5 Money Mistakes Smart People Make

🔍 Deep Dive: Money Mistakes Smart People Make

Your biggest financial enemy might be your own brain. Here are the five financial mistakes I see smart people make and how you can avoid them.

1️⃣ Over-Optimizing Small Expenses

Smart people love to optimize (which is good). But I find we focus too much on small expenses while ignoring big ones.

For example: Spending hours researching the best credit card for 2% cash back while overspending on rent.

The small expenses feel controllable. Things like finding the cheapest gas or clipping coupons feel good because it’s a quick win. But they often don’t move the needle very much.

It’s the big decisions like housing, transportation, and career moves that impact your budget the most. Instead of optimizing the small stuff, spend more time focusing on how to optimize the big expenses first.

2️⃣ Falling Prey to Lifestyle Creep

If you’re a high earner, you know how to make money. But that doesn’t mean you know how to manage money responsibly.

I see it all the time. Someone lands a 6-figure role. They move to the nicer apartment, upgrade their car, and start traveling.

They’ve just fallen prey to lifestyle creep: increasing your spending as your income rises.

What tends to happen is:

1. People spend more but don’t save or invest more. Now they’re practically in the same financial position they were before.

2. People are on the hook for large expenses (like rent and car payments). If their income drops, they can’t afford their new lifestyle.

The solution: Continue to live below your means after you get a bump in income. Invest and save more. Only upgrade your lifestyle after you truly know you can afford to.

 3️⃣ Analysis Paralysis on Investment Decisions

Smart people are often analytical, but researching investments to death doesn’t always mean you’ll make a better decision.

There’s a healthy amount of research and thought that should occur before investing in something. But we have to draw a line at some point.

For example:

✅ I’ve researched investments for my Roth IRA. I will invest in broad market index funds. I can adjust my strategy if needed.

❌ I want to make the most optimal decision, so I’ve researched investments for the last 6 months while my money sits in a checking account.

Don’t let your intelligence make you think you can find the “optimal” investment strategy. Just get started and adjust as you go.

4️⃣ Assuming Complex Situations Require Complex Solutions

Sometimes we think too high-level. We think if it’s a complex problem, the solution must be equally complex, but this isn’t always true.

Don’t let your intelligence make you think the simple solutions are “too easy” or beneath what you’re capable of.

Stick to simple, proven strategies for at least 80% of your financial decisions, and you’ll end up in a good place. Complexity should only be added when simple strategies genuinely don’t work.

5️⃣ Thinking Intelligence Overrides Behavioral Biases

We’ve all thought it at some point… we’d never make that financial decision or we’re smart enough to handle something on our own.

The truth is that this overconfidence with our finances actually makes us more susceptible to confirmation bias and overconfidence bias.

It’s okay to recognize your own strengths, but remember to build financial systems that account for human error like:

1. Having a budget, because you may underestimate how much you’ve spent.

2. Meeting with a financial advisor, because it’s good to get a second opinion on your financial decisions.

3. Setting up automatic investing, because it’s easy to forget to invest no matter how diligent you are.

Put It Into Practice

Think through which of the above mistakes you might be making and create some parameters to avoid it.

For example:

• Over-optimizing on a car loan rate → Spend one hour looking for the best rate, then move forward with the best option.

• Dealing with lifestyle creep → Look at your budget and see where you can cut back to live below your means.

• Confirmation bias on financial decisions → Book a call with a flat-fee financial advisor for a second opinion.

💵 Budget Breakdown: Having a Child

This week’s budget breakdown comes from a recent video from Kenna. She recently welcomed a new baby into the world and broke down her hospital bill for the birth.

She was billed $16,096, with a few notable expenses making up that total:

• Labor Room and Delivery: $8,457

• Room and Board for Semi-Private Room: $3,106

• Delivery: $1,889

• Recovery Room: $1,028

Then she listed off a few expenses that seemed a bit crazy to me:

• $1,000+ for nurses to take her baby to the nursery (not the care the baby received there, just the transport cost)

• $381 for “laboratory” (it doesn’t say what that consists of)

• $1,233 for “pharmacy” (doesn’t say what this consists of either)

She said insurance covered some of this bill, but didn’t say how much. The average out-of-pocket expense for childbirth is $2,854, according to Investopedia.

🔗 Quick Links

💰 Common money advice that isn’t helpful.

👀 Can you trust AI financial advice? Here’s what one study said.

💵 5 ways to save on your monthly bills.