10 Reasons Smart People Are Bad With Money

Summary

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The Personal Finance Podcast

Episode: 10 Reasons Smart People Are Bad With Money

Host: Andrew Giancola
Date: April 1, 2026

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Episode Overview

In this episode, Andrew Giancola explores the paradox of intelligence and personal finance, addressing why highly intelligent, successful, or high-earning individuals often struggle with managing their money effectively. Drawing from psychology, research studies, and years of coaching experience, Andrew offers a rich exploration of the 10 key reasons—rooted in behavior, habits, and mindset—that cause “smart people” to make costly money mistakes. The episode aims to help listeners identify these pitfalls in their own lives, adopt a simpler and more effective approach to money, and ultimately build wealth with less stress.

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Key Discussion Points & Insights

1. Overthinking Financial Decisions (01:28–10:17)

• Analysis Paralysis:
  “Smart people just overthink it. This is the most common reason why a lot of folks out there just are not good with their money.” (01:38)
• Overanalyses around:
  • Which index fund or brokerage to choose
  • Whether to pay off debt or invest first
  • Striving for the ‘perfect’ budget
  • Trying to ‘time’ the market
  • Chasing highest yields in savings accounts
• Research Highlights:
  • Fidelity study: Best-performing investors were those who forgot about their accounts or had died—“doing less is more.”
  • Overanalyzing delays action; “Delaying just one year can cost you $75,000–$100,000 over a 30-year horizon.” (09:30)
• Advice:
  “Sometimes the smartest financial move is to set up a plan and stop thinking.” (09:55)

2. Trusting Intellect Over Proven Systems (12:48–24:10)

• Overconfidence Bias:
  “High IQ people think they can outsmart the market... It’s called overconfidence bias, one of the most replicated findings in behavioral economics.” (12:53)
• Common mistakes:
  • Stock-picking vs. simple index investing
  • Timing the market
  • Ignoring proven asset allocation or basic budgeting systems
  • Overengineering financial plans
  • Chasing yield rather than long-term strategy
• Key Studies Cited:
  • S&P 500: 90% of active funds underperform the index across 15 years (16:02)
  • Dalbar: Active investors underperform due to tinkering, not fund selection
  • UC Davis: Most frequent traders underperform by 7% per year
• Memorable Quote:
  “The irony is: the systems are complicated, but the strategies for building wealth are actually simple.” (22:40)
• Cultural Reference:
  “Look at Jim Cramer – the ‘inverse Cramer’ effect is real. Consistently underperforms; predictions don’t help you.” (23:30)

3. Confusing Earning Power with Financial Intelligence (24:10–29:30)

• The Earning Trap:
  “Income and being good with money are two very different things.” (24:26)
• High-income professions (doctors, lawyers, entrepreneurs) are often “worst at accumulating wealth relative to income.”
  • Referenced “The Millionaire Next Door”: Most real-life millionaires are not high earners but consistent savers and investors.
• Stats:
  • “70% of lottery winners go broke. 78% of NFL players face financial hardship within two years of retirement.”
• Biggest Mistake:
  “People say, ‘if I’m smart enough to earn this money, I’m smart enough to manage it’—these are completely different skills.” (25:13)
• Actionable Takeaway:
  “Use the 50/50 rule: for every raise, spend half and invest the other half.” (28:35)

4. Rationalizing Bad Spending (29:30–32:38)

• Cognitive Trap:
  “Smart people are exceptionally good at justifying purchases.” (29:34)
• Research:
  • Higher cognitive ability = better at rationalizing bad decisions, not resisting them (Jonathan Haidt’s “elephant and rider” analogy)
  • “My car is an investment in my personal brand”—classic rationalization
• Examples of Rationalizations:
  • “I work hard, I deserve this.”
  • “We live only once, you can’t take it with you.”
  • “Buying a house is always better than renting.”
• Advice:
  “Intelligent rationalization can wreck your finances if you don’t stay intentional.” (32:29)

5. Underestimating Lifestyle Creep (32:38–35:40)

• Hedonic Treadmill:
  “Lifestyle creep… is the gradual increase in spending as your income increases.” (32:40)
• Typical Progression:
  • Upgrading homes, cars, vacations, and “status items” as income rises
  • “You only use five rooms in that 4,000 square foot house!”
• Biggest Pitfall:
  Not allocating raises to investments leads to getting stuck in “the rat race.”
• Golden Rule:
  “Every time you get a raise, decide what percent you’ll invest versus spend. Try the 50/50 rule to start.” (35:20)

6. Impatience with Boring Fundamentals (40:20–46:30)

• Wanting Excitement, Not Repetition:
  “A lot of high earners just get impatient with the boring stuff.” (40:22)
• Research:
  • Save More Tomorrow study: Automating savings rate with every raise triples retirement savings.
  • Vanguard: Investors following a simple, consistent plan earn 3% higher annual returns.
• Mistakes:
  • Abandoning basics (budgeting, emergency funds, automating investments)
  • Seeking complexity because “simple” feels insufficient
• Advice:
  “Build automated, simple systems and let compounding do its work—3% annual difference is generational wealth.” (45:30)

7. Overconfidence in Abilities (46:30–49:20)

• Classic Overconfidence:
  “When people were asked to rate their confidence, it far exceeded their actual accuracy rates.” (46:40)
• Manifestations:
  • Concentrated stock positions (Bitcoin, gold, single companies, real estate)
  • Timing the market
  • Underestimating real risk exposure
• Quote:
  “If you say, ‘The market is too high, I’ll wait’—just know you have no idea what you’re talking about. No one does.” (48:15)
• Advice:
  Diversify and avoid betting too much on any one thing.

8. Optimizing for Income Instead of Net Worth (49:20–51:50)

• Core Issue:
  “A lot of people think income is what makes you rich. It’s not. Net worth is what makes you rich.” (49:26)
• Stats:
  • High earners often have surprisingly modest net worths.
  • Savings rate of 20–30% recommended for high earners.
• Mistakes:
  • Chasing higher income but spending just as much
  • Ignoring tax efficiency, expenses, and opportunities to build passive income
• Advice:
  Track net worth and savings rate: “20% must, 25–30% is ideal if you’re a high earner.” (51:22)

9. Social Comparison & “Keeping Up” Pressure (51:50–52:50)

• Social Environment Effects:
  • “Keeping up with the Joneses” is amplified when surrounded by other high earners.
  • “Neighborhood selection, private schools, professional events—they all create comparison pressure.”
• Big Risk:
  Home upgrades, luxury cars, vacations, and renovations become normalized.
• Advice:
  Consciously step off the comparison treadmill.

10. Using Complexity as a Defense Mechanism (52:50–53:49)

• Self-Handicapping:
  “Personal finance is actually not that complicated. Do three things: spend less than you make, invest the difference, avoid debt.” (52:54)
• Making things complicated can be a way to avoid action (“My situation is too unique for standard advice”).
• Advice:
  “Simplify, simplify, simplify. Write down exactly what you’re trying to do and delete everything extra.” (53:30)
• Parting Words:
  “Taking action today instead of overanalyzing is going to be the most impactful thing you do with your entire life.” (53:44)

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Notable Quotes & Memorable Moments

• On Overthinking:
  “The best-performing investors were those who forgot about their accounts or had died—doing less is more.” (03:21)
• On Overconfidence:
  “Personal finance will dramatically humble you if you have overconfidence bias.” (15:04)
• On Simple Wealth Building:
  “Spend less than you make, invest the difference and avoid debt. If you do those three things, you will be way further ahead than everyone else.” (52:54)
• On Rationalization:
  “People with higher cognitive ability were no better at resisting emotional spending impulses, but were significantly better at justifying them afterwards.” (30:10)
• On Tracking Progress:
  “Track your net worth and your savings rate. If you don’t know what those numbers are, start tracking now.” (51:20)

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Timestamps for Major Segments

| Timestamp | Topic | |--------------|---------------------------------------------------------------| | 01:28–10:17 | Overthinking (Analysis Paralysis) | | 12:48–24:10 | Trusting Intellect Over Systems (Overconfidence Bias) | | 24:10–29:30 | Confusing Earning Power with Financial Intelligence | | 29:30–32:38 | Rationalizing Bad Spending | | 32:38–35:40 | Underestimating Lifestyle Creep | | 40:20–46:30 | Impatience with Boring Fundamentals | | 46:30–49:20 | Overconfidence in Abilities | | 49:20–51:50 | Optimizing for Income Over Net Worth | | 51:50–52:50 | Social Comparison (“Keeping Up”) | | 52:50–53:49 | Complexity as Defense Mechanism, Closing Advice |

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Tone and Approach

Andrew’s tone is approachable, direct, and encouraging—combining research-backed insights with personal anecdotes, relatable analogies, and practical step-by-step recommendations. He repeatedly urges listeners to recognize self-sabotaging tendencies and choose simplicity and consistency over complexity and ego.

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Summary Takeaway

Smart, high-achieving people often undermine their own financial future with analysis paralysis, overconfidence, lifestyle inflation, and unnecessary complexity. The solution? Keep it simple, automate good habits, track your progress, and take regular action—so you can let your money work for you and build genuine long-term wealth.

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Transcript

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episode of the personal finance podcast. 10 reasons why smart People Are Bad With Money. 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 gonna be diving into 10 reasons smart people are bad with money. If you guys have any question, 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 podcast player you love listening to this podcast on. And if you want to help out the show, consider leaving a five star rating and review on Apple Podcasts, Spotify or your favorite podcast player. Now I used to think that if you were smart money would just take care of itself. But the more and more people that I talk to, the more I realize that this just is not the case. And in fact there are some very smart people out there who truthfully are very bad with money. And we're going to talk Through a number of different reasons, when it comes to psychology, when it comes to what the media is teaching you, but also in addition, when it comes to how you think about money and how you were raised with money. And so in this episode, we're going to be diving deeper into why smart people really keep failing with their money. In fact, some of the smartest people I know are those that are the most stressed when it comes to money. Maybe you're making a great income, but you don't know what you do with your next dollars. Or maybe you're not some sort of financial expert and you're just trying to figure out what to do. And here's the thing is some of the traits that help you succeed in your career can actually work against you when it comes to your finances. You start overanalyzing your decisions and you trust your own judgment a little too much. You try to optimize everything and you try to figure it out later. And none of these feel like mistakes. They feel like strengths. But the problem is when it comes to your finances, they doing less is a lot of times more. So in this episode, I'm going to walk through the 10 reasons why this happens. Because once you see these, you're going to start to recognize patterns in your own very life. And this could help you change the way you see your money and change the way you see your finances. So our goal with this episode is to make sure that you recognize how you are handling money, how you are thinking about money, and the way that you're analyzing your. So without further ado, we're going to dive deeper. Let's get into it. So number one is smart people just overthink it. This is the most common reason why a lot of folks out there just are not good with their money. They research 47 different index funds. They look at every different stock. They feel as though they can buy individual stocks, or they feel as though maybe they should be investing in dividend stocks, or they feel as though maybe they should look at real estate as well. And they are overanalyzing every single type of investment. In fact, a study at UC Santa Barbara found that people who verbalize and over analyze their decisions actually perform worse than those who go with their gut with complex choices. Overthinking actually disrupts the intuitive pattern recognition that your brain already does naturally. And I think this is something that most of us need to realize. And my favorite study overall on this was a Fidelity study done that found that the best performing accounts that they had were either folks who had forgotten about their accounts and they let their accounts sit there and just continue to compound. Or those who were already dead, these were their best performing overall accounts. And it is a hilarious way to think through. Well, if you overanalyze your finances, this is going to be an area where most people are going to make mistakes. Now here's some of the specific money decisions that most people overanalyze. Number one is which index fund should I go with? Should I go with Vanguard? Should I go with Fidelity? Should I go with Swap? Should I go. And a lot of you listeners out there, you ask me this very question. Which brokerage should I open? Should it be Fidelity, Vanguard, Schwab? Listen, all three of them are absolutely fantastic. You just have to pick one and hit the ground running. And this is something that a lot of smart people overanalyze. A lot of smart people overanalyze. Should I pay off debt or should I invest? You need to figure out what the best path for you is forward, make that choice and get after it. But what a lot of people do is they ask the question, they come in and then they overanalyze. Well, maybe I should be investing a little bit or maybe I should be paying off this high interest debt or low interest debt just so I feel better. And they're thinking about this stuff constantly. Another thing a lot of really smart people do is they want that perfect budget. They want everything to be perfect. Let me tell you this right now. When it comes to your finances, you will never, ever have a perfect month. When it comes to budgeting, you will never have the perfect spreadsheet. You will never have the perfect budget for your life. You have to be able to roll with the punches so that you can continue to move forward and make progress. Now, sure, you need to track your cash flow, you need to track your dollars, but never going to be perfect. And the ones that quit are the ones who feel as though it should be perfect. Because everything else in your life is perfect. Maybe you're type A and you need every single line to line up. It's not going to happen. And I think you need to realize that whether or not to open up a Roth IRA or a traditional IRA or which brokerage account should I open, all of these are just over analysis. And they are. You can run into analysis paralysis really quickly if you don't set up a plan. And what I highly recommend is to come up with plans for each and every single one of these areas of your finances. This is what we teach in Master Money Academy. Is for you to have these plans in place. Because once you have plans in place, it can absolutely change the way that you think about money. A lot of other really smart folks are overanalyzing, should I time the market and or should I just invest this lump sum of cash and make sure I have it in the right spot? Timing the market is one of the biggest things that I see smart people do. I just had a dinner recently with folks who are very smart. They own multiple different businesses, and they're talking about the stock market to me, and they're saying, I just don't really know what to do with the stock market. Every single time I invest, it seems like the wrong time. Well, guess what, it's because they don't realize that you're supposed to continuously keep investing in the market. And so we had a long conversation about this, about compound interest and making sure that you are just continuously investing every single month. If you try to time the market, let me just tell you this right now, it'll never be perfect and you're always going to be wrong in comparison to your standards. This is one of those things that most people just really need to think through. Or some people are going to overanalyze and over optimize when it comes to their checking account or their savings account. Which one gets the highest interest rate? Should I just roll this money over to the next highest interest rate one? Should I optimize all these different accounts and make sure they all line up perfectly? Guys, you need to stop, stop overanalyzing stuff. Money isn't that complicated. It doesn't need to be that complicated. And guess what? For most people, when you take the simple path to wealth, when you take the simple path to mastering your money, all of a sudden what you feel like is you need to do something with your hands. You feel like you need to be doing something because you've automated everything all of a sudden and now it seems like you should be analyzing something to optimize your finances. You're not doing enough. And if you're a doer like I am, I take action and I run with it. And if you're a doer just like me, you feel like you need to be doing something. But guess what? A lot of times with your money, if you have the right system in place, doing less is more and analyzing more is actually going to hurt you. It's going to impact your bottom line and it's going to impact it in a negative way. If you are someone who just wants to make sure you're focusing on your career, but also building wealth in the background, having this machine compounding for you over time, then I promise you doing less is going to be more. So you set up a financial plan, you make sure that financial plan is running on autopilot and then you can go out and live your life. And this is the type of stuff that I think most people are going to really need to understand. And here's the thing is there's a huge cost to overthinking. And if you overthink too much, this could cause you to delay getting started investing. And there's a true cost to delaying getting started investing. And we call this opportunity cost. You were losing out on this opportunity cost because you did not get started on a $500 per month contribution at an 8% average rate of return. Just waiting 12 months costs nearly 75,000 to $100,000 over a 30 year horizon. And so you just waiting one year could cost you six figures if you are not careful. So analysis paralysis is really costing you dollars each and every single day you wait. So instead you, you need to make sure you're investing more dollars and you need to change the trajectory of your life by just getting started. Sometimes the smartest financial move is to set up a plan and to stop thinking. Let's jump into break and we'll be right back.

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So number two is smart people trust their own intellect over proven systems. This I see time and time again where high IQ people think they can outsmart the market. They think they can time a stock pick, or they think they can figure out a better way and they try to reinvent the wheel because they can build out this model or this system that can change the way you think about money. And the core idea behind this is called overconfidence bias. It's one of the most replicated findings in behavioral economics. And this is one of those areas where the research consistently shows that the more intelligent and educated someone is, the more confident they are in their own judgment, even when that confidence is not warranted. And a lot of us have probably felt this before. Maybe you are really good in one area of life. Maybe, for example, you are really fit. And so you are someone out there who has been really fit for a long time. And all of a sudden you take up a new sport and you feel as though, oh, I'm going to be able to take over this sport. So let's use something like tennis, for example. And for your entire life you've been playing basketball or football, or you've been a good swimmer or something else. You're like, I'm going to start playing tennis because I can do this naturally. Well, tennis has a lot of technical skill. And so if you think you could walk in and start playing tennis, all of a sudden you realize, ooh, I'm getting my butt kicked because I have no idea what I'm doing. You were overconf. It was that overconfidence bias. Or maybe you're taking on a new role in a company and your old role is in a completely different department, but you absolutely crushed it in that department. And you take on this new role and this new job and you realize pretty quickly, oh, shoot, I was way overconfident because I was very good at my last and previous role. But this role is drastically different and is way more difficult. And so you could think about this in a number of different ways. But smart people become overconfident and this can be a detriment to your life. I want you to recognize that this happens. And because the more you recognize this, the less likely you will walk yourself into traps. And I think this is one of those things most people need to recognize. There's a book called Thinking Fast and Slow. It is a very, very good book if you have not read that book in the past. And it has this section called the Illusion of Skill. And the author spent years studying financial analysts and fund managers and found that year over year performance had virtually zero correlation, meaning the results were largely indistinguishable from luck. Yet they remained completely convinced that they had this edge. And I think this is a very interesting concept because they have these Ivy League graduates who are very intelligent in these high rise buildings in the middle of Wall street and they think they have this edge, but really it is almost exactly the same as luck. And so this intelligence trap is really important because a lot of intelligent people are really good at constructing these justifications of why they're reasoning is correct. And instead what they need to realize is finance, especially personal finance, is going to dramatically humble you if you have overconfidence bias. And I don't want any of you out there to get humbled. Instead I want you to understand that we need to make sure we are moving in the right direction. So here's some statistics that I want you to realize of why you would get humble. So The S&P 500 releases its report every single year and consistently, over a 15 year period, nearly 90% of actively managed funds underperform the benchmark index, meaning 90% of funds out there underperform the S&P 500. The people who just invest in the S&P 500 and do nothing are outperforming the folks who are doing all this work trying to beat the S&P 500. And of the 10% that do beat out the S&P 500, they are not the same year in and year out. Now, Dalbar has an annual quantitative analysis of investive behavior that they come out with every single year. And so for all you smart folks, you probably want to read these because this is going to be something where you feel as though you're doing something if you're reading some of this stuff. And they found that the average individual investor significantly underperforms the S&P 500. Not because they picked bad funds, but because they keep tinkering, moving money around and trying to be clever. They're trying to just keep moving money around instead of letting it ride and just letting it grow over time. In a study from UC Davis found that the more frequently that an individual traded, the worse their returns actually became. The most active traders underperformed the least active by nearly 7% annually. Now, if you don't understand how big that an impact 7% is, that is millions of dollars over a 30 year period depending on how much you're investing. And this is something you need to make sure that you understand. So there are specific behaviors where this really, really matters. And I want you to make sure that you recognize this and think through this. Number one is stock picking. Most people out there who think they can outsmart the market want to pick their own investments. They want to pick their own stocks. Listen, I'm guilty of this as well. I buy individual stocks. I buy them as a small percentage of my portfolio though, because I know I have the tendency to enjoy picking and investing in individual stocks. So it's less than 10% of my portfolio is me investing in these individual stocks. I make sure first I am taking care of my long term investments, which are my index funds, my ETFs, and then from there I will use a small portion of my portfolio to choose individual stocks. There is nothing wrong with that if you want to do this. But if you are using this as your primary way to invest, you need to understand what you are doing. Even Brian Feroldi, who has been on this show four different times and is a huge proponent of individual stock Investing, said 99% of investors should not be picking individual stocks as their primary components to investing. Number two is timing the market. I see this over and over again with people who are overconfident. They think they can time the market. They know when the market is gonna go down. They know when the market is gonna go up. They say to me all the time, I think I'm going to wait because the market is too high right now. You ask them what that means and they can't explain what that means because they just feel like it's way too hot. Number three is they ignore asset allocation rules, meaning the mix of stocks and bonds that you have in place. A lot of times they will ignore those rules and they will just invest in what they think is the best option during that specific time. Number four is they dismiss budgeting systems, just simple budgeting systems that you can put in place. The more simple it is, the more they dismiss it. And I think that is super interesting for a lot of folks out there where they feel as that they need to keep tinkering. They need to keep doing stuff in the spreadsheet. They need to make sure that everything is optimized and it's working correctly. That is not the way to do this and that is not the way to think about this. Number five is they over engineer their financial plan. Do not over engineer your plan. It really is as simple as spend less than you make, invest the difference and then stay out of debt. Those are the three things. If you do those three things, you will do very well with money. And then the other thing they do is they chase yield. They chase interest rates on something like a high yield savings account. They try to find a checking account with the optimal interest rate inside because they don't want to get 0% interest rate. They try to get the highest yield when it comes to investments in that specific given year. And that is a great thing to chase, obviously. But if you try to do that forever and you don't know what you're doing, you are just going to underperform the market. And like the studies show, most individual investors underperform the market by over 7% from those who just sit on their hands. Again. The Fidelity study at the beginning of the top of the show tells you everything. Their best investors were those who forgot about their accounts or those who passed away. That tells you everything right there. Keep investing consistently and sit on your hands. Stop trying to do things. Stop trying to tinker all the time. Instead, make sure you have a plan in place and go on from there. The irony about this is the systems are complicated. You can automate contributions to your tax advantage accounts, you can buy low cost diversified index funds. You can never try to time the market. And if you never try to time the market, you just consistently invest, you're gonna do so much better than everybody out there who is trying to time the market. You can increase your savings rate every time you get a raise. You can leave it all alone. And you will do better off than most people out there. They just don't realize. So please, if you are someone out there who is trusting your own intellect and you feel as though you can outperform the market because CNBC and the news is telling you, hey, you need to do this and you need to do that. Look at Jim Cramer is a great example. If you don't know who Jim Cramer is, he's the guy in mad money with the overalls. And Jim Cramer is someone who they call it the inverse Kramer effect where every single stock pick he has, everybody does the opposite and all of a sudden they outperform it. He is someone who's been on Wall street for decades now and underperforms the market consistently. Every single stock pick he has, they keep making fun of it because it's always wrong. Predictions don't help you in any way, shape or form. Number three is folks confuse earning power with financial intelligence. So this is something I see time and time again where maybe you are a doctor or a physician, maybe you own a business, maybe you're an attorney, maybe you're some sort of high earning professional and you feel as though because you're a high earning professional, you were also financially proficient. Income and being good with money are two very different things. Now earning an income means that you are most likely intelligent. And for the most part, if you're increasing your income over time or you have a very large income, you did some things to make sure that you got that income. Maybe you have a few degrees, maybe you built a business intelligently, maybe you did a bunch of other things. But this is the thing. Maybe you got a doctorate degree and you were earning an income based on that. But I want you to understand that this is not in any way shape or form correlated. You still get need to get the financial principles down. And this is the fundamental problem is people say to themselves, if I'm smart enough to earn this money, I'm smart enough to manage it without needing someone else. And because these are two completely different skill sets, this is what gets people in trouble. Now Thomas Stanley documented this in the book called the Millionaire Next Door. Longtime listeners know I talk about the Millionaire Next Door a lot. And the reason for that is because it shows the psychology behind how a lot of people think about money. And his research found that the majority of millionaires in America were not doctors. They were not lawyers or high powered executives. They were business owners, teachers and tradespeople. And I think this is the interesting component with this because they live below their means and they invested consistently. Meanwhile, high income professionals were chronically underrepresented in the wealthy population relative to how much money they made. And the numbers are actually stark. I'm going to go through some of these. So Stanley's research found that doctors, one of the highest earning professions, were amongst the worst at accumulating wealth relative to income, where they had this really high income. But they were not good at accumulating wealth because they just not did not understand that skill. And in reality, that skill is way more simple than what a doctor does day in and day out. A brain surgeon is doing some complicated stuff. And when it comes to building wealth, this is very simple in comparison. And a study of the National Endowment for Financial Education found that roughly 70% of lottery winners went broke after a few years. Because sudden income with a financial windfall does not mean you're going to be wealthy for the rest of your life. The reason why people go broke is they don't have that financial education. And that financial education will absolutely reap the benefits forever. Let me just ask you a question. If I told you that you went out and you spent 12 months to go out and get a financial education, and you devoted this year alone to making sure that you were on top of your money and for the rest of your life you would be able to accumulate millions of dollars. Would you go out and do that? That's what listening to this podcast is. That's what having a continued financial education is. And if you don't do those things, you are losing out on millions and millions of dollars. I want to make sure that you are thinking about this. Here's another stat. The NFL Players association has reported that 78% of NFL players face financial hardship within two years of retirement. That is one of the most sad statistics. And they are making strides to try to make sure they solve this problem. But it still has not worked as of yet. And they through this. So here is the clearest way to frame this Income is your flow, the amount of money that comes in. But you still have to know what to do with that income. And if you put that Income into poor places or you spend it, you will not be able to accumulate wealth, which is the amount of money that you have over time. And wealth is what gets you your freedom. It gets you your time back. It's the tool that you can use to do whatever you want in life. Here's what most high earners do with their extra money. And this is why they get themselves into trouble. They upgrade their house or they buy a second house because they have all this additional income. And so they feel as though they need to do that. They buy the car they deserve. Instead of understanding, hey, if I take these dollars and invest them, I can buy my freedom even faster. They start eating out more, they start doing all these additional things that help inflate their lifestyle. Now, there's nothing wrong with any of these. In fact, I want you to do this stuff more, but I also want you to make sure that you're taking care of your retirement and your investment. They hire out more help and they assume, and this is the big one, that their income will always be there. And so here's the traps that they follow in. Because those who have a high income, you can fall into these traps so much easier than those with lower income. Why? Because those with a lower income just don't have the extra income to go out and even try to do this. But if you have the money sitting there, it is very tempting to use those dollars towards some of these things. The big one is obviously lifestyle inflation. Lifestyle inflation is going to destroy your wealth building ability going forward. But I think some lifestyle inflation is actually healthy. So when you make more money, this is why we talk about the 5050 rule. Increasing the amount that you spend on things that you want by 50% and then saving the other 50% is going to be the best way to keep the balance. Use that extra 50% to upgrade your house if you want to, or buy the car if you want to, or go on more vacations, or spend more time with your hobbies and use the other 50% to grow your net worth. If you do this over the course of your lifetime, you will see a drastic difference. Two is the professional culture problem. Basically, this is like keeping up with the Joneses. A lot of folks out there, maybe you're a doctor, maybe you're attorney, you feel as though you need the nicer vehicle to serve clients. You feel as though as a physician, you know, all the other physicians in the parking lot are driving that brand new car. And so you need that brand new BMW as well to show you're on the same level as them. They buy the fancy house in the fancy neighborhood. You need to do the same thing because you worked hard to be a physician. And so you need to make sure you deserve these nicer things. But if you can forego a couple of those things early on and invest your dollars instead, you're going to plant the seeds that can grow to a massive, massive tree. And in fact, one of the big things for folks who have to go through a lot of schooling, specifically when it comes to physicians, is they have a delayed start problem. Meaning a lot of people, when they graduate from college, maybe they're at 22 or 23, they can start investing right away because they have it money, they're making money, and they can start investing their 401k or their Roth IRA. Whereas a lot of folks who are physicians or they have to go through a lot of schooling, they are delaying their start, which means they got to play catch up. You have to invest a lot more to play catch up when it comes to this. And so I want you to recognize that if you have a high income, this does not mean you have a high financial intelligence. You still have to build up your financial intelligence. Number four is they rationalize bad spending. So smart people are exceptionally good at justifying purchases. The $80,000 car is actually an investment so that I can make sure I serve as clients and they build a case to buy whatever they actually are trying to buy. And so there was actually research done on this. So a study published in the Journal of Personality and Social Psychology found that people with higher cognitive ability were no better at resisting emotional spending impulses, but they were significantly better at justifying them afterwards. And psychologist Jonathan Haidt describes the mind as an elephant and a rider, where the elephant is your emotional, instinctive self and the rider is your rational mind. The rider thinks you're steering, but when the elephant wants to go somewhere, the rider mostly just holds on and tells a story about why this direction was the plan all along. And research at Northwestern University found that the more intelligent a person was, the more elaborate and convincing their rationalization tended to be, making them harder to challenge, not easier. And so this is the thing that I think a lot of people do when it comes to their money is they rationalize their spending. They come up with a story, and they come up with a reason why they are doing this, saying, this was my plan all along and this is the reason why I do this. Listen, I do this all the time. I do this all the time when it comes to Spending money on certain things. But here are some of the most common rationalizations that people come up with. My car is an investment in my personal brand. I see this time and time again. This is not one that I personally fall for, but I've seen so many people rationalize this to themselves. But instead, a car is not part of your personal brand. It reduces in value at about 20% when you drive it off the lot. If it's a brand new car and it is not an investment, it is a purchase that you wanted to make and you're rationalizing it as something that you absolutely need. Number two, this is a big one. We're buying a house because real estate always goes up and renting is just throwing money away. This is one I have seen tons and tons of intelligent people state where it is absolutely not the case. It is absolutely not the way the world works. First, you need to run total cost of ownership. When you buy a house. You need to understand where your dollars are going. But number two is that real estate does not always go up. And we're seeing that right now in areas like Austin, Texas, for example, where real estate was really, really high. All of a sudden prices are coming down. And it's a very interesting concept that I think most people in this generation have not seen yet. But you gotta understand, as prices start to shift, it does not go up forever. Another one. This vacation is needed for my mental health and productivity. Sure, time off is absolutely needed. Rest is absolute. This $15,000 vacation may not be the actual answer to your problem. I need to look successful and attractive for my clients and for my partners. This is one. A lot of people will overspend on things that are vain in order for them to be able to justify some of these experiences or purchases. Here's what I see all the time. We live only once and you can't take it with you. Sure. And in fact, I think you should invest more in experiences and time with people that you love. But this is dangerous. As a daily financial philosophy, you need to make sure that you are intentional when you think about this in the way that you do this. And the big one. I work hard. I deserve this. I see people talk about this all the time. And you should reward yourself for working hard, but it also needs to be part of your financial plan. And I think that is a big, big one for most people. Because the I deserve it thing is what a lot of high earners will say. They say this because they worked really hard and they're making more money when in Reality, a lot of people out there are working hard and just because you were earning a higher income doesn't mean you always are going to deserve it. Now I want you to treat yourself, I want you to spend more on some of this stuff. But at the same time, if it's at the detriment to your financial future, we want to make sure that we are prioritiz our financial future before everything else. Number five is they underestimate lifestyle creep. So lifestyle creep, which is also lifestyle inflation, is the gradual increase in spending as your income increases. So you can think about this when you buy a house. So for example, maybe your household income is $80,000 per year. So you buy a starting home and when you buy that starter home, Maybe it's a 1200 square foot starter home, it's a three bedroom, two bath, and you are happy as a clam and that starting home. But then all of a sudden your household gets a couple of raises, maybe you get a couple of raises, maybe your spouse gets a couple of raises and now you're making more money and you have this extra money on hand. So you upgrade your house again all the way up to where your income is and you have this, this second house and maybe it's a 2,500 square foot house. You added a, a little over a thousand square feet to the house, another bedroom, another bathroom. And so you are happy as a clam in that house. But then all of a sudden you get some more raises, you get promoted, or your business is doing well. And so you upgrade your house again and you upgrade it all the way up to the level of your income. So you're spending as much as you're making. And so because of this, now you have this really big house, it's 4,000 square feet, it's got all these different rooms. You only are in five of the different rooms throughout time. You're only in the kitchen, your bedroom and the living room. But you got all these extra rooms just in case. And so this is something where we see time and time again with high earners, where they continuously just keep upgrading their lifestyle to the level of their income. And this is what lifestyle inflation is. Now I want you to note this. Right now, some lifestyle inflation is good, which is why we talk about taking that 50% and investing it towards your future. But some lifestyle inflation and over lifestyle inflation is what most people do, especially in the United States of America, most people are over inflating their lifestyle. And so when you do this, this can be a really, really big problem. In fact, psychologists call this the hedonic treadmill. Meaning you are just increasing the amount that you're spending over and over again and you are on this treadmill forever. People call this the rat race. You can hear this in rich dad, poor dad, he calls this the rat race, where you just continue to run the race, you continue to go deeper into debt, you continue to stay on his hamster wheel in order to feel like you're fulfilled. But instead, this is an empty way to think about your life. This is an empty way to think about money. This is an empty way to live your entire life. Instead, you need to make sure that you are investing a portion of your income every single month. The most common areas for this is housing is number one, most people will upgrade their house or they'll rent a nicer apartment or they'll continue to keep upgrading every time they make more money. Cars are a huge one for this. This is why when you drive through middle class neighborhoods and you see two very fancy cars in the driveway, you know that those people are on that hamster wheel. They are running that rat race because they have two fancy cars in the middle class neighborhood. Not always, but almost 100% of the time that is what's happening. Three is food. A lot of people will start to eat out more or they'll buy more in groceries. And this is one we see over and over again. Four is travel. Travel is one where people will keep upgrading the luxury of their travel every single time they make more money. Five is kids activities. And for those of you out there who have kids, you know how expensive it is to do all these different kids activities. And so this is one we see time and time again and then subscriptions and services. So things that are going to make your life more convenient or subscriptions or things that we've seen as lifestyle inflation increase more and more. Now listen, some of this is good. I want you to be able to spend more on all of these things. But making sure that you take care of retirement is a big, big piece of that. Oh, and one big other one for high earners is clothing. So designer brands, things like that. Those are areas where I see a lot of this happening. Now this can be catastrophic if you increase in all these areas, but you don't take care of your retirement because as your income increases, this can be an area where you get really trapped. And if you don't have anything saved or you don't have anything invested for your future, you can be on this treadmill forever. You're working your butt off. But do you really want to work your butt off for the rest of your life? That is the big question. And so you need to make sure that you have this golden rule of raises. You need to make sure that you have a rule in place that every single time you get a raise, you decide how much you're going to allocate. For some people, we tell you to start that 5050 rule. For some of you, maybe you want to save 70% for your future and 30% can be spent. Maybe you want to spend 90% on your future and 10% is going to be saved. But we tell you to start at 5050 just so you can feel it out and see exactly where you want to land. Let's jump to break and we'll be right back.

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[Andrew - Personal Finance Podcast Host]

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[Andrew - Personal Finance Podcast Host]

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[Andrew - Personal Finance Podcast Host]

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[Andrew - Personal Finance Podcast Host]

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[Andrew - Personal Finance Podcast Host]

What if this doesn't work?

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[Andrew - Personal Finance Podcast Host]

so number six is they are impatient with the boring fundamentals. Whether it's budgeting, it's automating your savings, or just doing the boring stuff, a lot of high earners just get impatient with this. They feel as though it's not enough or they feel as though this is what everyone else is doing. So it can't be the optimal route to take. But the research shows that this is actually the approach that you need to make sure that you are taking in order to get ahead with your money. There's a famous study that was done that introduced the Save More Tomorrow program, a system where employees automatically increase their savings rate with every single raise. And participants who used it more than tripled their savings rate over four years just by automatically slightly increasing their savings rate every single time they got raises without ever actively having to think about. And the boring automation beat active management decisively. Now here's the thing about this is because they were just saving a portion automatically, they didn't have to think about it. They never got to see those dollars and they didn't have to make the decision. This is what allowed them to outperform dramatically. And research from Vanguard found that investor behavior, specifically sticking to a simple plan without tinkering accounted for roughly 3% of additional annual returns compared to investors who actively manage their portfolios. They called it Advisors Alpha, but it applies equally to self discipline. And 3% annually compounded over 30 years is a difference between comfortable retirement and generational wealth. And I want you to really make sure that you understand this because that 3% is a drastic differential for you. And you really need to note this. Another study found that cognitive load which is the mental effort required to make decisions significantly depletes willpower and follow through. And complex financial systems that require constant attention and active decisions fail, not because they're wrong, but because they're exhausting. We only have so much brain power to use when it comes to cognitive load. And I want you to focus on your income increasing with that brain power, not on all these different complex financial decisions. And so smart people avoid the basics because a number of different reasons. Number one is their ego is threatened. Your ego is threatened every single time that you try to avoid the basics because the basics are really the way to build wealth. The basics are the real way that you get rich and most people just will not take that on. Two is novelty seeking, where high intelligence individuals tend to score higher on novelty seeking traits, where the brain gets a dopamine hit from new information, they enjoy that new information, they feel as though they need to use this and they need to take action on it. In addition, there's the complexity bias, meaning a lot of smart people have a documented tendency to trust complex solutions over the simple ones. If you're someone who feels as though you are of high intelligence, I need you to recognize this is that you are going to always think that the more complex situation is actually the better situation. And they delay gratification in the wrong direction. So high achievers are usually very good at delaying gratifications in their career. They're really good at making sure because there's a clear path ahead. They can see what's ahead of them because they grind through school, they put in the hours that they need to do, they make sure that they are putting in the time for the long term goal. But when it comes to financial fundamentals, they want it to happen now. And so they try to skip the specific fundamentals that really help you build wealth. The tracking, spending, the building that fully funded emergency fund, paying off high interest debt before you get the ball rolling. When it comes to investing, reviewing insurance coverage annually, just making the money moves that we talk about all the time in this podcast. Those are the types of things that they ignore because it's really important. We're even doing things like making sure you protect your finances online. We see this time and time again where smart people are like, nah, that's never going to happen to me. And I'm telling you right now that if you do not protect your finances online, it is going to be one of the most important things that you do. But I'm telling you right now, if you don't protect your finances online, it is going to be one of the most important things that you miss. And especially if you are someone out there who is making good money or you are smart and you are out there and you don't have your personal information remove online, this is one of the most important things that you can do because you are a target, and I want you to make sure that you do this. So there are data brokers out there who have your personal information. And if you Google your name or you Google your address in quotations, all of a sudden you're going to see all this information pop up. Well, you need to get that personal information removed from the Internet from those data brokers, because there are not many laws out there stopping them from giving your information to the highest bidder. And in the AI era, you need to avoid this as much as possible, because scams are getting better and better and better. And so to avoid these financial scams, you need to use a service like Deleteme. Now, Delete Me will remove your personal information from those data brokers. They will reach out and save you dozens and dozens and dozens of hours of time just by getting your personal information removed. I have been using Delete Me for a very long time. I got it from my family. And it is a very important component of a great financial plan. So making sure you have this protection plan and using Delete Me is imperative. If you want to get 20% off delete me, just go to JoinDeleteMe.com and you can get 20% off there. That's JoinDeleteMe.com Pfp20. All right, number seven is they are overconfident. So a lot of smart people tend to be overconfident when it comes to finance. They tend to be overconfident in their abilities, and they tend to be overconfident in what they think they know. And this is an area where there's a ton of research surrounding this that I want to go through. So the foundational research on overconfidence comes from a number of different cognitive biases. The studies consisted showed that when people were asked to make predictions and rate their confidence, their confidence levels dramatically exceeded their accuracy rates. Whereas all this is stating is they have found that a number of people who were overconfident in a specific area thought they could do something specific, and they weren't as accurate as they originally thought they would be. A landmark study done by James Monitor surveyed 300 professional fund managers and asked if they believed their performance was above average. 74% said yes, and statistically only 50% can be above average. So the overconfidence wasn't concentrated among the worst performers. It was spread out uniformly. And this is one of those things that we see time and time again. So what are some specific ways that people are overconfident when it comes to finances? Number one is concentrated stock positions. Now I see this time and time again with people who are bitcoin investors, maybe someone who is really interested in gold, were they overweight and they are overconfident in one specific asset class. I see this with real estate investors a lot. And they put way too much in one specific asset class instead of diversifying the way that they are investing their dollars. This, my friends, is an area where you need to recognize that you are overconfident in some of these positions if you are too heavily weighted in one specific area. Having a diversified portfolio is obviously proven long term to be the best route for most people to take. And so I want you to think through step by step, if you are over concentrated, how you're thinking about this. Number two is timing the market. A lot of people who are overconfident time the market and they think they know way more than everyone else. And so they tie a day trade or they try to time when the market is gonna go down or when it's gonna go up. And they use the phrase all the time the market is just too high right now. I'm gonna wait. If you ever say that, just know you have no idea what you're talking about because nobody has a crystal ball to know what is happening in the future. And so you cannot think that you know when the market is gonna go up or when the market is gonna go down. They also underestimate risk. Risk is one of those areas where if you're over concentrated or you're taking on too much risk, then you are putting yourself in a much more negative financial situation. And so you need to make sure that you avoid that. Number eight is they optimize for income instead of net worth. Now, a lot of people who don't have a financial education think that income is what makes you rich. It's not. Net worth is what makes you rich. In fact, net worth is your overall scorecard. This is where the biggest impact is going to be when it comes to building wealth. You need to make sure that you are tracking your net worth. So a study from the Federal Reserve's Survey of Consumer Finances consistently shows that income and net worth diverge dramatically among high earners and the top 20% earners hold a disproportionately small share of net worth relative to their income. This, if you are a high earner, is a huge problem. This we see time and time again. And research from wealth management firm Spectrum Group found that a significant portion of high income households, those earning 250,000 or more, had net worths that would be considered modest relative to their lifetime earnings. And I don't want this to happen to you because this is really just a behavioral problem. And so let's talk through some of these. First is if you chase the next raise, instead of increasing your savings rate, this is going to be the thing where if that next raise means that you're just going to go spend it, it is not worth your time and energy to go chase that. Number two is if you would neglect tax efficiency. A lot of people out there who are high earners don't understand their tax situation or they don't have someone in their corner who is helping them with their taxes. You need to make sure that you have someone who is a tax strategist who is helping you through this process. Number three is they ignore the expense side of the equation entirely. So in business, every smart operator knows that profit is revenue minus cost. But if you ignore the expense side of the equation and you overspend in your own lifestyle, you need to make sure that you're not doing that. They take on lifestyle debt like we've been talking about and they undervalue passive income streams. And all of these are really, really important. So the couple of things that you need to do is one, track your net worth. Two, track your savings rate. So your savings rate is a very important metric to understand when it comes to how much wealth you're actually building. 20% is the minimum. If you're a high earner, I really want you at 25 to 30%. And this is the area where you need to know exactly what that number is. If you don't know what that number is, start tracking it. Now you want to optimize, optimize in these specific areas, your net worth and your savings rate. Those two, you need to know exactly what it is so that you can take those dollars and put them towards long term investments. And then your passive income percentage can be another thing that you track. If you are a really high earner and you're investing in different passive income assets and you're investing in a bunch of different passive income, because really your savings rate is the most powerful variable, especially for you high earners, making sure that you get it into income producing assets. That's I really want you to do. Number nine is a lot of smart people are surrounded by high, other high income earners. So there are a lot of different studies. You may have heard of keeping up with the Joneses, where people are trying to keep up with their neighbors or trying to keep up with the people that are around them. So smart, intelligent people run into a lot of different comparison pressures. So number one is neighborhood selection. So when income rises, people move into neighborhoods where their peers live. And when you move into these fancy neighborhoods, maybe some folks have a high disposable income and so they spend a lot in different areas and you feel as though you need to keep up with them. Where maybe you go to a private school, well, that is going to be a lot more high earners in that private school. And they are going to have fancier cars, they're going to have the fancier houses, they're going to be spending more there. Professional social events, if you're a physician or an attorney and you go to those social events, you will see the restaurants your colleague suggests, the golf courses they choose, the conferences they attend. All of these can be a lot more expensive. There's the vacation comparison. Maybe your friend just went to Barbados and you feel as though you need to go on a fancy vacation with your family instead of just going up to your mom and dad's house up in Georgia. That is something where you need to recognize. And then there's the home renovation pressure. For the most part, home renovations are areas where you don't get that back. And so because of this, you need to recognize that that pressure is going to be part of the keeping up with the Joneses that you want to avoid as much as possible. And the number 10, the last one is they use complexity as a defense mechanism. So personal finance is actually not that complicated. And when you can figure out the simple steps that you need in order to make sure that you get ahead, it really is this. It is spend less than you make, invest the difference and avoid debt. If you do those three things, you will be way further ahead than everyone else. But instead, a lot of people are self handicapping themselves. They are taking on more significant complexity than they need to. They're listening to advisors who are telling them to do all these complex things. They're listening to CPAs were telling them to do all these complex things. But instead, in reality, there are simple steps that you can take in order to get ahead with your finances. And if you fall into the trap and I need to understand everything before I invest, or my financial situation is too unique for just standard advice, or I'm building a comprehensive financial plan. If you are using words like that to make sure that you are taking the right steps towards your financial situation, then you need to recognize that and simplify, simplify, simplify, simplify. So for every single one of you out there who's trying to overcomplicate your situation, I want you to try to find the simplest path first and write down exactly what you're trying to do and then delete everything that you can that really is not necessary. And that's the way to find the simple path to will. That is the way to get there without having to overthink. And so These are the 10 reasons that smart people are bad with money. Money. And if you are someone out there who is continuously doing this, continuously thinking that you can outsmart the market, continuously thinking that you are too good to do the basics, then I highly encourage you to reevaluate your thinking and get started today. Taking action today instead of overanalyzing is going to be the most impactful thing you do with your entire life. Now, if you want the exact step by step system, the 25 step system that we have, we have something called Master Money Academy where we can help you reduce your stress and anxiety around money and give you the exact steps that you you need in order to think about building wealth. And so I highly encourage each and every single one of you to join Master Money Academy. For podcast listeners, we have a seven day free trial down below. And anytime you get stuck, you get to ask me live on the calls every single week. Listen, thank you so much for being here. We truly appreciate each and every single one of you and we will see you on the next episode.

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