Financial blind spots are those areas of your money management you never quite get to or financial tasks you might not even be aware of.
Even if your finances are on track, don’t get overconfident and assume you have everything under control, warned Melissa Joy, a certified financial planner (CFP) and president of Pearl Planning. “You might lean into things you understand, like asset allocations or managing fees,” Joy said. “But then you leave other things unaddressed and don’t get around to some very basic things.”
Learning about common financial blind spots and what to watch for can help you figure out how to cover your bases. Here are some common sources of financial blind spots and how to address each one.
- You don’t have to spend money to make money, but you can invest your time and money to generate future wealth.
- Consider whether money guidelines work for you, or whether another strategy is a better fit.
- Remember that your history with money has shaped how you think about personal finance.
- Now is the best time to start working toward financial goals, like saving for retirement or paying off debt.
You Don’t Have To ‘Spend Money To Make Money’
You’ve probably heard the saying “You need to spend money to make money.” Perhaps you’ve even heard it from a high school acquaintance trying to convince you to join their multi-level marketing team, or a marketer trying to sell you a professional development course. But proceed cautiously: It’s far too easy to default to spending money when you believe that every dollar you spend will result in more earnings later.
“Watch out for people who tell you that you have to or must do certain things in order to ensure one result,” said Kayla Walter, a CFP who focuses on helping single millennial women, in an email to The Balance.
There is some truth to the phrase if you shift it slightly: You have to offer up something of value to make money. “You have to be wise with the money that you earn so that it can make money for you,” Walter advised. Look for ways to invest your time, energy, and resources (including money) to create value that will generate future income and wealth.
Don’t Let Money Guidelines Rule Your Finances
General finance rules can give us a helpful starting point when we’re developing money management skills. But treating these guidelines like absolutes can also create financial blind spots if it means we miss out on other potential solutions and options.
Take tax refunds, for example. Many people think getting a tax refund is a bad thing, said Riley Adams, a CPA and founder of personal finance site Young and the Invested, in an email to The Balance.
“Sure, you lose access to the money and don’t earn anything on it while it sits in Uncle Sam’s accounts,” Adams said. “But what’s the alternative?” Getting that money in your pocket sooner as part of each paycheck doesn’t mean you’ll use it wisely. For many people, having taxes deducted from their paychecks is a form of forced saving, and getting a lump-sum tax refund could be more financially beneficial than receiving slightly larger paychecks throughout the year.
Ultimately, your money moves don’t always have to follow the “rules” or make sense to others—if it works for you, it works.
Don’t Compare Yourself to Others
“One of the biggest financial blind spots is constant comparison, especially with social media,” said Courtney LaCalamito, CPA and owner of financial website Your Average Dough, via email. It’s all too easy to get the idea that you’re the only person who’s not investing in cryptocurrencies, doesn’t own a home, or can’t afford an annual overseas vacation.
But be careful of such status-based comparisons. “This envy of others’ lifestyles can lead people to give up on their money goals or get into financial trouble because they want what other people have,” LaCalamito adds.
The impulse to compare can be used constructively when you look for money role models, Adams suggested. “People can become more aware of their financial weaknesses and blind spots by looking at the way other people live and then comparing this to their own situation,” he said.
You might feel jealous when you hear a friend has paid off their student loans or credit card debt, for example. But you could reframe this feeling and instead use your friend as inspiration for your own debt payoff journey. You could even ask them for tips on how they did it, so you can take advantage of some of their strategies.
Your History With Money Matters
A major source of financial blind spots is your own financial background and history, according to Walter. “A lot of people believe that money is something that is outside of us. But how we spend money actually has a lot to do with our psychology and the things we’ve learned subconsciously growing up,” she explained.
In fact, research suggests that the majority of our money behaviors and beliefs are set by the time we’re 7 years old. And we all have certain “money scripts” or default attitudes and beliefs about money. For example, if you grew up hearing your parents complain about never having enough money and suggesting life would be easier with more, you might have internalized a “money worship” script. As an adult, this script could make you feel like you’re never quite satisfied with your finances and believe that you’d be happier if you earned more money.
“How people spend their money now is a direct result of the environment that they were raised in and how they saw other people around them handling money,” Walter said. To understand your financial tendencies and blind spots, reflect on your upbringing and what it did—or didn’t—teach you about money.
You Can’t Expect Retirement To Fall Into Place
Retirement planning is a commonly procrastinated financial task, Joy said. “People know they’re behind, or not doing well enough, and that makes them freeze up,” she explained.
For example, consider that in one survey, 49% of women and 33% of men couldn’t estimate how much money they’d need in retirement. While Social Security benefits fund 27% of retirement costs on average, 20% of people say they don’t expect Social Security to exist when they retire. Shifting tax policies and health care costs can also make it feel impossible to adequately plan for your future needs.
“You don’t know what will come up in life,” Joy added. “There will be times when you’re dealing with adversities you couldn’t have expected.”
So how can you deal with that uncertainty? Look ahead to your retirement date and start to think about what you want your life to look like, how much you plan to spend, and how much you’ll need to save to support that lifestyle. Online retirement calculators and projection tools can be a helpful starting point.
Then, make a plan based on your current trajectory. “The process of financial planning is iterative,” Joy added, not a one-time thing. “You head in the right direction, manage your actions, and adjust course as you know more.” It’s important to create a flexible retirement plan and be ready to pivot as needed.
Right Now Is the Best Time To Work Toward Financial Goals
Finally, the timing of financial moves can be another blind spot. You can easily end up at either end of the timeline extremes: feeling pressured to check off all your money goals ASAP or endlessly procrastinating on starting to work toward them. Whether you’re rushing ahead or dragging your feet on your finances, both can create blind spots with your money.
Now is the best time to work toward financial goals. But instead of trying to tackle everything at once, pick just one goal and break it down into small weekly or daily actions. LaCalamito recommends researching some options for that goal, then experimenting to find an approach that works for you. “Since humans are all wired differently, what works for one person may not work for the next,” she said.
Whether it’s building an emergency fund, saving for a big goal, or paying down debt, the actions you take as you work toward a money goal will start to become habits. And as you upgrade your finances in one area, it naturally lays the groundwork for your next money move. “Just like there’s compounding power with interest, there’s compounding power in good financial decisions,” Joy said.