9 ways you're unintentionally losing money

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Shifting your money mindset

There have been a few pivotal pieces I’ve read where my thoughts about money and behavior were changed dramatically.

One of the earliest was when I read the book Freakonomics sometime in my late 20s. This was my introduction to behavioral economics, and it turned my rational, analytical brain upside down.? It opened my eyes to the ways incentives and biases sway our everyday behavior in irrational ways – including my own behavior.?

Another was when I received my Behavioral Financial Advisor certification and learned about the alignment model.? The alignment model is a three-step process to ensure your core values, goals, and actions are in sync with one another.? It’s been transformational in how I help clients get the most life out of their own money and how I manage my own finances.? ???

The most recent came from a LinkedIn post from Brendan Frazier, host of the Human Side of Money podcast.? He said:

"Every dollar in your bank account will be used in one of two ways:? to live or to give."

That thought stuck with me for a good period of time, and I wanted to expound upon it.?

The “Live or Give” Matrix

Every dollar in your bank accounts will leave your possession either during your life or after.? You’ll either use it to buy or experience something during your lifetime or you will pass it on to your heirs or another beneficiary.?

How can you make the most of this living and giving??

Intentionality is the answer for me.?

If you plot intentionality with living and giving on a 2x2 matrix, it looks something like this –

Impulses:? Unintentional Living

Status symbols and purchases driven by smart marketing or mimetic desire

Alignment: Intentional Living

Spending that aligns with your values and brings you the most joy

Penalties: Unintentional Giving

Taxes, interest, fees

Altruism: Intentional Giving

Giving to charity or transferring wealth to family or friends

Penalties are costing you

Ideally you want to emphasize the intentional side of the matrix (alignment and altruism) and avoid the unintentional (impulses and penalties).

Out of all these quadrants, “penalties” are probably the most painful place to see your money go.?

You get very little to no benefit from using your dollars to pay things like fees, exorbitant interest, and taxes (in excess of what’s necessary).?

When it comes to golf, cutting the number of strokes you lose to penalties is something that separates professionals from average golfers.?

PGA Tour pros hit only about 1.3% of their tee shots into penalty situations on par-4 and par-5 holes.? Average golfers hit about 3.4% of their tee shots into penalty situations, which is over 2.5 times more frequently than pros.

And it’s not just the actual penalties.? Pros hit only 2.3% of tee shots into recovery situations (like having to chip out from trees).? Whereas average golfers hit 16% of tee shots into recovery situations, which is 7 times more often than pros.

Pros are significantly better at avoiding severe penalties and keeping the ball in play, which contributes to their lower scores.

Bottom line, penalties inflate your score, and they’ll also drain your bank account, which is why you should avoid them on the golf course and on your financial course.?

Here are some of the biggest areas you might be losing money and not even realize it.?

9 ways you’re unintentionally losing money

1/ You’re not paying taxes at the lowest rates

At the core of any tax planning strategy is a singular decision: pay taxes now or defer them into the future.? Our natural tendency is to avoid paying taxes altogether, but kicking the tax-can down the road can create trouble in the future.? This is why annual tax planning is a vital part of any financial plan.? ??

How do you know if you should be paying taxes now or deferring them?

This is where knowing your marginal rate comes into play.

Your marginal rate is the amount you are taxed on your last taxable dollar of income.

For example, in 2024 a married couple filing jointly with...

• $75,000 of taxable income has a marginal rate of 12%
• $150,000 of taxable income has a marginal rate of 22%
• $225,000 of taxable income has a marginal rate of 24%
• $350,000 of taxable income has a marginal rate of 32%

As a rule of thumb everything below the 24% marginal rate is a historically low rate, so if your taxable income falls into one of these brackets it may make sense to pay taxes right now.

2/ You think you’re getting a tax deduction, but you’re not

Thanks to the Tax Cuts and Jobs Act (TCJA), there’s a good chance that you think you’re getting a deduction for something when, in fact, you are not.? This is because you’re probably taking the standard deduction as opposed to itemizing.?

The TCJA, passed in 2017, doubled the standard deduction.? As a result, nearly 9 in 10 households now take the standard deduction as opposed to itemizing.?

Here are a few expenses that you may no longer be getting a tax break on:? ?

• Mortgage Interest
• Charitable Contributions
• Medical Expenses beyond a certain Adjusted Gross Income (AGI) threshold
• State and Local Taxes
• Casualty and Theft Losses

3/ You’re “phased out” of certain deductions

One thing to keep your eye on, especially if your income exceeds $200,000, is the phaseouts for specific deductions and credits.? Once your AGI crosses a certain threshold, you lose the opportunity to claim some deductions and receive valuable tax credits.?

If your income is north of $200,000, here’s a few deductions you might not be getting:

• Deductible IRA Contributions
• Student Loan Interest Deduction
• Child Tax Credit
• American Opportunity Credit
• Lifetime Learning Credit

4/ You’re not using a Health Savings Account for medical expenses

If you’re enrolled in a High Deductible Health Plan (HDHP), contributing to a Health Savings Accounts (HSAs) is a great way to save on taxes.? It allows you to use pre-tax contributions for medical expenses.

Health Savings Accounts are one of my favorite types of accounts because of their triple tax advantages:? pre-tax contributions, no tax on qualified withdrawals, and the potential for tax-free investment growth.?

5/ You’re not using all of your Flex Spending Account dollars

Flexible Spending Accounts (FSA) and Dependent Care Flexible Spending Accounts (DCFSA) are two tax-advantaged accounts that allow you to set aside pre-tax dollars to cover eligible medical expenses (in the case of an FSA) or eligible childcare expenses (in the case of a DCFSA.? However, they both contain “use-it-or-lose-it” provisions.? If you don’t spend all the money you defer from your paycheck in your allotted time you forfeit your dollars.?

6/ You’re carrying a balance on your credit card

In the building blocks of wealth, paying off high-interest credit card debt is a close second behind building an emergency savings account.? However, I can’t tell you how many smart people I see who have an emergency fund and choose to max out 401(k) contributions BEFORE paying off credit card debt.? This should be a no-brainer.? If you use a credit card, pay it off in full every month.?

7/ You’re picking the wrong health insurance

Costs associated with health insurance go beyond the premium you pay.? It’s important to understand these expenses to consider the total cost of care and not just the premium.?

Here are a few health insurance terms to know to assist you with that decision:

Deductibles: You may have an annual deductible to meet before the insurance company starts covering certain medical expenses. Once the deductible is met, the insurance plan covers a portion of the costs and you’re responsible for the remaining portion.

Copayment: Sometimes referred to as a “co-pay,” this is the upfront fee you pay at the time of services, such as doctor visits or for prescription medications.?

Coinsurance: After your deductible is met, coinsurance will kick in. This is a cost-sharing arrangement where you and the insurance company each pay a percentage of covered healthcare expenses. For example, with a 20% coinsurance, you’re responsible for 20% of the costs, and the insurer covers the remaining 80%.

Out-of-pocket maximum: This is the highest amount you’re required to pay for covered healthcare expenses in a specific insurance plan year. Once this limit is reached, the insurance company covers all eligible expenses, providing you with financial protection and limiting your financial responsibility for the rest of the year.

8/ You don’t have the proper estate plan documents in place

Everyone has an estate plan.? Some people have a last will and testament drawn up by a professional that specifies their last wishes and who should receive their assets after they pass.? Those who don’t are relying on the government to make those decisions for them.?

Who do you think is living on the intentional side of the matrix?? ??

9/ You’re paying too much for life insurance

There are two primary kinds of life insurance:?

Term life insurance covers you for a specific period of time (the term).? If you pass away during that term your beneficiaries will receive the death benefit associated with that policy.? When the term is up, that policy typically goes away.? ??

Permanent life insurance covers you for as long as you pay the premium.?

It might sound like permanent life insurance is a good deal, until you consider:

• Your need for life insurance will decrease as you age because you’ll accumulate assets to pass on to your beneficiaries in addition to the death benefit of the policy.
• Permanent life insurance premiums can run 2x-5x more expensive than term life insurance policies.?

More often than not, term life insurance is the right way to go.?

How full is your bucket?

I think of “intentionality” as filling up your bucket.?

The unintentional is the water that leaks out because of a hole or spills as you transport your bucket from place to place.?

Most of your money is staying in that intentional bucket (hopefully) but how much are you losing?

If you think it might be worth taking a closer look at your intentional to unintentional ratio, there are three ways I help people like you:

1.? Book an introductory call. Thirty minutes where you can ask me anything.? I'll do my best to be sure you leave with something of value to consider.

2.? Get a one-time financial plan.? Over the course of 90 days, we'll help you get financially organized and offer recommendations to achieve your financial goals.? You'll leave with answers to questions like:

• Am I saving enough for retirement?
• How can we pay less in taxes?
• Do we need life insurance?

3.? Get fee-only financial advice.? Hiring a financial advisor is a decision most people only make once in their lives - so we don't take it lightly.? We'll go through a three-step process to show you how we work with clients, and let you make the decision if it's a good fit for you or not.?

If you've never considered hiring an advisor before, this is a great way to see what comprehensive financial planning looks like.

Schedule a 30-minute call to get started today.