have a category for college savings. You have a category for, you know, the next car you're going to be buying. And I like to just start to put money into those different buckets. And I have a certain amount that I put in every single month that allows you to build it up over time. So for those long-term expenses, you may be focused on your day-to-day cashflow, but you're not looking at long-term. Try to save up for some of those long-term big expenses. Now, it's not something you could do upfront. It might be something where you're prioritizing some of your retirement accounts and not everybody is gonna have a perfect budget when it comes to that.

23:49But just making sure you're thinking through this and have a plan in place. Do not procrastinate too long. As time goes on, the years are gonna go by fast. As most of you who have kids in college know, years are going to fly by. And so making sure you have a plan in place is really, really helpful. Number 10 is delaying estate planning and not updating beneficiaries. So putting off creating a will, putting off creating a trust or power of attorney, and forgetting to update beneficiaries on insurance, retirement accounts, or brokerage accounts can be really, really harmful. And so one thing I want you to think about is that 67 % of Americans have no will at all, according to Caring.com.

24:26And one in four people have incorrect beneficiaries on key accounts. sometimes leaving ex-spouses or deceased relatives listed according to Forbes. And this is going to be something that I want you to think long and hard. So my wife and I have been spending a lot of time thinking about our trust. And when we finish it, I'm going to uncover everything that we're doing in our trust because we're doing some really cool and interesting stuff that I think a lot of you would get value at. But I got to get it all done and make sure it's all legal before I talk it through with you on what we're doing at least.

24:53And I'm going to actually just unload the entire thing on you guys and let you know exactly what we're doing. But there are some creative things that I came up with that I'm hoping will all work out in the end on how to make a really cool trust for you and your family if anything were to happen to you and or when you die. And I'm trying to create generational wealth with this thing, okay? And this is a really, really important thing that I think a lot of people are missing out on. Some people will say, oh, I'm too young or it's only for the wealthy to have a will or a trust. Every single person listening to this podcast should most likely at least have a will.

25:24I don't care if you have a one-page paper, but you need to have a will. If you have anybody who depends on you whatsoever or if you want to make sure that your stuff goes to the correct person, you need to have a will in place. I don't care if you have$5 ,000 or$50 ,000. Getting a will in place is really important. You get a will for$100 at a place called trustandwill.com. Not sponsored. We just know. I've used them in the past. They're super easy to use. A lot of other smart people will say, it just feels too complicated or it's just uncomfortable to even do this, or they assume they'll get to it later.

25:52If you have kids or if you have anybody in your life, if you're married, you have a spouse, or you have a lot of stuff that you want to make sure goes to the right people, you need to get this done now. This needs to be on your list. And foregoing this could cause really, really difficult situations for your family. So if you pass away unexpectedly and let's just say your ex-spouse gets your 401k or maybe your kids don't get the money that you wanted to pass down to them or maybe your kids go to the wrong person that you did not want them to go to. So many things could happen if you pass away unexpectedly.

26:22And so making sure you have a will and if you have over a million dollars in net worth, looking at a trust also so is probably something you want to do, then that is going to be big, big for a lot of folks. Or if you have a creative way that you want your money to be distributed to your kids, a trust is great. You don't have to have a million dollars. But if you let's say, for example, you pass away and you want some of the money to go to whoever's taking care of your kids, but also some of the money you want to go to your kids when they turn age 18. Well, you can dictate that with the trust and be able to kind of direct dollars towards specific things.

26:52So this is something I think a lot of folks fall prey to is not putting together the proper estate plan. And I think it's a huge, huge mistake for a lot of you if you don't do that. So making sure you do this is really, really important. Number 11 is overspending on kids' activities. This is something we're probably gonna have to talk about a lot more in the next coming months because I'm seeing this number tick up more and more and more every single year. And it's a conversation you have to have because for a lot of people out there They're going overboard on travel sports, on private lessons, on elite camps, or fancy extracurriculars under the belief that it gives kids a competitive edge can be something that you can start to overspend on.

27:31In fact, American families spend on average$700 per child, per sport, per season, not counting travel, hotels, and gear, according to the Aspen Institute of Project Play. And one in five parents go into debt. Oh, my gosh. This drives me nuts. One in five parents go into debt to pay for youth sports. Going into debt to pay for youth sports is the equivalent of just literally shooting yourself in the foot financially. That's according to T. Rowe Price. Now, why smart people fall for this is guilt or FOMO. If I don't pay for this, my kid will fall behind, okay? That's number one. Number two is social comparison with other families.

28:09I don't get this one ever because most of the time, I just, I don't get it, okay? A lot of times I don't get that one, but people wanna compare themselves socially with other families, and then rationalizing once as investments in their child's future. A lot of people will say, this is an investment in my child's future. Maybe they'll get a scholarship. Maybe they'll be able to do certain things. And so I want to make sure that I can do that as well. So here's an example of this. Let's say a family, for example, spends$8 ,000 per year on travel soccer for an eight-year-old, but no college fund or emergency savings.

28:39My friends, that would be a misuse of funds and priorities. If you are doing that, you've got it all backwards. So I play travel sports. And this is not like, you can do whatever you want. Do whatever you want with your kids. I am not someone who is a parenting expert. But when I did play travel sports, I played 12 and under all the way up to 18 and under AA basketball. And when I did it, I remember starting at 12 and under. And that was the perfect time for me to start. If you're doing this with kids under the age of 12, I know a lot of people are doing this right now. I get it. But if you are, and it's really causing strain on you financially, then you really got to think through what you're doing when it comes to that.

29:17Do not let this cause strain on you financially. Number 12, this is a big one for a lot of people, is not insuring properly. So skipping or underfunding essential insurance like life, disability, or umbrella liability causes huge risks if something unexpected were to happen. So one in four income earning adults has zero life insurance. So 25 % of people out there who earn an income have zero life insurance. The Social Security Administration estimates one in four 20-year-olds will become disabled before retirement age. Seems pretty high, but that's amazing to me. And only 20 % of people have an umbrella policy, which protects against big lawsuits.

29:55If you are someone who is a wealth builder, and you are starting to accumulate a decent amount of wealth, and you have a nice house, and you have a nice car, umbrella is going to be a policy you want to look a little further into. Because a lot of people assume, hey, it's not going to happen to me. And they see premiums are just wasted money that they're throwing away every single month. I get it. I feel that way on insurance too. I understand how that feels, but also insurance is there to protect you. It's there to protect you against things that could go bad. Now, insurance industries, they make so much money in the inflation on those insurance industries.

30:24It's just absolutely crazy, but not having those insurances is also a detriment to your finances. It's the other side of the emergency equation, meaning you have your emergency fund in place and you have a financial protection plan in place. You also have to have the proper insurances. Those three are going to help protect you against a lot of different things. And so if you're a high income professional, you need to make sure you have disability. You need to have umbrella also. But in addition, making sure that you have life insurance to protect your family. We use PolicyGenius, amazing stuff, and they are absolutely incredible.

30:54I highly recommend PolicyGenius if you don't use them already. All right. Number 14 is not having an online protection plan. So failing to protect your personal information online exposes yourself to identity theft, to financial fraud, and to digital surveillance. And many people don't realize how much of their private data is easily accessible, scraped, and even sold. The average person has over 2 ,000 pieces of personal data exposed online, including home addresses, phone numbers, employer info, and family connections, according to the lead me. And identity theft affected over 40 million Americans in 2023, costing victims more than $10 billion, according to the FTC.

31:34And data broker sites are responsible for a massive portion of this exposure, and many sell your information to scammers and fraudsters without your consent. Now, for most people out there, smart people fall prey to this because they say it won't happen to me until it does. It happened to me specifically. And they don't realize how easily criminals can piece together their identity using public and back-end data. So they get pieces here, they get pieces from another data broker, they get it from a third data broker, and they put it all together. and they rely on reactive measures. So credit freezes or password changes instead of proactive protection, okay?

32:07And so because of this, this is causing a massive problem for a lot of people because they're relying on that kind of stuff. Instead, making sure that you freeze your credit and making sure that you are someone out there who actually protects your financial information online. It's gonna be really, really important. And the number one thing that you could do is you can remove your personal information from data brokers. Because if you do that, then your information will not be spread across the internet again the average person has 2 000 pieces of personal data exposed online that is a huge problem that you do not want just floating out there if you google your name or you google your phone number and so the average smart person needs to make sure that they actually dive deeper into this now delete me is a service that i have used for years now and it is one of the best services out there if you go to join delete me dot com slash PFP 20, you can get 20 % off of Delete Me and they go out and remove your personal information from these data brokers.

33:00And so again, if you go to join delete me dot com slash PFP 20, they will actually remove that information for you. So you don't have to spend the hours and hours and hours trying to figure out which data brokers have your info. They do it all for you. It is the best service out there by far. So that's what I would utilize if I was going through this process as well as making sure you have that financial protection plan in place. Now, a lot of people, again, ignore putting together a financial protection plan. I could not stress this enough. It is so incredibly important to protect yourself online.

33:28Otherwise, you could have your accounts wiped out. There's so many different things that could happen. Making sure you do it is a huge, huge priority. Number 15 is lending money to family or friends. So giving personal loans to loved ones with no contract, often leading to resentment or financial loss, is a huge, huge deal that a lot of smart people fall into. So 35 % of people who lend to family or friends never get repaid according to bank rate. And money disputes are a top cause of family and friend conflicts. Now, here's why smart people fall into this is they feel obligated. They feel like it's a way for them to give back.

33:59And it's hard to say no. Secondarily, is they underestimate the emotional cost if repayment doesn't happen. And if they don't treat it like a legal loan with clear terms, they're going to get even more issues coming into play. Now, here is my, you guys have heard my philosophy before on lending money to other people. You have two options, I think. Number one is you just don't do it. You don't lend it to family or friends. You don't lend money ever, typically. It's just your rule. You say that to your family or friends. I don't lend money. Number two is if someone asks you for money, you give it to them.

34:26You don't lend it. And I think that is the only way to protect your relationship. Now, if you don't care as much about the relationship as someone else and you want to set this up in a certain way, go for it. But it's risking your relationship with that person. They are going to resent you for asking for the money if they can't pay it. And you're going to resent them for trying to get the money from them. So it is a lose-lose situation, in my opinion. Let them go find it somewhere else and or just give it to them. If you wanna be generous, no problem. Anytime someone asks me for money and I'd be willing to lend it to them, I just give it to them instead.

34:56It is just the way that I operate. And I think for most people, it is the way to make sure you maintain those relationships. Number 16 is ignoring tax planning. Now, tax planning is one of the most important things that you need to be doing. And if you're not doing tax planning, it is gonna be something that you will be amazed at how much money you can save overall. But not optimizing how much you save, how much you invest, how you withdraw money to legally minimize taxes often means that you're leaving free money on the table. In fact, 70 % of taxpayers miss deductions or credit. They legally qualify for, according to the IRS and TurboTax data.

35:31And poor tax strategy can easily cost earners tens of thousands of dollars over a lifetime. And it's a lot more than that if you count in opportunity costs. Now, taxes can feel complicated. They can feel intimidating. But some people out there will think, oh, I'm an accountant, so I'm fine. They find all the deductions for me. But a lot of accountants out there aren't great. They just file forms. You want someone who is a tax strategist in your corner. And they underestimate the power of 401ks, of Roth IRAs, of HSAs. Those alone are going to help save you tons of money when it comes to your taxes.

36:00So someone who maxes out their 401k but never opens a Roth IRA or HSA misses out on tax diversification for retirement big time. And so this is something where just making sure you have a tax plan in place is something you do not want to skip out on. One thing I've learned as a business owner is your CPA shouldn't only show up once a year. The best tax strategy happens all year long, not when you're scrambling to file your tax return. And that's what I like about Gelt. Gelt is the modern tax strategy firm built for business owners, hirers, and entrepreneurs. They pair dedicated CPAs with modern technology to help make taxes part of your business plan instead of another deadline.

36:42And what really stands out to me is they don't just prepare your taxes. They revisit your strategy every single quarter, helping with things like entity protection, retirement contributions, and finding credits and deductions you might otherwise miss. Plus, they handle both your business and personal tax compliance all in one place so everything can stay organized. So if you've outgrown a CPA who is reactive instead of proactive, then Gelt is definitely worth checking out. Schedule a call at joingelt.com today and learn how your taxes can become a lever for growth. That's join G-E-L-T.com and schedule your discovery call today.

37:21Personal Finance Podcast listeners get 10 % off their first year of service. Just mention the show name, Personal Finance Podcast, on your intake form. My relationship with money has changed a lot over the years. Early on, I thought building wealth was about making more money. Now, I know it's really about having clarity. When you know exactly where your money is going and whether you're on track, you make better decisions. That's one of the reasons I love Monarch. It's the personal finance app that tracks everything from your accounts and investments to your savings, goals, and spending. So you can see your entire financial picture in one place.

37:56One habit that's made a huge difference for me is my five-minute drill every single morning. I open Monarch, check my spending, investments, cash flow, and net worth, and I'm done in just a few minutes. It gives me confidence that nothing is slipping through the cracks. I also love the AI Weekly Recap because it'll flag spending changes, upcoming expenses, or shifts in my net worth before they become a problem. Instead of reacting after the fact, I can make adjustments early. It really feels like having a financial advisor in your pocket. Write your own money story with Monarch. Use code PFP at monarch.com to get your first year of Monarch Core half off at just$50.

38:36That's 50 % off your first year at monarch.com with code PFP. This episode is brought to you by Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales. using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. Right now, when you buy more carpet at the Home Depot, you save more.

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39:45I fall prey to this a lot because I am someone who thinks I can always do it myself. and trying to handle complex situations solo is often difficult. It's like things like selling a business or planning for an inheritance or advanced tax strategies. Doing any of that without expert advice is something you definitely do not want to do. In fact, 40 % of DIY investors regret not seeking help when making big money moves, according to the Global Investor Survey. And working with a fiduciary financial planner has been shown to increase retirement confidence and can add up to 3 % more per year in net returns through behavioral coaching and tax efficiency alone.

40:22This is according to Vanguard Advisor Alpha Study. So for some people out there, I think an advisor is a great option. If you can find an advisor that you're going to pay, you know, a fee upfront, not a percentage of your assets under management, but a fee upfront, maybe they charge you$5 ,000 to put together an entire financial plan for you because you have a big inheritance coming. That is money well spent in my opinion. But for a lot of people, they have the pride. They have the DIY pride. A lot of us in the financial independence community, we did it all ourselves coming in. And so we have that DIY pride.

40:51I'm smart enough to figure it out. That's why a lot of people will fall prey to this. And misunderstanding the value of specialists like tax attorneys or CPAs or estate lawyers, those can be a problem too. Like for example, my wife and I, for years we've had our wills and trusts set up solo. We just figured it out. This year is the first time I'm gonna be meeting with an attorney to go through some of the advanced stuff I wanna talk through. And the reason is I needed a specialist to help me through this. And so I am coming to terms with the fact that I need to have more people in my corner. And the more that I have in my corner is a big, big deal.

41:20Secondarily, when I started to focus on tax strategy, getting the right CPA in my corner was a huge, huge, big benefit. And so my CPA is absolutely amazing. We're going to actually bring him in to the Master Money Academy as we're starting to go through this. He's going to come in and kind of give some tax strategy and some cool talks inside of Master Money Academy. And so we are building that academy, by the way. For anybody who is interested, you can join the wait list. And we're going to have a beta group come through where it's going to be academy of people who are looking to build wealth and we're all going to be building wealth together.

41:47I'm going to go through our exact system in that academy and it is going to be a community of people who are building wealth. So really excited for that. If you want to join that, shoot me an email and let me know and we'll get you on the wait list. And then there is going to be for a lot of people, they have a fear of hourly rates. For example, my accountant, I think, is five hundred dollars an hour. It's not a cheap thing to talk to him, but he saves me so much money that it is just absolutely amazing how much benefit I actually get out of that. So here's an example. An entrepreneur goes out and they sell a business with$1 million without tax planning and they get slammed with a huge unexpected capital gains tax bill that they could have mitigated.

42:21Or maybe you go out there and you are putting money in the wrong retirement account. And so you didn't plan that with your CPA. I mean, there's a lot of things that you could do out there, but making sure that you actually hire people to help you is really, really beneficial for most people. And I've come to realize that over time, which is a great, great thing. Focusing on small expenses and ignoring the million dollar decisions. A lot of, a lot of smart people do this, okay? So obsessing over cutting out coffee or couponing while ignoring the massive financial levers that you actually have at your disposal to pull, like mortgage terms or total cost of ownership on big purchases and or investment fees.

42:55These are gonna make a huge difference. So saving 0.5 to 1 % in investment fees can add up to hundreds of thousands over the course of 30 plus years. That's a lever you pull, not saving$5 on coffee. Cutting a mortgage rate by 1 % can save 50 ,000 to$100 ,000 plus in interest, according to Freddie Mac. And choosing the right car, buying used low-interest loan versus a luxury new car can free up six figures for investing. These are the big million-dollar money decision levers that you need to be pulling. We have an entire episode on this, on the million-dollar money decisions you need to focus on.

43:28And I promise you, each and every single one of you needs to listen to that episode if you haven't, because those are big, big deals overall. Just listening to that episode alone is going to save you millions of dollars. Literally, just listening to that episode. So just understanding how that works is really important. Now, smart people will fall for this because they feel like these small wins are going to be something that gives you immediate gratification. So, ooh, I cut out my coffee this month. I spent$30 less on coffee this month than I would have last month. Or, ooh, I cut back on one subscription, and so I spent$300.

43:57Don't get me wrong. We want you to do that. In fact, our last episode, we're just talking about how to cut back some of these subscriptions. But at the same time, you want to make sure that you're focusing on big stuff first, smaller stuff second. Okay? Big, big deal. Big decisions can feel abstract and overwhelming. And so some people just try to avoid it. And marketers push the latte factor guilt when in reality, it should be the mortgage rate guilt instead of the latte factor guilt. So that is gonna be a big, huge deal for a lot of you out there is to focus on those million dollar decisions and making sure that you actually look at those.

44:27Number 19 is following financial advice blindly. Wow, I see this a lot, okay? Taking advice from random influencers or family, coworkers without verifying if it fits your goals, risk tolerance, or situation is what I see way too many smart people do. Even listening to me without verifying if it fits your goals or financial situation is the wrong thing to do. Always, always, always do your own research and verify. No matter what I say, no matter what somebody else out there says, no matter what Dave Ramsey says, no matter what Susie Orman says, no matter what Ramit says, no matter what anybody says out there, you gotta make sure that you do your own research and check on those tips, okay?

45:03Nearly 40 % of young investors make investment decisions based on tips from social media alone. This is from the FINRA Investor of Education Foundation. And bad or generic advice is a leading cause of poor financial outcomes from buying high-fee products to joining hype bubbles. Great example of this would be the GameStop. Come on. It's just following advice blindly and not actually looking at the information. So a lot of people have information or overload. And so they're looking for shortcuts, especially people who are intelligent. And there is a lot of social proof out there that they're looking at.

45:35maybe people seem successful, so I'll copy them. Or they don't know how to vet good sources versus bad ones. And so a lot of smart people will fall prey to this because of that. If your advisor says it, do your research. If your CPA says it, still do your research. If I say it, none of this podcast is financial advice, please do your own research. All of this is so incredibly important to make sure that you put that into place. An example is a young couple buys whole life insurance because a cousin sells it, never realizing it's an overpriced product for what their specific needs are. That is a great example of something that happens all the time.

46:07Or maybe you have a friend who is a financial advisor, or you have people in your life who are just trying to tell you specific things. Or you saw a TikTok where someone bought tenant rental properties under the age of 30. If you've never seen that video, it's hilarious. And so all of these are going to be reasons to just do your own research and make sure you trust, but verify. Trust, but verify. That should always be the way that you think about this stuff. Number 20, huge one. There are way too many smart people doing this. Staying in a low paying job. Remaining in a job with low raises or minimal growth because it feels safe or comfortable, but you lose out on a lifetime of learning because you're in a safe job.

46:44I have so many people in my life who stay in safe jobs way too long who do not make enough money and I know how intelligent they are and they will not switch because they're comfortable and they feel safe. Job switchers on average earn 7 % to 15 % more than those who stay put according to the 80 workforce vitality report. And median annual raises for job switchers is 5 % more than stayers, according to the Federal Reserve Bank of Atlanta. And so most smart people stay because A, they have a loyalty bias. They've been good to me, so I'm going to stay. B, they fear the unknown of what could actually happen if they leave and maybe they don't like it.

47:17Maybe they have a terrible boss, all these different things. C, underestimating how compounding raises can be at higher salaries to boost your lifetime income earnings. You get another raise and it's a huge difference just getting those bigger raises. And so making sure that you are not just staying and stagnant at a job is very important. Number 21, and this is also along the career path, is not negotiating your salary. Accepting an initial offer without negotiating or not negotiating your current role is a big mistake. You need to be known as the negotiation person. So only 39 % of people negotiate their salary, but 85 % of those who do succeed in getting more.

47:56And this is from Robert Half Salary Guide. Negotiating your salary can add$500 ,000 to$1 million in lifetime earnings due to compound raises, according to the Harvard Business Review. This is a$1 million decision to decide to negotiate your salary. Just because you're shy, just because you're an introvert, doesn't mean you need to learn these negotiation tactics. Smart people fail because A, they fear seeming greedy or ungrateful. B, they don't know how to negotiate properly, which is something we teach a ton here. And in Master Money Academy, we're going to have a masterclass on how to negotiate your salary.

48:29We're actually going to do a mini course in there too that'll be coming out. And they underestimate the power of small raises compounded over decades. Okay. So those are the three things that I want you to note. And for most of you out there, learning to negotiate your salary is really important. If you go to mastermoney.co slash resources, we have a free least Negotiate Your Salary eBook that walks you step-by-step on our steps on how to do that. And it's completely free. You can go check it out at mastermoney.co slash resources. So thank you guys again so much for being here. That is the 21 Money Traps smart people still fall into.

49:01If you guys have any questions, make sure you join the Master Money newsletter and you can ask your question there to any of those newsletter issues that come out each and every single week. Again, thank you guys so much for being here. I truly appreciate each and every single one of you, and we will see you on the next episode.

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