21 Money Traps Smart People Still Fall Into

In this episode of the Personal Finance Podcast, we are going to talk about  21 Money Traps Smart People still fall into. Watch this episode on Youtube. How Andrew Can Help You: Listen to The Business Show here. Don't let another year pass by without making significant strides toward your dreams. "Master Your Money Goals" is your pathway to a future where your aspirations are not just wishes but realities. Enroll now and make this year count! Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here! Learn to invest by joining Index Fund Pro! This is Andrew’s course teaching you how to invest! Watch The Master Money Youtube Channel! , Ask Andrew a question on Instagram or TikTok. Learn how to get out of Debt by joining our Free Course Leave Feedback or Episode Requests here. Car buying Calculator here Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at shopify.com/pfp Thanks to Policy Genius for Sponsoring the show! Go to policygenius.com to get your free life insurance quote. Indeed: Start hiring NOW with a SEVENTY-FIVE DOLLAR SPONSORED JOB CREDIT to upgrade your job post at Indeed.com/personalfinance Go to https://joindeleteme.com/PFP20/ for 20% off! DELL: Get a new Dell AI PC starting at $749.99, at Dell.com/ai-pc. This episode is sponsored by Plaud https://www.plaud.ai/ — an AI wearable gadget that takes notes of meetings and calls. With Plaud, you don’t have to take notes and make summaries anymore. Shop outdoor furniture, grills, lawn games, and WAY more for WAY less. Head to wayfair.com Visit www.functionhealth.com/PERSONALFINANCE or use gift code PERSONALFINANCE100 at sign-up to own your health. Get 50% Off Monarch Money, the all-in-one financial tool at www.monarchmoney.com/PFP Links Mentioned in This Episode: How to Run the Numbers When You Buy a House! (Total Cost of Ownership!) The Million Dollar Money Decisions You Should Be Focusing On Connect With Andrew on Social Media: Instagram TikTok Twitter Master Money Website Master Money Youtube Channel Free Guides: The Stairway to Wealth: The Order of Operations for your Money How to Negotiate Your Salary The 75 Day Money Challenge Get out Of Debt Fast Take the Money Personality Quiz Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Andrew Giancola?

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• 0:44Andrew Giancola?

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• 1:27Andrew Giancola?

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• 2:24Andrew Giancola?

  What's up everybody and welcome to the Personal Finance Podcast. I'm your host Andrew, founder of mastermoney.co. And today on the Personal Finance Podcast, we're going to be talking through 21 money traps smart people still fall into. If you guys have any questions, make sure you join the Master Money Newsletter by going to mastermoney.co/newsletter. And don't forget to follow us on Apple Podcasts, Spotify, YouTube, or whatever your favorite podcast player is. And you're getting value out of this episode. Consider leaving a five-star rating and review on Apple Podcasts, Spotify, or your favorite podcast player. Now today, we're going to be diving into 21 money traps that smart people still fall into. And I want

• 3:08Andrew Giancola?

  you to kind of think through each of these and say to yourself, am I falling into these? Are these issues that I am having with my current finances? Some of these are going to be things you may not have thought through before. And we're going to go through the statistics of each and every single one of these so that you know, hey, a lot of people are actually falling into these traps. And I want to make sure I am not one of them. So this is going to be an action-packed episode. So without further ado, let's get into it.

• 3:33Andrew Giancola?

  All right. Number one is lifestyle creep. Now to start this off, if you don't know what lifestyle creep is, as your income rises, if your spending also rises with your income, or you exceed your new earnings, then you have lifestyle creep that is not healthy. And for most people, as your income begins to rise, a lot of folks will also continue to spend what they earn. And so this is how people stay in the paycheck to paycheck cycle. Even high earners will stay in the paycheck to paycheck cycle if they let their lifestyle creep get out of hand. Now, I am actually the type of person who believes that some lifestyle creep is good. As your income starts to increase, you worked hard at your job, you worked hard at the new certification, you worked hard to get that brand new degree, and as your income does increase, you get a raise, or you get a promotion, or you get

• 4:17Andrew Giancola?

  something else, you should spend a little bit more of your money. But you need to spend enough where it is controlled, where another portion of that money is also going towards future you. We're voting for future you to have financial freedom. And that's what we want for each and every single one of you. So as your income increases, I want you to spend some of it. In fact, I want you to spend half of it as it increases. And we follow what is called the 50 50 rule here. Where 50% of your income will go towards things that you actually love. Maybe you want to upgrade your house or your car or whatever else. Maybe you just want to be able to spend more on your hobbies or your interests. Okay, 50% goes towards things that you love. And the other 50% goes towards future you. This means as your income increases, let's say, for example, you double your income. So you make $50,000 per year.

• 5:00Andrew Giancola?

  You get this huge promotion or you get this new certification that allows you to get a way better job where you're going to make $100,000 per year. Well, you upgrade your lifestyle by $25,000. And the other 25,000 is going to go towards future you for your future investments. You're going to max out your 401k, you're going to get some money in a Roth IRA. You're really going to be able to have an amazing retirement by following this 50 50 rule. Or let's say, for example, every single year you get a 3% raise. Well, one and a half percent goes towards future you. And the other one and a half percent is going to go towards anything else that you want to do with those dollars. And so this is going to allow you to stay balanced over time and be able to actually put some dollars towards future you, but also enjoying the money now.

• 5:41Andrew Giancola?

  In fact, 60% of people say lifestyle inflation is the number one reason they can't save more. And this is from a SunTrust Bank survey. And studies show that on average, every $1 in new income leads to 95 cents in new spending for middle and high income individuals. This is from the Federal Reserve Economic Data. So every new dollar that someone earns, they spend 95 cents of that dollar by upgrading their lifestyle. This, my friends, is a huge problem. Instead, you should be spending 50 cents on the dollar. And the other 50% should go towards future you until you're starting to hit those retirement goals. Now, if you're already reaching your retirement goals, then every extra dollar you earn can go towards things that you absolutely love. Now, for smart people, they fail at this because they feel like it's justified.

• 6:25Andrew Giancola?

  I've earned this money, it's justified, I should be able to spend all of it. Secondarily, peer pressure and social comparison obviously will always normalize these upgrades. So you see people around you. Who are upgrading their lifestyle, it's going to normalize this lifestyle and make you feel like it is justified because you do that. And then our brains get used to this higher standard of living. So for example, when I first graduated college, I remember living, you know, in a very small apartment. It was 400 square feet. It had one bedroom and it was, you know, it was what it was. It was a very small apartment. And I had no issues living there. Now, if I lived in a 400 square foot apartment, I would feel like that's a major downgrade from where I currently live because our brains quickly get used to it and adapt. Also, I used to hardly ever eat out.

• 7:08Andrew Giancola?

  I was really frugal and I would hardly eat out. Now I eat out a bunch of times every single week and I'm used to eating out. It's not as special as it used to be anymore when I would go out to eat. And it's because my brain is quickly adapting to this new lifestyle and this new happiness bump will actually fade away quickly. And so the happiness bump that you feel when you upgrade your lifestyle does not last very long. It's the same thing as, you know, you could buy that brand new car, for example, that new car smell wears off. And then all of a sudden, your brand new car is just like every other car that you have ever owned. And so this is something where I think a lot of us just need to understand the psychology behind this and just have lifestyle creep. It's great to have some lifestyle creep, just do it in a healthy way. The second trap that smart people fall into is overconfidence in investing. So smart people often believe they can pick stocks.

• 7:53Andrew Giancola?

  They can time the market. They can outperform index funds despite underwhelming evidence that shows otherwise. 90% of professional money managers, year in and year out, do not beat the S and P 500. And of the 10% that do, they are not the same year in and year out. In over a 10 year period, even a shorter timeline, 74% of actively managed funds actually beat the S and P 500. Even retail investors who trade frequently underperform the market by an average of 6.5% every single year, according to the Journal of Finance. Now, because you're smart, a lot of times, intelligence feeds the illusion of control. And what happens here is people will say, hey, I did my research. I looked into every single aspect of this company. I know better than the market. I can outperform the market.

• 8:38Andrew Giancola?

  But people who are professional money managers, I want you to really think about this for a second. People who are in the high rises in New York City, they have an entire team of Harvard graduates that work for them. They have an entire executive level team of Harvard, Yale, Princeton graduates who are all within that office. Ivy League students, some of the smartest people in the entire world work for financial companies because they pay well. And guess what? They have this entire team. They have this fancy high rise. They are talking to the best experts in the entire world. They have all the connections they could ever have, and they still cannot beat the S and P 500. Why do you, Greg, in accounting, who sits in a cubicle, think that you can also beat the S and P 500 by yourself? Because you read a couple of different articles. Why?

• 9:22Andrew Giancola?

  Because for most people, they cannot do that. And so even some of the best individual stock investors that I know state, hey, this is really is not for everybody. 99% of people should be in an index fund, and that is just the way that it should go. So there's also recency bias for smart people. After a few good picks, people believe, oh, I got this down. I'm going to be able to do this over and over and over again. Hey, I get it. I even fall into this trap. I'm looking at certain things right now like self-driving cars. I'm like, oh, I can pick some of these stocks out and be able to figure out which ones are going to be the best one that will rise to the top for these self-driving cars. There's so many different examples of people falling prey to this kind of stuff, and you do not want to do that. Media hype and FOMO are going to push people to chase hot tips. There are so many people that I know

• 10:07Andrew Giancola?

  who are so intelligent, who think they have the ability to pick stocks. Then you talk about their returns and you dig deeper and you look into what they're actually doing, and they are really underperforming the market and they have no idea. You got to make sure that you understand that most individual investors cannot beat the market and really think about this, okay? Number three, the third trap that most people fall into is not having an emergency fund. So choosing to invest extra cash or pay off low-interest debt while ignoring a dedicated safety net for true emergencies can be a huge, huge problem for a lot of people. People say, oh, I can earn more money. I'll be able to optimize for this. But when a huge surprise comes or they lose their job and they don't have an emergency fund in place, this is a huge, huge issue. 56% of Americans can't cover an unexpected $1,000 expense

• 10:50Andrew Giancola?

  without borrowing or selling something, according to Bankrate. And 1 in 5 households experienced an unexpected major expense over the course of the past year, whether it's medical, car, or home repair. 20% of people out there experience one per year. A big one. And this is according to the Federal Reserve's Report of Economic Well-Being. 1 in 5. So if it happens to 20% of people, eventually it is going to happen to you. You don't know when it's going to happen. It's not if it's going to happen, but when will it happen? You need to have an emergency fund in place. Financially savvy people hate idle cash, and I get it. You don't want your cash just sitting there doing, not doing much, earning 3% to 4% in a high-yield savings account, and they don't like that it just sits there.

• 11:31Andrew Giancola?

  They assume a stable job is enough protection from them for any situation that could arise, but that could not be further from the truth. You are one person's decision away from losing your job, or you are one economic decision away from your business going under. You need to make sure that overall, you are ensuring that you protect yourself with cash, or having way too much optimism. A lot of people will say to themselves, "Well, it's never going to happen to me. I'm never going to have one of these crazy things that happens to everybody else." It could happen to anyone. You need to have cash on hand, and making sure you have that cash on hand is really, really important. I have talked to high-six-figure earners. I mean, people who are getting close to making a million dollars a year, and they have no cash on hand. And that, my friends, is one of the scariest situations to be in. You need to have cash on hand, saving in a high-yield savings account.

• 12:13Andrew Giancola?

  If you want to get optimized for a little bit of a better return, and bond markets are higher, then go for it. But have cash on hand that you can access if you need to. Number four is buying too much house. There are way too many smart people out there who spend way too much on their home, a bigger, fancier home that is way more than they can afford, because real estate is always a good investment, and I'm putting up in quotation marks. They never ran total cost of ownership on their house. They never understood exactly what they were spending. Housing costs should ideally be under 30% of your gross income, yet 38% of homeowners spend 40% plus on housing, according to the National Association of Realtors, the NAR. Almost 40% of homeowners spend over 40% of their income on housing.

• 12:58Andrew Giancola?

  That is way too much, and you are causing yourself to become house poor. We need to make sure that we are spending less than 30% on housing. U.S. homeowners spend, on average, $3,000 per year on maintenance alone, not counting taxes and insurance, according to Bankrate. Just the maintenance alone, on average, is $3,000 for owning a home. Now, why most smart people fall for this? They fall into buying way bigger houses. They can afford is because homeownership is deeply tied to status and success. A lot of people will tie their status and success to the size of their home, where their home is located, is it on the water? Is it near a really cool reserve? Is it, you know, all these different things? And the bigger the house you get, the more status you have for success.

• 13:40Andrew Giancola?

  Real estate is also seen as an investment, but as we know, we've run total cost of ownership on our home. A lot of times our personal residence does not have amazing returns in comparison to something like the stock market. Now, if you haven't heard our episodes talking about that and you violently disagree immediately without doing any research whatsoever, run the numbers. If you run the numbers on a personal residence over the course of 30 years and you look at total cost of ownership. If you don't know what total cost of ownership is, then you shouldn't even be arguing with me right now over your podcast player. But if you run total cost of ownership, you will see that the average appreciation of a house is anywhere from 2 to 3%. Yes, we have had amazing years over the course of the last couple of years. And guess what? You still have a lot of different maintenance costs that are going to come up that are eating away at your returns.

• 14:25Andrew Giancola?

  Your return is not what you bought a house for and then what you sold that house for. There was a lot of costs in between that most people do not factor in from insurances to taxes to maintenance, to all these different things, interest on your mortgage. All of this factors in to the total cost of ownership. Lenders often will approve you for higher mortgage rates. I don't know who needs to hear this right now, but just because a mortgage lender approved you for a certain amount does not mean you should spend that amount. In fact, whatever they approve you for is the wrong number. Okay. Because that means they approved you for too much. Do not go off of what you were approved for as your budget when you're buying a house. That should never, ever happen. It should never be part of your plan.

• 15:06Andrew Giancola?

  Instead, you need to make sure that you understand what total cost of ownership is and you're spending less than 30% of your gross income on housing. Got it? Perfect. Number five is trying to time the market. So, holding off on investing, hoarding cash and then jumping in and out of the market based on prediction, instead of sticking with a plan is the number one thing that drives me up a wall that people do. And they think they can time the market. They'll say things like, oh, my goodness. Buffett, he is sitting in a hundred billion dollars worth of cash right now. And so I too am going to sit in cash because my good friend and my uncle Warren Buffett is sitting in cash currently. Guess what, guys? Are you Warren Buffett? Because I'm not Warren Buffett. And I would never be able to do anything that Warren Buffett can do when it comes to the markets. And so a lot of people think they can time the market.

• 15:50Andrew Giancola?

  And I have had, I get so many DMs every single day on TikTok and on Instagram of people saying, I'm just waiting for the market to go down before I start investing. I cannot tell you how detrimental that is to your finances long-term. Because you cannot time the market. Here's the best stat to tell you about this. If you miss just the 10 best days in the market over the course of 30 years, it cuts your return nearly in half. In fact, the average investor returns lag the market by 1.5 to 2% per year due to poor timing decisions. So if you get too much information out there and you hear people pounding their desk saying, the market is too high, the market is way too high. And so you should, you think you shouldn't be buying, that's not the case. Instead, what you need to be doing is continuously buying month in and month out,

• 16:35Andrew Giancola?

  no matter what the market is doing, no matter what the news on tariffs are, no matter what the economic outlook is, no matter what the president did yesterday, no matter what war is going on right now. Instead, what you need to be doing is just buying and sticking to your plan, month in and month out consistently every single month. And automating that plan so that you don't have to rely on your willpower or your emotions before you actually put money into the market. Every month, boom, that money gets invested. Month two, boom, that money gets invested. Month three, boom, that money gets invested. Over and over and over again, so you don't have to think about it. Smart people also fail to do this because of their overconfidence in predictions. It can feel good to nail a prediction. You get a prediction right, maybe you get two prediction rights. I said this and I said that.

• 17:20Andrew Giancola?

  The problem is, we really are getting biased on our predictions. And typically, we only remember the good predictions we have and we forget about the bad predictions we have. Our brain just naturally does this. And so for a lot of you out there who think that you know more about the market than you actually do, this is going to be one of those things that you fall prey to all the time. And media noise makes staying invested feel risky. The media make- Money by making you feel scared. This is why we started the business show. So the business show is our other show that gives you daily market news. And I'm doing it in a way that is intended to not scare you. Because what the media tries to do is they try to make you click and get scared. And instead, what you need to understand is you're just going to keep buying. So like when there's doom and gloom stories out there, I say, but you just got to stick to your plan and keep buying.

• 18:02Andrew Giancola?

  Because that is typically what we need to make sure that we are doing if we want to get the best outcome with our investments. And so for you, you need to continue to do the same.

• 18:12Andrew Giancola?

  All right, number six is being house rich, but cash poor. And for folks out there who have the majority of their net worth tied up in their home, and they leave little cash for emergencies, opportunities, or flexibilities, they are causing themselves a major problem. The last thing you want is to have the majority of your net worth in your home. That should not be the case. Now, if you're young, if you're in your 30s, if you're in your 20s, and you just bought a house, then most likely the majority of your net worth is going to be tied up in your home. But as you start to age, you want to see your investment accounts, or your real estate portfolio, or your business portfolio, whatever it is, you want those to be the majority of your assets over time. Because folks who keep the majority of their asset pie within their home usually do not have a very comfortable retirement. Okay, and so when this happens, this is going to be a really, really important thing for most of you to note.

• 18:57Andrew Giancola?

  Forty-five percent of homeowners admit they are house poor, spending so much on mortgage taxes and upkeep that they struggle to cover the bills. This is why we talked about do not become house poor by spending over 30% of your income. And the median homeowner's net worth is 40 times higher than a renter's. But much of that is illiquid equity, not spendable cash. Now, for a lot of folks out there, they feel like home equity feels like wealth. And so they feel secure. But overall, typically, if you don't have cash on hand, or if you don't have investments on hand, you can't use that money for anything outside of just living. And so what you need to understand is you need to build up investment portfolios so that you have cash on hand to live on every single month. Because if you tap into that equity, that means you are taking on more debt.

• 19:41Andrew Giancola?

  And if you're taking on more debt, that means you're going backwards financially. And it's the last thing we want for each and every single one of you. And cultural pressure, like we talked about before, means that big houses are Going to equal that you made it. And that's just something that if you look at the millionaire next door, or any other study that looks at millionaires, it is not what you want to follow currently. So you got to make sure that you have some cash on hand as time goes on. All right, number seven is holding on to losing investments. So keeping a poor performing stock, fund, or property, or business, instead of cutting losses due to emotional attachment or pride. So pride can be one of the biggest detriments when it comes to building wealth. If you have pride with something and you hold on way too long to something you know is a bad investment, then you most likely will end up losing money

• 20:26Andrew Giancola?

  and you're not going to fight your way through it always. Now, some people need to have more persistence and persistence in fighting through business issues or persistence in fighting through different situations can be helpful. But if you're out there and you know that you're prone to selling winning investments too soon, or you're holding on to losing investments too long, then you need to rethink the way that you're looking at this. There's something called the disposition effect, which investors sell winning investments too soon and hold losers too long. That's a behavioral finance study that kind of shows that. And studies show this behavior reduces annual returns by one to 3% on average. So if you are someone who has loss aversion, a loss feels twice as painful as a gain feels good, then this is going to be something for you to also think through. And a lot of people will say, it'll come back. That's their thinking is they'll say, it'll come back.

• 21:10Andrew Giancola?

  We'll be able to get through all of this. And turning investments into hope rather than a strategy, you got to really look at what is actually happening and not just what you think will happen. And then selling means admitting a mistake. And a lot of people have egos that they do not want to hurt by admitting that mistake upfront. And so an example of this would be someone like an investor holding on to a tech stock for years and years, saying it'll bounce back instead of just moving on and looking at a new opportunity. Now, I am not one to sell anything ever, but typically it's because I'm buying index funds. And so that's a big one as well. But a lot of folks I've seen do this through businesses or their real estate investments, and they just get more and more hurt as time goes on. Number eight is borrowing for status. So taking on consumer debt to buy cars or gadgets or clothes or vacations

• 21:53Andrew Giancola?

  is what so many smart people fall into to signal success. The average new car payment just hit $738 per month. Which is a record high according to experience and 60% Americans carry credit card balances month to month according to the Federal Reserve. And so a lot of people want to look successful among peers or coworkers. And so they borrow money in order to do so. And they justify luxury with, I deserve it. I work hard. This is all the psychology behind this kind of stuff. And easy credit makes overspending painless upfront. So it's actually very easy to borrow money for something upfront, but it's very painful to pay it off over the course of the next five to seven years. You have to work really, really hard. Again, remember the borrower is a slave to the lender. The lender has all the power in these situations when you begin to borrow money.

• 22:38Andrew Giancola?

  And 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. And 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.

• 23:22Andrew Giancola?

  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 bucket or budget inside of that high yield savings account. Okay. 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, you know, your day-to-day cash flow, but you're not looking at long-term. Try to save up for some of those long-term big expenses.

• 24:06Andrew Giancola?

  Now, it's not something you could do upfront. It might be something where you're prioritizing, you know, some of your Retirement accounts and not everybody is going to have a perfect budget when it comes to that, but 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 going to 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%

• 24:49Andrew Giancola?

  of Americans have no will at all, according to caring.com. And 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 out. 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. And 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

• 25:31Andrew Giancola?

  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. I 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, you know, I've used them in the past. They're super easy to use. A lot of other smart people will say, ah, it just feels too

• 26:13Andrew Giancola?

  complicated, or it's just uncomfortable to even do this, or they assume they'll get to it later. If you have kids, or if you have anybody 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. And so making sure you have a will, and if you have over a million dollars in net worth, looking at a trust also is probably something you want to do. Then that is going to be big, big for a lot of folks.

• 26:57Andrew Giancola?

  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, you know, 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 a trust and be able to kind of direct dollars towards specific things. So 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.

• 27:31Andrew Giancola?

  Number 11 is overspending on kids' activities. This is something we're probably going to 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, 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're going to start to overspend on. In 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.

• 28:13Andrew Giancola?

  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 the number one. Number two is social comparison with other families. I 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 want to 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.

• 28:57Andrew Giancola?

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

• 29:41Andrew Giancola?

  what you're doing when it comes to that. Do 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. If you are someone who's a wealth voter and you are starting to accumulate a decent amount of wealth

• 30:24Andrew Giancola?

  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. And the inflation on those insurance industries is 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.

• 31:07Andrew Giancola?

  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 Policy Genius, amazing stuff, and they are absolutely incredible. I highly recommend Policy Genius 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 Delete Me.

• 31:51Andrew Giancola?

  And identity theft affected over 40 million Americans in 2023, costing victims more than $10 billion, according to the FTC. And 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 backend 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?

• 32:33Andrew Giancola?

  And 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 going to 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.

• 33:16Andrew Giancola?

  If you go to joindelete.me/pfp20, you can get 20% off of Delete Me. And they go out and remove your personal information from these data brokers. And so again, if you go to joindelete.me/pfp20, 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, is 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. Otherwise, you could have your accounts wiped out. There are so many different things that could happen. Making sure you do it is a huge, huge priority.

• 33:59Andrew Giancola?

  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 I fall, smart people fall into this is they feel obligated. They feel like it's a way for them to give back and 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.

• 34:44Andrew Giancola?

  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. You 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 want to 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. It is just the way that I operate. And I think for most people, it is the way to make sure you maintain those relationships.

• 35:28Andrew Giancola?

  Number 16 is ignoring tax planning. Now, tax planning is one of the most important things that you need to be doing. If you're not doing tax planning, it is going to 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. And 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 have an accountant, so I'm fine. They find all the deductions for me."

• 36:13Andrew Giancola?

  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. So 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.

• 36:41Andrew Giancola?

  If you've heard any recent episode of Health Corner, you know that I have spent the last few years trying to optimize my sleep. I've tried sleep trackers, cooling my room, changing my nighttime routine, all the different things. But nothing really matters as much as having the right mattress. And that's one of the reasons I love Lisa. A great mattress is one of those things that you use every single night and you spend a third of your life sleeping. And it can make a huge difference on how you feel. The next day, Lisa has mattresses designed for different sleep positions and comfort preferences. And their sleep quiz can help you get matched in less than two minutes. Plus, they're designed and they're assembled in the USA and they come with free shipping,

• 37:24Andrew Giancola?

  easy returns and a 120 night free sleep trial. So go to lisa.com for up to 30% off mattress plus and get an extra $50 off with promo code PFP, exclusive for my listeners. That's L-E-E-S-A.com promo code PFP for 30% off mattresses plus an extra $50 off. Let them know we sent you in the survey after checkout. Lisa.com promo code PFP. 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.

• 38:09Andrew Giancola?

  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. One 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.

• 38:53Andrew Giancola?

  Use code PFP at monarch.com to get your first year of Monarch Core half off at just $50. That's 50% off your first year at monarch.com with code PFP. If you've been listening to this show for a while, you know it's not just me anymore. It takes a great team behind the scenes to make everything happen. And if I had to hire someone tomorrow, I'd want someone who could jump right in and make an impact. That's why I Indeed sponsored jobs. When workplace chaos hits, Indeed sponsored jobs helps you reach qualified candidates faster. Your job gets boosted in search results, so you're spending less time searching and more time interviewing the right people. Plus, you only pay for results, which I absolutely love.

• 39:38Andrew Giancola?

  Sponsored jobs posted directly on Indeed are 95% more likely to report a hire than non-sponsored posts. That's a huge advantage when you're trying to grow your business. Spend less time searching and more time actually interviewing candidates who check all of your boxes. Less stress, less time, more results. When you need the right person to cut through the chaos, this is the job for Indeed sponsored jobs. And listeners of this show will get a $75 sponsored job credit to help get your job the premium status it deserves at indeed.com/podcast. Just go to indeed.com/podcast right now and support our show by saying you heard about Indeed on this podcast. Indeed.com/podcast. Terms and conditions apply. Need to hire?

• 40:23Andrew Giancola?

  This is a job for Indeed sponsored jobs. It's kind of amazing how much can change in just a single year. Every summer, the kids are a little bigger, a little more independent, and life looks a little different than it did the year before. And it reminds me that while we can't predict the future, we can prepare for it. That's one of the reasons I like PolicyGenius. See, PolicyGenius isn't an insurance company. They're an online marketplace that lets you compare life insurance quotes from some of America's top insurers, side by side, for free. And their licensed team helps you compare coverage, prices, and terms, answers your questions, and even handles the paperwork so you can get the right policy without the hassle. For me, having life insurance isn't about expecting something to happen, it's about

• 41:08Andrew Giancola?

  knowing my family is protected so I can actually enjoy these moments together instead of worrying about what comes next. And with PolicyGenius, you can find 20-year life insurance policies, starting at just $276 a year for $1 million of coverage. Head to policygenius.com to compare life insurance quotes from top companies and see how much you can save. That's policygenius.com. All right. The next one is not getting professional help. Number 17. I 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.

• 41:51Andrew Giancola?

  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. This 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.

• 42:35Andrew Giancola?

  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. I'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 going to be meeting with an attorney to go through some of the advanced stuff I want to 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, you know, have more people in my corner. And the more that I have in my corner is a big, big deal. Secondarily, when I started to focus on tax strategy, getting the right CPA in my corner was a huge, huge, big benefit.

• 43:16Andrew Giancola?

  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 waitlist 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. I'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 waitlist. 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 $500 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

• 44:01Andrew Giancola?

  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. Or 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, 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.

• 44:46Andrew Giancola?

  These are going to 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. And 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.

• 45:30Andrew Giancola?

  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. Don't get me wrong, we want you to do that. In fact, our last episode was- 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.

• 46:10Andrew Giancola?

  So that is going to 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. Number 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 Suzy Orman says, no matter what where a meat says, no matter what anybody says out there. You gotta make sure that you do your own research and check on those tips.

• 46:54Andrew Giancola?

  Okay, nearly 40% of young investors make investment decisions based on tips from social media alone. This is from the FINRA Investor 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. Maybe people seem successful, so I'll copy them and 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.

• 47:38Andrew Giancola?

  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 their 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. Or 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.

• 48:22Andrew Giancola?

  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. I 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 ADP 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.

• 49:04Andrew Giancola?

  B, they fear the unknown of what could actually happen if they leave and maybe they don't like it, maybe 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 stagnant in 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, and this is from Robert Half's Salary Guide.

• 49:48Andrew Giancola?

  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. We'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.

• 50:33Andrew Giancola?

  If you go to mastermoney.co/resources, we have a free 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/resources. So thank you guys again so much for being here. That is the 21 money traps smart people still fall into. If 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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