10 Financial Mistakes That Look Smart Until You’re Older

Transcript

On this episode of the Personal Finance Podcast, 10 financial mistakes that look smart until you're older

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 get into 10 financial mistakes that look smart until you're older. If you guys have any questions, make sure you join the Master Money newsletter by going to mastermoney.co/newsletter.

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They truly mean the world to me. Now, today, we're gonna be diving into 10 financial mistakes that look smart until you're older. And I think there's a lot of misconceptions out there when it comes to personal finance of some of the things that you should be doing with your money. Maybe your parents or your grandparents told you certain things that you should be doing with your money because they did them in the past, and they feel as though these are smart decisions that should move forward to further generations.

But times have changed, and a lot of things have shifted when it comes to personal finance. Some of these may be controversial. Some of these may not be as controversial to you. And so it's gonna be interesting to kind of see how those decisions will shift over time. Now, many of these decisions has what is called opportunity cost.

Now, if you've never heard of opportunity cost before, this is just what would happen if you invested those dollars in the market instead. That's my definition of what we are talking about here. Because over the course of 10, 20, or 30 years, those decisions can come with costs that you never, ever anticipated.

And so here's the central idea of this episode. A financial decision can make sense in the short term while quietly damaging your long-term wealth. And I think there's a lot of decisions out there that people don't realize when they make this specific decision, it could impact their long-term wealth building.

Now, this can be a number of different things. Whether you decide, "I'm gonna take on a larger house." Maybe you go from a 2,000 square foot house to a 3,500 square foot house. But by doing so, that means you have to work an additional five, seven, or ten years in order to make up the difference of the payment.

Maybe you're just damaging your long-term wealth or your flexibility or your health or your quality of life. And so in this episode, my goal is to show you the impact of some of your financial decisions, especially some of these that feel as though you're doing the right thing. It feels like you're taking the right steps towards building wealth, but it may not be the optimal thing for your specific situation.

So this is a fun one. I'm really excited to dive deeper, so without further ado, let's get into it. Number one is keeping too much money in cash because you don't want to lose it. Now, I get it for folks out there who have never invested before. Cash feels secure. Cash feels good. It feels good to have some cash on hand.

Your balance doesn't fluctuate up and down like stocks. If there's a recession that hits, your balance doesn't go down over time. You can access that money whenever you want, and you can even earn a little bit of interest in something like a high-yield savings account. Cash makes you feel secure, and guess what?

Cash is a good thing. Having an economic moat around your finances is a wonderful thing to have on hand. But for someone who is 30 years out from retirement and they have multiple years of cash on hand, boy, oh, boy, can that be detrimental to your long-term wealth building ability. Because in reality Cash is there to protect your financial situation.

What I mean by that is if there is an emergency, if you lose your job, you have cash on hand in order to take care of those situations. I cannot tell you how many times having cash in my emergency fund has absolutely saved my butt. This is the reason why we tell you to have at least, at a minimum, six months of expenses inside of your emergency fund.

No, it's not two months. No, it's not three months like all the other gurus tell you. You need at a minimum six months of expenses in your emergency fund. It is almost two thousand and twenty-seven, and when I tell you that less than six months is not enough money to cover expenses in today's day and age when everything is more expensive, I'm telling you right now, you must, and I mean must, have six months of expenses inside of an emergency fund.

There's no ifs, there's no ands, there's no buts about it. I want you to have six months on hand. I don't care if you make five hundred grand per year. I don't care if you make fifty grand per year. The im- most important thing is to make sure you have cash on hand to protect you against life. Life is coming at us fast, and if you haven't noticed, a lot of folks are losing jobs, the cost of housing is going up, the cost of groceries are going up, the cost of insurance is going up, and left and right, we are dealing with all these unexpected expenses.

And what I want you to realize is that cash is gonna protect you against that stuff. But again, you don't want to overemphasize cash. You don't want to have too much cash on hand, because then what you're doing is taking on a different risk. You are risking long-term opportunity costs. You are risking long-term growth so that you can feel cozy and snugly and secure.

No. Instead, we want you to make sure that you are getting those dollars working for you. So having six months of cash on hand or whatever your sleep well at night number is, it could be nine months, it could be twelve months, it could be eighteen months. I'm okay with some of these different scenarios, but having too much cash on hand just because it makes you feel warm and cuddly inside is not always the best option.

So we talk about your SWAN number, your sleep well at night number. Maybe you have a little bit more cash on hand than you feel comfortable with, and outside of that, I want you investing every extra dollar that comes in. Let me give you an example of this, okay? Let's say you had a hundred thousand dollars and you held that for th- over the course of thirty years.

And let's assume that there's a three percent inflation rate. On average, inflation over the course of the last couple of years has been three percent. Some years is way higher, like right after COVID. Some years is a little bit lower, two and a half to three percent, somewhere in that range. All right? So we're just using this as an example So today, your purchasing power, if you kept it in cash, would be $100,000.

Over the course of 10 years, that $100,000, if you kept that cash under your mattress like a drug dealer, would be worth $74,409 in purchasing power. In 20 years, it'd be almost cut in half at $55,368, and in 30 years, $41,199. So in reality, if cash earns no interest, the $100,000 over the course of 30 years would have the purchasing power of approximately $41,000 today.

So all my folks listening right now who keep their cash inside of a Chase Bank savings account or keep their cash inside of a Bank of America savings account, don't do that, please. Put it in a high-yield savings account so that you can get the ball rolling. If you want other options, you can do something like a T-bill ladder that allows you to keep cash in assets that are backed by the US government.

You can do a CD ladder, but do something that allows you to earn interest. The easiest by far is either a money market account or a high-yield savings account. My favorite high-yield savings accounts we will link down below in the show notes for you to be able to check out. All right, now, what if you took that $100,000 at a 7% rate of return and decided to invest those dollars instead?

So let's say you already had your six-month emergency fund in place, but you had an extra $100,000 that you were just saving in a savings account because it made you feel warm and fuzzy inside to keep that cash on hand. Well, $100,000 over the course of 30 years would turn into approximately $761,000 at a 7% rate of return.

Inflation-adjusted purchasing power at 3% inflation is approximately $314,000 in today's dollars. My friends, that is $661,000 that you are foregoing just because you wanted to feel a little bit better That is a lot of money, and that is why I want you to understand that cash is smart for things like emergency funds.

Cash is smart for short-term goals, whether you want to buy a house or you want to buy a car, wonderful. Maybe you're saving for a wedding, a cash is perfect for that. Upcoming expenses, and even having a little bit of portfolio liquidity if you want to. Now, in our last episode, we talked about why you don't wanna just sit in cash all day.

So if you haven't heard that episode, make sure you check that episode out because we tell you exactly why this is important. But when does cash become a mistake? Well, if you are holding money intended for long-term growth in cash indefinitely because you're afraid of volatility. If you're scared of the market, or you're scared of the real estate game, or you're scared of whatever else your flavor is to invest in, that's when it becomes a mistake.

That's when it becomes a problem. And I just showed you the example that it can cost you hundreds of thousands, if not millions of dollars, depending on how much cash you are holding on hand. And I don't want that for anybody listening to this podcast. As a wealth builder, we need to get our dollars working.

We need to get our money moving. Our money needs a little bit of motion. You know what I'm saying? So it's really important that we make sure that we give that money motion. Hey, what's wrong with a guy with motion, huh? That's what we need to make sure we are doing, is getting our dollars going so that we can ensure we're growing our wealth over time.

All right, number two is paying off a low interest mortgage as fast as you possibly can Being debt-free is an excellent financial goal. In fact, Proverbs says, "The borrower is a slave to the lender." I think it's important that we make sure that we are managing our debt and getting debt-free over the course of a few decades or so.

It's important to be debt-free at certain points in life. And in fact, it is one of my most prized things that I love to do, is make sure that I don't go back into debt. I think it's super, super important for a lot of people. But aggressively paying off a low interest mortgage can have a substantial opportunity cost.

So all my friends out there who bought houses during the COVID period where interest rates were really low, maybe about a two and a half, two point seven five percent mortgage, maybe you have a three or a three and a half percent mortgage, maybe you have a four percent mortgage. Aggressively paying down that mortgage when that money is super cheap is not always the best financial decision and can impact your long-term wealth building ability or your ability to be able to retire faster.

And so what I want you to do is think about how this can impact your money long term. Let's use the hundred thousand dollar example again. I like using hundred thousand dollar examples 'cause it's a nice, easy round number for people to understand. Someone has a mortgage with a fixed three percent interest rate.

All right, they can either put the one hundred thousand dollars towards the mortgage or invest one hundred thousand for the long term. A hundred thousand dollars with a three percent return over tw- over twenty years will be a hundred and eighty thousand six hundred and eleven dollars. With a five percent return, it would be two hundred and sixty-five thousand three hundred and thirty dollars.

With a seven percent return, it'd be three hundred and eighty-six thousand nine hundred and sixty-eight dollars. And with a nine percent rate of return, it'd be five hundred and sixty thousand four hundred and forty-one dollars. So paying down the mortgage provides a relatively pre- predictable interest saving benefit, but investing provides uncertain returns that can carry risk.

Now, here's the thing I want you to understand, though, okay? Because when we think about this for a second, if you do pay off that mortgage faster, then sure, you're debt-free, and maybe you wanna take those extra mortgage payments and put them towards investing. I think that could work out in your favor.

In reality, the likelihood that that works out in your favor can be pretty high. But if you took that lump sum investing, and if you didn't hear last episode, we talked about the difference between lump sum investing versus dollar cost averaging in our cash episode, if you should hold money in cash. And it's important to understand that when we look at this, getting those dollars invested early and often over the course of a long period of time Is very important because there's a couple of hidden trade-offs by paying off a low-interest mortgage that you just need to consider.

First, money used to pay down principal becomes less with liquid, meaning you just sunk it into a house. If you look at the data of how much homes have grown over the course of the last thirty years, and you factor in all the maintenance costs, all the insurance costs, all the additional costs, it's like two and a half to three percent.

And so long term, you sunk money into something that is gonna save you that three percent and might increase very slowly over time. But you may also lose the opportunity to invest in things like tax advantaged accounts. Tax advantage accounts allow you liquidity to be able to have flexibility and have options, okay?

So a hundred thousand dollars at a ten percent rate of return means that that portfolio, let's just say that it produced ten percent rate of return, and you took that ten percent and put it into your mortgage. Well, that's one thing you could do, and you preserve that principle over time. You're paying down your mortgage a little bit faster.

That's one option you have. You have many other options available to you 'cause you could allow that money to compound over time instead of taking whatever the rate of return is of the previous year. And so there's a lot of great things that you can do there as well. But the mortgage interest rate, for the most part, if it is below that five percent range, could be significantly lower than the long-term investment return.

And so paying off a house doesn't provide money for retirement expenses. Here's the thing is I, I think people need to hear this more often. A house does not pay for your retirement expenses. You can't pull money from a house to live on. You can't pull money from a house in order to be able to buy food.

You can't go out and be able to buy, you know, electricity or anything else. Instead, money from a house stays in that property, and then you just don't have the mortgage payment. You're still gonna have the insurance payment. You're still gonna have the taxes. You're still gonna have the maintenance costs.

You're still gonna have all these different things. The costs do not end when you own a home. Now, some of you just wanna have a paid off house, and I get that. If that's you, more power to you. I am never gonna tell you don't pay off a house early if that's something you really want to do because you love the idea of it, you love debt freedom.

But the math tells me otherwise. The math tells me that you should be investing those dollars if you have a low interest rate. Now, if you got a high interest rate, what are the other things to consider? Is long term, you can refinance that mortgage. That means you're not locked into this mortgage forever.

Instead, you can decide to refinance and have the ability to be able to get yourself in a much better position. So I just want you to think about this as we begin going down this rabbit hole of thinking about paying off your mortgage early. Again, I've got friends who have paid off their mortgage early And been completely fine.

We have two examples that have been on this podcast. One is Andy Hill. If you haven't heard that episode, we talked to Andy Hill about why he paid off his mortgage early, and two is Brennan Schlagbaum. We talked to him, who is also known as Budget Dog. He also paid off his mortgage early, and both of those two had very different reasons from just the financial reasons.

And so you can definitely still consider it, but it is not something I personally would do. Again, I have a 2.75% interest rate. It might be two and a half. I gotta go look again. Again, I have a really low interest rate on my mortgage, and this is something that I feel as though I would never, ever pay this off early, uh, just because of that.

I am debt-free everywhere else, but on my mortgage, I'm keeping it because my interest rate is so low. It's below 3%, and it's really, really important to me to just keep those dollars working in the market. All right, number three, and I feel like this is one of those examples that the baby boomer generation taught a lot of their children, is staying at the same job because it's stable.

So job stability can feel like financial security. And I've got friends like this who say, "Hey, I got a stable job. I'm not gonna change jobs because I'm at this point in time where I feel as though I'm stable." But they're not making enough money where they are living the lifestyle that they want. And so when you are at a stable job, A, you know your responsibilities.

You have a predictable paycheck. You understand the company. You've got this network inside of that company. You've established these relationships that you feel as though are valuable within your company, and changing jobs just feels like this risky thing. Listen, I know how that can feel because the longer you stay somewhere, the more established your roots become, the wider your net is cast within your network, and the more you know about that specific job, the easier it becomes over time.

But staying too long can limit your earning potential, and as many of you know, the number one thing I want you to focus on is the income side of your equation, growing your income, allowing that income to rise. Why? 'Cause that's gonna solve a lot of your money problems as long as you know how to manage that income once it comes in.

That's where we come in, is to help you through that and to teach you that. And so I want you to think about this for a second, okay? Let's think about two employees earning $80,000 per year. Employee A stays in the same position and receives 3% annual raises. Employee B makes career moves that result in 7% average annual income growth.

'Cause what you don't realize is when you are moving around and you get some big raises some year, you get small raises other years, when you average that out, you could have a significantly higher compounding rate of growth when it comes to your income, and I think it's really important that people realize this, all right?

So Employee A, who stayed at the same place, their starting salary was $80,000, and Employee B, who moved around, their starting salary was also $80,000. After five years, this is just five years, Employee A is gonna be making t- $92,742. You think, "Wow, yeah, they're making $12,700 more than when they started."

But Employee B is making $112,204 more. After 10 years, Employee A is making $107,513 and Employee B is making $157,372. And after 15 years, Employee A is making 124,000 and Employee B, this is b- so crazy, is making $220,723. Now, this is something that I think over a long career, the difference can be enormous.

Comfort is going to destroy your ability to earn more. Let me say that again for the people in the back. Just because you're comfortable doesn't mean you should stay, because comfort is gonna destroy your ability to earn more money And that should be hitting hard for some of you. That should be heavy for some of you.

And some of you should feel the weight of that because you've been at a job too long, and you know it. Deep down inside, you know you've been at that job too long, and they aren't giving you the raises that you're asking for. And if you've tried our system before where we talk through how to get a raise over the course of six months, and you say to yourself, "I've done this," and I know personally, I know it works.

We have had people become partners at their firm. We have had people get tens of thousands of dollars more every single year in raises by doing this, and I have people who have done this over and over again who have transformed their financial life by asking for a raise. But you gotta understand that if your job's not giving you more and they're giving you the standard two or three percent raise, then you are literally making the same exact amount inflation-adjusted as you did a couple of years ago.

And if inflation is seven percent one year and they give you a three percent raise, you just took a pay cut. Boy, oh boy, that is heavy stuff, and that's what I want you to realize. If it feels like you're getting squeezed more and more and more every single year, that potentially could be because your employer is not giving you raises that are rising at the same level of inflation.

And this, my friends, is why you can feel stretched in certain scenarios. This is why you can feel strapped. And so if that's the case for you, I'm here for you. I wanna help you in any way, shape, or form I can. If we can help you through this process, again, we have a free resource. If you go to mastermoney.co/resources, we have a free resource there that is literally the step-by-step guide, a free e-book that teaches you how to negotiate your salary.

Make sure you check that out. I wrote it years ago, and it's something that still people are using every single year. So why is this so important? Well, a higher income can, one, impact your retirement contributions. Think about your employer match for a second. If person A was making a hundred and twenty-four thousand dollars per year after fifteen years and person B is making two hundred and twenty, that alone is double the amount in the employer match.

So your retirement contributions change, your employee matching contributions change, your savings capacity should go up, your home affordability Is going to go up and your financial flexibility is going to be so much better. And you're saying, "Yeah, yeah, yeah, but when is staying smart?" Well, if you have strong career development and you have a really good reputation at your company, and you feel as though you're getting those raises, that's great because if you have competitive compensation, you're getting bonuses, you have meaningful benefits, you got a lot of time off that gives you flexibility to spend time with your family in a s- in a job that supports your desired lifestyle, awesome.

And if you feel secure in that job and you feel as though, hey, they can't lose me in this job, well, awesome. Obviously, at any point in time, you can still get fired if it's someone else's decision. But it's still one of those areas where if you feel strong, then that's great. But when it becomes a mistake is if you are staying slowly because change feels uncomfortable when your skills and earning potential are stagnant.

If that's the case, then my friends, on average, people who change job make about fifteen percent more. And so when you look at this, I really want you to consider changing jobs if you feel as though you haven't gotten a raise in a while Number four Is buying the most expensive house that you can afford.

So buying a home can be one of the best financial decisions you make. But buying the most expensive house a lender will approve you can create long-term financial problems. And in fact, if you have financial stress in your life or you have financial anxiety in your life, a lot of times I'm gonna redirect it to food, housing, transportation, or childcare.

Those are the four areas that I would be redirecting to and looking at this. One, you'd have larger mortgage payments. Two, you're gonna have higher property taxes. Three, you're gonna have more expensive insurance. Four, you're gonna have increased maintenance expenses, especially on a higher priced house.

Five, you're gonna have higher utility bills if the house is bigger. And six, you're gonna have more expensive renovations. Plus, you're gonna have less flexibility to change careers or reduce your working hours if you need to. Boy, oh boy, that's a lot of negatives. And so we wanna make sure that we are buying a house that we can actually afford.

Well, Andrew, what does it mean to buy a house I can actually afford? I am so glad you asked, because making sure that all of your housing costs are thirty percent or less of your income is gonna be the starting point that I want you to consider. Now, for me specifically, I actually like to keep it right around that twenty percent number if I can.

And so I always buy way less house than I can afford. But that's because I like to keep it within those parameters. If you're the type of person that wants to get the maximum value for what you can afford, then getting closer to that thirty percent is important. But again, when you buy the home, you gotta remember the maintenance costs, you gotta remember the other costs as well.

We have a total cost of ownership calculator you can check out at mastermoney.co/resources if you've ever run the numbers. But let's look at an example here. Let's say someone is looking at a five hundred thousand dollar home versus a seven hundred thousand dollar home. And in this example, I'm gonna assume a twenty percent down payment and a thirty-year fixed mortgage at six point five percent.

Well, with a five hundred thousand dollar home, you're gonna be putting a hundred thousand dollars down, where with the seven hundred and fifty thousand dollar home, you're gonna be putting a hundred and fifty thousand dollars down. The mortgage amount is four hundred thousand and six hundred thousand in this example.

And so the monthly principal and interest is going to be two thousand five hundred and twenty-eight versus three thousand seven hundred and ninety-two. Meaning that the annual principal and interest on the five hundred thousand dollar home is about thirty thousand three hundred and thirty-six dollars.

But the annual principal and interest on the seven hundred and fifty thousand dollar home, which doesn't sound like much more when you're like going through the home buying process, it's an extra fifteen thousand dollars per year. It's forty-five thousand five hundred and four dollars. And so the more expensive home requires an additional fifty thousand dollar payment, approximately one thousand two hundred and sixty-four dollars more per month in mortgage payments, and potentially thousands more in annual property taxes, insurance, and maintenance.

And so what if you decided instead you're going to invest the difference? At a hypothetical seven percent annual return over the course of thirty years, this can be something that is really impactful for a lot of people. Well, five hundred thousand dollars invested initially could grow to approximately three hundred and eighty-one thousand dollars and- $1,264 invested monthly could grow to approximately $1.54 million at a 7% rate of return.

Boy, oh boy, is this a big difference, because that means you are looking at close to $1.9 million in difference if you invested those dollars. That's your opportunity cost. It's a multi-million dollar opportunity cost just with a $250,000 housing cost differential. My friends, when we talk about this stuff, and we talk about the impact of your decisions, and we talk about how it's going to impact your long-term wealth building, you have multiple paths that you can take with all these different things, and what it comes down to is your values.

Because if you don't have those values in place, it's gonna be really important that you note what to do next. So I think literally thinking about everything in terms of opportunity cost is one of the most important things that you can do. That's why I hammer it home on this podcast so that you can see the difference of what your decisions will be if you invest those dollars versus if you use them for your lifestyle.

Now, before we get into the fifth one, I just wanna pause here for a second and say that there are reasons to spend more money, and if you enjoy that house, if you enjoy having the bigger house for your family, or in the nicer school district, or you like renovating that house, awesome. If you can afford it, fantastic.

But if you can't afford it, you can see the implications that we're dealing with here, where it can really cause you to get yourself in a sticky financial situation. All right, number five is buying everything based on the monthly payment. Broke people look at things based on the monthly payment. Wealthy people look at things based on total cost of ownership.

Now, buying things based on the monthly payment can feel responsible. For the financially uneducated, it can feel as though, "Okay, I'm gonna go out, and I'm gonna buy a car, and I'm gonna see if it fits within the payments that I can afford monthly." But in reality, that is the wrong way to look at this. You need to look at the out-the-door price and what the total amount is gonna be and what it's going to cost you based on the interest rate, based on the maintenance, all these other things.

So an example of this would be financing a car for 72 months instead of 84 months. Well, stretching out that loan is really impactful. In fact, here, we don't want you to have a car payment longer than 48 months. If it's longer than 48 months, you can't afford that car, and so that's a really big one. If you are buying furniture with installment payments, that's another one.

Stretching out loan terms to make purchases more affordable. Guys, that's a fool's errand. That's not prudent financial decisions. That's not something you should be doing is stretching out payments. And you may be saying to yourself, "Well, what if it's 0% interest? What if this, this, this, this?" And sure, if you have a really high income, and you are well above the level to be able to afford that 0% interest, in some scenarios, I would say okay.

But in most scenarios, I would likely say no, because most people should not be paying a 0% interest loan. Because if they get themselves into financial trouble, or they lose their job, and then all of a sudden that payment becomes due, it can balloon on you so incredibly fast. Or maybe you're choosing a more expensive vehicle because the monthly payment is manageable, or maybe you're accumulating multiple payments that individually seem small.

And I think that's what I see more often than not, is people will do a buy now, pay later here, they'll do an zero percent interest on their home remodel, they'll do a car payment here, and then a couple years down the line, maybe the spouse also gets a nice car payment, and it feels as though you can afford it in the moment.

But when you start to balloon all of these together, all of a sudden it's really becomes this weight on your chest, and you don't know where your money went at the end of every single month, and the reason for that is because you have too many payments. You have too many monthly payments that's causing this to happen.

And I care for you guys, I really do. I want you guys to be financially successful. You can hear the passion in my voice here. This is what I want for every single one of you. And the reality of this is that is if you do not control this, you can really get yourself in a s- really bad situation. Here's the flip side, and here's the good news, and here's what I want you to hear, is if you decide and make the choice today that you're not gonna get yourself in that situation, and I know there are different things that can happen in life, so I know everybody's got different circumstances, personal finance is personal.

But if you decide that you're going to be really strict and disciplined when it comes to taking on any debt whatsoever, all of a sudden you're gonna realize that your money is gonna begin to compound. It's gonna compound over a really good timeframe. And I think this is really important to note Here's some research to look at, okay?

So the Consumer Financial Protection Bureau compared financing a $20,000 vehicle at 4.75% over different terms. Okay? So let's say they did a loan term that was 36 months. The monthly payment would be $597, and the total amount in interest would be $1498. Over 48 months, the payment would be $458, a little lower, and the total interest would be $1,999.

Over 60 months, 375 bucks a month with $2,508 in interest. And over 72 months, the payment would be 320, and 3,024 would be the total interest. And so extending the loan over three years to six years lowers the monthly payment by $277, but more than doubles the total amount that you pay in interest. So optimizing for the monthly payment instead of the total cost of ownership can encourage people to buy more, and they can buy more expensive things.

And here's the psychology behind this, is I'm showing you this off one vehicle compared at $20,000, but all of a sudden you see that monthly payment get lowered and you say, "Oh, well, I don't need the Honda. I need the BMW." And so you increase the amount that you would have paid for that vehicle because you are deciding that instead, I would rather have the luxury vehicle because it still fits into my monthly payment model because I'm stretching out these payments long term.

And so instead of paying double the amount, now you're paying four, five, six times the amount of what you would originally paid in interest. That's what most people do. And you may be saying to yourself, "Well, I'm not gonna do that." I would beg to differ. I have looked at so many different financial situations in my life, and I can see when that's going to happen, and it happens a lot more than you would think.

So optimizing for the monthly payment instead of total cost can encourage people to buy more expensive things, and they can carry debt longer. But if you evaluate total price, ownership costs, and how the purchase affects your financial goals, and you feel as though you can still afford it, then more power to you.

I'm not gonna tell you no if you really value it. You still gotta value it, but I'm not gonna tell you no if you really, really value it. All right, number six is waiting until you make more money to start investing. Oh, this is a fun one, and I hear this a lot because someone thinks that I will start investing when I get promoted, or I will start investing when I make six figures.

I don't make six figures yet, so I know I'm gonna make six figures in the next couple of years. That's when I'll get started investing. Or I'll save more once my kids are a little bit older. Right now, you know, they got the club sports. They got a lot of birthday parties they gotta go to. We're paying for daycare.

We're paying for all these different things. So I'll begin to start saving after all this. It's gonna get a lot easier then. I won't have to worry about it as much when I don't have kids in the house. Or I'll start when the mortgage payment feels a little easier. Newsflash, it doesn't if you're locked in.

Or I'll catch up later when I have more disposable income. Waiting means losing out on years of compound growth. So let's look at a case study. You know your boy loves a little case study, and so today we're gonna be looking at this and assuming each investor contributes five hundred dollars per month until the age of sixty-five.

One investor is twenty-five, one is thirty-five, and one is forty-five. All right? At a seven percent annual return, let's look at how this compounds monthly. All right, if you start at age twenty-five, that means you're investing over the course of forty years, and so your total contributions are two hundred and forty thousand dollars, and your portfolio at sixty-five is one point three million.

Awesome job. Amazing stuff right there. You can withdraw a decent income off of that, pair in Social Security and other income sources, and you got yourself a decent retirement. But if you start at the age of thirty-five and you have thirty years invested, your total contributions would only be a hundred and eighty thousand dollars, but the amount of money that you would have would be less than half, six hundred and ten thousand dollars, just by waiting an entire decade

That's tough stuff. What if you start at the age of 45? You'd only be investing for 20 years. Your total contributions would be $120,000, and you would have $260,000. So someone who starts at age 25, same amount, would have $1.31 million, and someone who starts at age 45 would only have $260,000. The investor who starts at s- 25 contributes only $60,000 more than the investor who starts at 35, but their projected retirement portfolio is $700,000 larger.

And so starting early can matter way more than waiting until the optimal age to invest a large lump sum of money. And so all these are gonna be really important to note, because the earlier you can start, the better off you will be. Number seven is avoiding all financial risk because you want to be responsible.

So some people become so focused on avoiding losses that they also avoid opportunities to build wealth over the long run. And so some examples of this would be to keep your retirement money in cash over decades, or refusing to invest in stocks because the market crashed. I've seen this happen before, okay?

So 2007, 2008, a lot of people got burned within the stock market because they, they had their money invested, the market went down, and then they panicked, and they pulled their money out of the market when it went down. Well, you lose money when you sell. You lose money when you take your money out of the market.

But if they would've kept their dollars invested over the course of the next couple of years, it would've risen back to where it was, and then way beyond where they had their dollars invested. And so some people refuse to invest in stocks like that because of market crashes, because they got burned in the past, and so that's really important to note.

Avoiding career opportunities because they invoke uncertainty. We talked about that earlier. Refusing to start a business when the financial downside is manageable. Or maybe you know someone who is never negotiating compensation because it feels uncomfortable. If you avoid every visible risk, this can create less obvious risks, but there are risks involved when you avoid risk, meaning inflation, inadequate retirement savings, and lost earning potential, but the biggest one, again, is opportunity cost.

That's what all those things, all-encompassing, wrap up into opportunity cost. And so not taking risk in certain scenarios when it's a safe risk, when it's a historically proven risk, is a bigger risk in and of itself. People who sit in cash, they are taking the biggest risk of all. People who are buying different commodities or things like that, and they are just sitting on those commodities, they're taking a huge risk.

And so here's the key thing I want you to understand. The solution isn't to take unnecessary risks. It's to take appropriate, diversified risks that can match your time horizon and goals. And so taking risk is not a bad thing. It is one of the most important things that you can do because every investment out there is taking a little bit of risk.

You're taking some risk on hand. It's not like it's gonna go up forever. It's gonna dip. It's gonna go up and down, left and right, sideways, and so you just gotta deal with it But taking those risks is how you build wealth. And risking some money so that you can have financial freedom is one of the most important things that you can do with your money.

Number eight, saving every extra dollar for retirement while neglecting life today. This can look like you have extraordinary financial discipline. All my fire movement people, all my frugal weirdos, you know who you are. A lot of times you can do this, meaning you're maximizing every retirement account, you're investing every single cent of every single raise, you're avoiding family vacations, you're postponing some of the hobbies that you wanna take part in.

You're refusing to spend money on experiences because it's a little too expensive, even though you've got this multi-million dollar retirement portfolio, or you're working additional hours solely to save more. Here's the hidden mistake here, is that you can reach retirement with substantial wealth and then realize you sacrificed experiences that cannot be created.

You know, many folks when they go and they look and you research people on their deathbed, the number one regret they have is usually how they spent their time and how they spent their time with their family and their friends. And a lot of times when I speak to those folks, and I've spoken to a lot of them in the past, my grandmother was in a nursing home for years, a lot of times it really weighs on them.

It is one of the s- most heartbreaking things to talk to someone who has regret like that, because it's something you can't change, and it's something you can't get back. And if you're using money as a reason to not take these experiences when you have a finite amount of time to spend this time with your family, boy, oh boy, I think you're gonna regret that.

Maybe you don't think you're gonna regret that today, but at some point in time in your life, you're gonna regret it. I get to-- the privilege to spend a lot of time with my kids. I don't travel a ton for work anymore. I'm not gone all the time. I'm usually home for dinner. I see them in the morning. And so because of that, I am so grateful and so thankful for that time And many times, even though I get to spend all that time with them, I get to spend weekends with them all the time, and, you know, we do a lot of cool things.

And even though I get to spend all that time with them, I still sometimes just feel a little bit guilty for certain things. Maybe I didn't spend, you know, enough time with them one day, or maybe I didn't spend enough time playing with them. You know, they're still young. And it's one of those areas of life that I feel like we're all gonna feel some sort of regret at some point in time, obviously.

Life is not perfect. We're not going through a perfect path, and so you're gonna feel regrets. But how deep will those regrets cut is what you need to watch out for. And money should never get in the way of being able to do this. So let me give you an example. Someone who has already established that they're on track for retirement, if they consider redirecting one thousand dollars a month towards meaningful experiences at a hypothetical seven percent annual return over twenty years, additional retirement wealth from investing that one thousand dollars is approximately five hundred and twenty-one thousand dollars.

And the total spending they redirected over twenty-one years is two hundred and forty thousand dollars. That's a substantial trade-off, but those twenty years might include raising children, traveling with aging parents that you're never gonna be able to see again someday, developing these family milestones or important relationships that you want to develop deeper, or experience that become difficult with age.

Meaning, listen, you wanna take the ski trip in the Alps, or you wanna go and hike across Africa, or you wanna take the expedition down to Antarctica, or you wanna be able to do all of these fun, different things, you're not gonna be able to do that forever. You've gotta spend the money when you're younger, because when you're sixty, seventy, eighty, ninety, and your health span begins to decline, and many of you feel as though you're superheroes because you're younger, well, all of a sudden you can't do certain things anymore.

Spend the money on the experience. Come on. It's something that you wanna do. If that's something you wanna do, then that's completely fine. All right, number nine is choosing the cheapest option instead of the best long-term value. So being frugal is usually a good financial habit. I like when you're frugal.

I think it's good to be frugal. I think most people should consider being a little bit more frugal than they currently are. I used to be really frugal. Now I'm not frugal at all, and I feel as though, uh, Andrew, you should probably be a little more frugal than you used to be. But always choosing the lowest price can become more expensive.

So there's a number of different examples of this. I'm gonna give you the most recent example for me. My wife's vehicle, uh, was at 60,000 miles, and so it needed some new tires. Now, this is the vehicle that we drive our kids around for the majority of almost every single time. They rarely go into my truck because my truck's a little smaller than her SUV.

And so a lot of times we drive our kids around in this vehicle, and so I had a couple of options. I went and took it to the mechanic and they said, "Yeah, you need new tires, and there's three different options you have available to you. Number one is the cheapest option, and these are the tires that we put on our car.

You know, with this option you can get four new tires for 1,200 bucks." Option two was the middle tier where you could get four tires that last a little bit longer than the cheaper option that was a Chinese option. The cheaper option, you know, these would last a little longer and they have a little bit more, you know, safety ratings and tread power, and they'll stop a little faster in the rain.

Or there's the most expensive option, which is gonna be about $1,800 for all four, but these are gonna last you about 25,000 miles more, and they're gonna have way more stopping power, you know, in the rain or the cold or the sleet or whatever else you're kinda dealing with within the elements. And I went and did some research on the three tires and looked at the difference between all three.

The most expensive one was By far, in safety test ratings, significantly higher than the other two. You know what I did? I bought the most expensive one. It's gonna last longer and it's gonna be more safe. And so the price per mile that I paid was actually about the same as the Chinese tires that I was looking at, the, the cheapest option.

But they had a higher safety rating, they could stop a lot quicker, and there was a lot more benefits to them. And so I decided anything but... I decided this a long time ago. Anything between me and the ground, I'm gonna pay more for. Mattresses, like from Leesa Mattress, is a great one. Tires, huge one. Shoes, another big component.

I have been buying shoes for a long time and kinda buying different types. I finally paid up for a pair of shoes. They are significantly more comfortable. I feel better when wearing them. I mean, there's just things like that that are gonna matter. And so choosing the lowest price can sometimes become more expensive.

So if you buy things, here's a big one I changed on, is cheap appliances that frequently need replacing. I used to buy the cheaper appliances just because it was less expensive than buying the newer ones. But now, my goal is to buy higher quality, spend a little more so I don't have to keep replacing these appliances.

Or delaying routine home maintenance. I think that's one that if you are frugal or cheap and you delay that routine maintenance, it's gonna cost you way more in the long run. Skipping preventative vehicle maintenance, like getting those oil changes on time or making sure you're getting the tires changed or the brake pads or all the routine maintenance that you need to get done.

Or buying low-quality products that wear out quickly. Or avoiding necessary healthcare because of cost, or refusing to pay for tools or services that save you substantial time. I've seen people, for example, that decide they wanna fix certain things in their home, and they do it the wrong way and end up paying way more in the long run.

There's just so many examples of this over and over and over again that I think it's really important to understand the differences between all of this. And let's take an example of appliances, for example, okay? Let's say there's a cheap appliance that costs $500 or a higher quality appliance that costs $1,000, double the price, okay?

The lifespan of the cheap appliance is five years, but the higher quality appliance is 15 years. And purchases over 15 years is gonna be three for the cheap, and over the q- the higher quality, it's gonna be one over 15 years. In total, you're gonna spend $1,500 for cheap appliances or gonna spend $1,000 for the higher quality.

Plus the time it takes to go find it and get the coordination done and all that different stuff, all that stuff matters And so I think for many of us, looking into the buy it for life community, there's a great re- subreddit called BIFL, buy it for life, B-I-F-L, which shows you products that you can buy once, cry once, and not have to buy again.

There's a lot of things like toasters on there or microwaves, or what are things that can last a really, really long time? Example of this, like a hairdryer. There's stuff like that too that you can go buy. Shoes, clothes. What are things that really will last you longer? And I think buying more quality instead of quantity will give us a more organized life, it'll give us a less anxious life, reduce stress, and I think it could be helpful in the long run.

All right, last one, number 10. Assuming you have plenty of time to enjoy your money later. Now, this may be the most important mistake in this episode. Someone works hard, they save aggressively, and constantly delay experiences because they believe they will have more time later. I'll travel when I retire, or I'll spend more time with my family when work slows down, or I'll get serious about my health later on down the line, or I'll pursue my hobbies when I'm older.

These, my friends, can honestly just be one of those mistakes that can accumulate over time. Opportunities don't necessarily accumulate with this. And so what I want you to realize is that in two thousand and twenty-six, Fidelity did some research that estimates that a 65-year-old retiring in two thousand and twenty-six may need approximately a hundred and eighty-five thousand five hundred dollars in after-tax savings to cover healthcare expenses throughout retirement.

Now, the estimate also excludes certain costs like long-term care and dental coverage. And the point is that retirement is a bad time to enjoy life It's not a great time to enjoy life because your health declines, your energy declines, your relationships are gonna change, circumstances are gonna change.

And so if you are someone who is a 40-year-old who's, who's postponing a major family trip for 20 years to pri- prioritize retirement savings, at 60 you may have considerably more money, but your children will be adults, you as a parent will be much older, and the family circumstances could be completely different.

So the question is, are you postponing something because you genuinely can't afford it, or because you've developed a habit of putting off stuff until later? All right. So how do we avoid financial decisions you'll regret later? Before making a financial decision, ask yourself a couple of questions. What is the long-term cost?

Consider the next 10, 20, 30 years, not just today's payment. Two, what is the opportunity cost? What else could you do with that money or that time or the energy, and how could you put those into places that you truly value? Three, am I prioritizing safety or simply avoiding discomfort? The two aren't always the same, and you need to know the difference between them.

Does this decision increase or decrease my flexibility? Flexibility and financial independence are some of the things that you really wanna have in place. You always wanna have options available. Am I making this decision based on total cost or just the monthly payment? And am I investing in my future while also taking care of my present?

That's the big key I want you to have. The big takeaways of this episode are keeping too much money in cash can expose your long-term savings to inflation and growth, and paying off low interest debt aggressively isn't always mathematically the best use of additional money. Plus, job stability can be expensive if it prevents meaningful career and income growth.

And buying more house than you need can limit the ability to build wealth elsewhere. Affordable monthly payments don't necessarily mean it's an affordable purchase. It doesn't mean it fits into your budget. It doesn't mean it's what you should be doing. And waiting for a high income before you begin investing can cost you valuable compounding years.

Avoiding all financial risk can lead to major financial risks on its own. And saving for retirement shouldn't require sacrificing every meaningful experience today. You should have balance in your finances, and you should be able to balance your finances. Buying the cheapest option isn't always the best option, and financial success should provide freedom and opportunities, not just a larger account balance Listen, my goal with this episode is to bring you as much value as possible, and I hope we did that today because I want you to be successful with your money, and I also don't want you to have financial regrets down the line.

And so that's why we create episodes just like this, so that you can learn about opportunity cost, so that you can learn with this free content about a bunch of different ways that you can build generational wealth for you and your family. If you wanna go one step further, then consider joining Master Money Academy.

If you don't know what Master Money Academy is yet, this is a place where we have all of our courses. We teach you how to invest, we teach you how to build wealth, we teach you how to build generational wealth. And in addition to that, we have weekly coaching calls. So when you get stuck or you have questions, I am there live on those calls answering any of your questions that you may have.

We also have master classes and updated classes that are happening on a monthly basis, and it is a community of people who are all working towards building wealth. Also, if you make over $100,000 per year, we are offering one-on-one coaching to a select group of people. In fact, we are almost sold out of the initial first group.

Uh, so if you are interested in that, feel free to shoot me an email, andrew@mastermoney.co and we will get you more information on that. So listen, I truly appreciate each and every single one of you being here. Again, if you're getting value out of these episodes, share it with a family member or a friend.

Don't forget to leave a five-star rating and review, and I cannot thank you guys enough for being here. And also, if you do listen to the show regularly, make sure you're subscribed to the podcast. I would love, love, love for you to subscribe. It helps us spread this message to other folks so that they too can learn how to build wealth.

Again, thank you so much for being here. I truly appreciate each and every single one of you, and we will see you on the next episode.