Why Most People Fail at Personal Finance—And How to Avoid Their Mistakes

Personal finance is a lot like exercising and dieting. You know you should do it. But its time-intensive, and requires a lot of activation energy many times to do it....especially consistently for the long term (decades).

And then there is the fact that results show up slowly. The impact from the effort (weight loss, muscle gain, mental health) show up over months/years, not days.

It's why many under-achieve target fitness/diet goals. It wasn't blatantly ignored. Some work was done, but its typically far below what we would ideally be doing (or is recommended).

A lot of the same translates to personal finance. It's frequently been called "complex", "boring", "cumbersome" "time-consuming".....the list goes on. And for those reasons -- it's "put off to a future date," and you fall behind.

In conversations with hundreds of folks, I’ve found that there are primarily four key barriers to doing well in your personal finances: (1) Time; (2) Knowledge; (3) Interest; (4) Psychology.

• The good news: the path to success for most is straightforward (overcome the 4 barriers)

• The not so good news: overcoming them can be a challenge; even more so in complex cases

• More good news: For many, there is an "easy win" solution (hire help)

Blocker #1: Time (You’re Too Busy to Focus on It)

Between work, family, sleep, exercise, and hobbies, it's HARD to find time to manage your personal finances too. And what you need to stay on top of isnt typical a short list:

• Spending rate (and savings rate). Is your spending inline with your budget, such that your savings rate will get you to retirement long-term?

• Optimizing for taxes. Sometimes you dont have many choices when it comes to taxes, but many times you do. How do you pick (and implement) the right path

• Managing an investment portfolio. Is your portfolio taking the right amount of risk, diversified correctly, tax-managed, and more?

• Insurance and estate plans. I'm bored even writing the title for these, but they're still really important parts of your holistic risk plan

• Key life plans. Buying a home? Getting married? having kids? changing jobs? relocating? -- these are a double kick in the butt, as many of these require extra time to focus on, and yet also create scenarios where you need extra time allocation to finances to manage through them

Each of these takes time. And for most people, the reality is that time is already scarce. Even if you know exactly what to do, carving out the hours to actually execute everything properly is a major hurdle.

Blocker #2: Knowledge (You Don’t Know What You Don’t Know)

Even if you do have the time, you need the right knowledge to make informed decisions. And this is where a lot of people get stuck. Personal finance is more than just "saving more" and "investing wisely." It’s about knowing:

• When, and why to exercise stock options, or sell stock, without overpaying taxes

• What areas of your life do you want intentionally take risk (e.g. join a start up), and vice-versa (hold more cash as a hedge against startup risk)

• How should you build your investment portfolio, juggling expected cash outflows (buying a home), possible cash inflows (liquidity event), life changes (new child), existing high risk investments (company stock, angel investments) -- "off the shelf" doesn't really apply here

• How do your finances need to adjust when your life changes (family, relocation, job, liquidity event, etc.)

• Where are you self-sabotaging yourself, and how do you fix it?

If you don’t have the right knowledge, it’s not just that you’ll make mistakes—you also won’t know what you’re doing wrong. And even if you’re willing to learn, it can take years to truly master these concepts.

Blocker #3: Interest (You Know WHAT to Do… But You DONT Do It)

Some people have the time and the knowledge but still fail at personal finance because they just don’t care enough to take action.

And that’s completely normal. Personal finance can be tedious.....

Between tracking expenses, filing paperwork, balancing money across 7 accounts, and monitoring ever changing tax laws -- it’s easy to procrastinate. Even if someone knows they should be rebalancing their portfolio or adjusting their 401(k) contributions, the activation energy required to do it can be too high—so it just doesn’t get done.

And financial institutions don’t make it easy. Have you ever tried rolling over a 401(k) or optimizing your RSUs? There’s always paperwork, confusing steps, and delays—and that alone makes people put things off.

Blocker #4: Psychology (Your Own Mind Working Against You)

So you've got the big 3 -- time, the knowledge, and willingness -- but you're still failing? Sadly, your own psychology can still be your worst enemy. Some of the most common cognitive biases that derail financial success include:

• Overconfidence Bias: Do you love your company stock? Can't bring yourself to sell (even if you know you "should"). Or feel like its "about ready to takeoff?" I've heard that more than 100 times. The odds are against you; but it can be REALLY HARD to pull the trigger

• Loss Aversion: Fearing losses so much that you don’t take enough risk

• Analysis Paralysis: Overanalyzing every decision (and every possible outcome) such that you end up doing nothing at all....

• Fear of Regret: Instead of overanalyzing, you simply worry so much about making the wrong decision that you make/do nothing at all....

These psychological traps can cause people to make poor financial decisions—or avoid making any at all. And the more complex your financial situation is, the more these biases can creep in.

We Know How/Why We Fail --- Here's How to WIN

The good news? If one or more of the above blockers are holding you back, there are multiple solutions

OPTION 1: Fix Your Blockers

KNOWLEDGE

Depending on your starting point, this is typically the easiest of the 4 to solve. Do you work in tech/need help with some stock option items? Then our 30-40 Stock Comp Knowledge Base may be your best friend. Resources abound these days.

TIME

Time is the most precious resource many of us have; I don't have a magic wand here. But, what I've seen used successfully by more than a few people is "buying back your time." Depending on your situation, the ROI on your time for personal finances could be more than $500 a hour. Is everything else you are doing with your time that valuable? There may be some $50 a hour tasks you could outsource to find the time.

INTEREST

Best way to solve this I've seen is psychological hacks and gamification. Signing up for insurance, filing your taxes, or monitoring your budget is never going to be interesting to most. But how can you make it fun? Or reward yourself?

For example -- what if you gave yourself a $50 "buy anything I want" reward every time you did your monthly expense/spending/savings rate review?

PSYCHOLOGY

Solutions for this depend on the particular psychological issue. All are solvable, but hard to have specific solutions

OPTION 2: Work With a Financial Advisor

Yep, this 100% sounds like a shameless plug. But here's the thing.....

A good financial advisor can deliver a huge ROI. At 30-40 Wealth, we aim to provide at least a 2x ROI for clients (and many tell us its "way more than 5x").

When your life gets complicated, and the dollar values at play start to get large -- an expert can be exactly what you need to bridge the gaps (time, knowledge, interest, and psychology)

It's not inexpensive (few experts are). But if you're blocked by one of the 4 items above (and especially if its 2 or more) -- it can be one of the wisest money choices you make. And the ROI over the long term can be huge (by making consistently better financial choices).