6 Financial Blindspots High Earners Don’t Realize Are Holding Them Back

Identifying and Addressing Common Financial Blind Spots for High Earners

In this episode of The Retire Early Retire Now podcast, host Hunter Kelly, a certified financial planner, discusses six common financial blind spots that high-income earners often face. Using a metaphor of a surgeon's pattern recognition, he explains how financial planning works and highlights the importance of coordinating financial actions to ensure a strong plan. The blind spots covered include confusing high income with a strong plan, overfunding retirement accounts, optimizing for taxes at the expense of life, focusing on net worth instead of flexibility, over-optimizing, and waiting for confidence before making changes. Hunter emphasizes the importance of having a clear plan, understanding trade-offs, and striving for flexibility to achieve financial goals and live a better life.

00:00 Welcome to The Retire Early Retire Now Podcast
01:30 Understanding Financial Blind Spots
02:10 Blind Spot #1: Confusing High Income with a Strong Plan
04:08 Blind Spot #2: Overfunding Retirement Accounts
06:43 Blind Spot #3: Optimizing for Taxes at the Expense of Life
07:57 Blind Spot #4: Focusing on Net Worth Instead of Optionality
10:56 Blind Spot #5: Over Optimizing and Analysis Paralysis
12:47 Blind Spot #6: Waiting for Confidence Before Making Changes
15:22 Bringing It All Together
16:12 Conclusion and Contact Information

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Transcript

0:00

And welcome back to The Retire Early Retire Now podcast. The podcast where we help high income earners, stop guessing, stop stressing, and start using money as a tool to live better now and in the future. If you're new here, I'm Hunter Kelly, certified financial planner and founder of Palm Valley Wealth Management. And I work with high income earning families who are doing a lot of things correct, but still feel unsure. And I wanna start today with a quick metaphor. I think it's a good way to kind of intro, this podcast episode. So imagine you are a surgeon and you have performed the same surgery thousands of thousands of times at some point. This isn't just technical skill, it's pattern recognition. You can see where things tend to go wrong. You've learned how small non-obvious issues can turn into bigger problems later, and most importantly, you've learned how to problem solve proactively and not reactively. Financial planning works exactly the same way. A lot of mistakes. High income earners make aren't always obvious because they're doing a lot of the things that they need to do correctly. They don't feel reckless. They don't show up as emergencies. These things show up quietly as stress rigidity, second guessing, and feeling that despite you're doing everything right, some things just still feel a little bit off. This episode is here to help you identify and work through those blind spots before they become real issues. These are six financial blind spots. I consistently see after hundreds of planning conversations, and if you recognize yourself in any of them, it's not a bad thing. It just means you're far enough along for nuance to really matter. So before we jump in, go ahead and leave a five star review on your favorite podcasting app. And if one of these blind spots resonates with maybe someone that you care about, share this with a friend that's helping this podcast grow tremendously. So I appreciate everyone that continues to listen and leave reviews and share as well. So let's jump into blind spot number one, confusing high income. With a strong plan, the first blind spot is assuming that a high income automatically means you're on track. This one is subtle. High earners are often rewarded for motion, right? You're earning more, you're saving more, you're investing more. But these things don't always mean they're going in the same direction. I see families with strong income, solid saving habits, multiple accounts that are consistently funded. But when I ask, what is each dollar supposed to do for you? They look at me with a blank stare. There's no clear answer. So money is scattered across retirement accounts, brokerage accounts, cash savings accounts, college savings, and all technically good, but not coordinated. Bet if you polled their closest friends and family that they have discussions about money with. All of their friends would say, Hey, they're doing great. They're probably, on the right track. But without knowing their nuance, without having that coordination, a strong plan isn't about doing everything. It's about doing the right thing in the right order for the right reasons. And so income gives you power and that plan gives that power direction. And so we talk about this all the time. You aren't just earning money to earn money. You're earning money to give you freedom, flexibility, doing all those things that you love to do with the people that you love to do it with. And so without direction, high income could potentially give you more anxiety, right? Because there's more at stake, there's more money at stake and there's more room to make a mistake. And we need to make sure that we're giving our money purpose, we're giving it a plan so we know which direction we are going. Blind spot number two, overfunding retirement accounts and underfunding flexibility. This one has to be the most common for high achievers or high earners. That are in their, let's call it forties, mid forties. And this is not an uncommon thing. I see discipline savers, have this blind spot all the time. Let me give you a real world example. A couple I met with, just recently. They're in their mid forties. They're both high income earners. They spent the last 10, 15, 20 years doing exactly what they were quote unquote supposed to do. They were worried about maxing out 4 0 1 Ks contributing to their Roths HSAs. Everything is technically dialed in on paper, right? Again, if you pulled their friends, their friends are probably saying, Hey, they do a great job. They're crushing it. But here's the issue. They started to notice when they came to me, their day to day, they feel tight. Their career decisions feel heavy, and lifestyle flexibility feels a little bit limited. Their particular situation, they want it to retire by 55. And so how do we do this if everything is locked up in our retirement accounts? So they're realizing. They can't easily slow down. They can't make decisions without consequences. IE potentially extra taxes from retirement accounts if they wanna retire early. So retirement accounts are incredibly. Yeah, awesome. Right? You get tax savings. you're able to defer taxes or not pay taxes later, depending on how you're putting those dollars in. But the flexibility lives outside of them, right? So you lose a lot of flexibility when you start contributing to retirement accounts. And this is not to say you shouldn't contribute to retirement accounts, but if you don't have that purpose, you don't have that plan, you may not see that. All of these dollars are going into retirement accounts when we could siphon a little bit off at a time to build, some flexibility outside of that. So this do blind spot isn't saving too much. It isn't, being irresponsible with what you're making. It's saving and silos. Without thinking about timing and access. We want to, again, have direction with our plan. Liquidity buys options, but options by Peace of mind. again, if you want flexibility, if you wanna be able to retire early, career change, slow down, whatever that may be. We have to give thought about how are we contributing to our long-term savings? Blind Spot number three, optimizing for taxes at the expense of life. High income earners are hyper aware of taxes because, as I say all the time, it's your biggest expense every year. So for good reason, they are worried about taxes. But I see people fall into a dangerous trap. they let the tax tail wag the life dog, right? they avoid spending, they delay experiences, they postpone meaningful upgrades, all in the name of tax efficiency. Here's the truth. The goal isn't to pay the least amount of taxes possible. It's to pay the right amount of taxes for the life that you're trying to build. So if you have capital gains, if you're trying to defer taxes for later. There is a finite trade off, a happy medium to maybe we do want to, or do need to pay taxes now in order to experience some of the things that we want to experience in life. So saving$5,000 in taxes while sacrificing time of family health or experiences You'll never get back. That's not optimization, that's misalignment. tax planning should support your life, not shrink it blind. Spot number four, focusing on net worth instead of optionality. And so there's a theme here, right? flexibility. And there's a, it's a really a theme throughout my entire podcast. I value flexibility. the couples and families that I work with. Value, flexibility, who wants to be trapped by a job or money or things of that nature. And so, again, focusing on net worth instead of optionality or flexibility. Can be a blind spot'cause it's easy to get caught up into, what my net worth is, right? net worth is an easy metric to anchor to. It's clean, it's simple, it's one number is measurable, but net worth alone doesn't really tell you much, right? it doesn't tell you how flexible you are. It doesn't, how, it doesn't tell you how resilient your plan would be. It doesn't tell you how easily you can change direction. This is where I see people get stuck. They're watching the number go up because their retirement accounts are going up. other parts of their, assets are going up, but they still feel constrained. This is why I prefer the three bucket strategy that I've talked about in other episodes. As a point of reference for optionality, this is going to give you. A lot more data or a lot more, insight to, Hey, how am I doing right? Am I reaching flexibility? Do I have optionality? Am I still meeting my retirement goals? Right? And so the three buckets, in a very high level. point of view would be your short term, your cash for things that you're going to achieve. here in the next six, to call it 18 months, your midterm bucket, which is usually that brokerage account, is for that flexibility, whether that's changing careers. planning for a longer term goal of maybe buying a house or a kid's college or whatever it may be. and then your long term is generally your retirement account's. Not always, it could still be a brokerage account depending on your situation. but you would have that more long term bucket and then. Once you see how those are filled up, you may notice that, hey, this middle bucket, this brokerage account, doesn't have much in it. If we wanted to switch careers or take a sabbatical or was out of work for some reason, for a second period of time, there's, there's no way. that we would make it right, we would've to start pulling out of retirement accounts or other means of, of funding our life for that short amount of time. And so this would be a better insight. The three bucket strategy would give you better insight to how flexible is my plan. So buckets tell you how your money can be used, not just how much you have. Two families with the same net worth can live very different lives depending on how their buckets are structured. So again, we're want, we're wanting optionality for those people that want optionality. The three bucket strategy is going to help you achieve that. So optionality is what wealth is supposed to buy. Blind spot number five, over optimizing an analysis by paralysis. One of my best friends is, is this person to at he's a high income earner. He's a very high performer of his job, which means he can often bring. Over optimizing into his finances. We joke about his spreadsheets all the time. anytime he buys something that is probably over like a hundred dollars, we ask him if it wants a perfect allocation in his investments. He wants a perfect tax strategy. He needs perfect timing, and what happens? Often analysis by paralysis. He delays decisions because of this. He second guesses himself. He's constantly asking me questions, constantly feeling like he's one mistake away from screwing it all up. But in reality, if he just had a good plan, which he does, he. Would consistently execute and have, a better mindset. And so I know people that are like him, that don't have a good plan, right? And I've, I've met many people like him that don't have a great plan. And so having a good plan execute it consistently beats that perfect plan, right? And so the key, the key here is to one, trust yourself, right? And we'll talk about that here in just a second, but two. Have some sort of plan with some sort of coordination and go implement that plan. Implementing executing a plan is better than having the perfect plan that you never do anything with, right? So optimization is helpful until it becomes fear in disguise. We wanna make sure, again, we are creating action with these plans, not just. Creating a plan and doing nothing with it. Blind. Spot number six. Waiting for confidence before making changes. This is a big one. This is probably the most underrated one. not necessarily always the most common, but definitely, makes a big difference. So a lot of people tell me, That once they feel more confident, then they'll make a change. But confidence doesn't first. But confidence doesn't come first. Clarity does. So having a good understanding of where you are can give you a little bit of confidence, to make the changes that you need to make, to give you more flexibility and freedom. So understanding your numbers like your, your net worth and your where, where that money is within. Your net worth, via the three bucket strategy, knowing your margin of error. How solid is my plan? How much, leeway do I have with that plan? And then seeing what your trade offs are. If you're making a big life decision that from a financial standpoint, what is the trade off of this, this decision? Something as silly as if I buy this truck, what is it gonna look like, in the future? What is the trade off of making this payment every month versus saving this payment every month or investing this payment every month? If I go, personally, my wife and I are. Going back and forth. We're not in a rush, but we know we potentially wanna move at some point, and have a different layout in our house and things of that nature. And so what is the trade off of just staying in our current house versus going to buy a house that maybe can fit our needs a little bit better? If from a financial standpoint, as it stands now, if we just stay in our house, we can do more things. We have more cash flow, more freedom. But if we go buy a more expensive house. We may lose some of that freedom. So is the loss of that freedom or cash flow or whatever that may be worth the, the new house and more entertaining space and all the other things that we want to have within that house, right? what are the trade-offs? Getting clarity in that. And this will give you confidence to help you make decisions or make changes in your financial world that will make your life better. So you don't necessarily need certainty, you need context. Again, what are the, where am I at numbers wise? What's my margin of error and what are the trade-offs when I make these decisions? So once you understand how much flexibility you actually have. Confidence comes naturally. If you have a bunch of flexibility, are you really gonna be worried? About, making some of these decisions? Maybe not. And so let's bring it all together. If any of these blind spots hit close to home, that's not failure. It just usually means you've progressed far enough that a simple rule of thumb does not. Apply any longer. Blind spots don't show up early. They show up once. Success has already in motion. Again, I work with a lot of successful people that are doing a lot of the right things. They just want more clarity, more confidence, a partnership, to make sure that they are. Putting all those things in the right direction to help meet their financial goals. The fix isn't blowing up your plan. It's refinement, it's alignment, it's intentionality. And if you want helping identify those blind spots in your own plan. That's exactly what I do at Palm Valley Wealth Management. And if this episode has helped you see something differently, I'd appreciate if you share it with a friend. Maybe le leave a quick review on your favorite podcasting app. You can always go to my website, palm valley wm.com, click on the Palm Valley pathway button and see how I work with clients. Schedule a 15 minute call with me. have a good conversation. Just had one yesterday with a couple that I really enjoy their conversation and, hopefully we will end up working with them. But, yeah, it's what I do here. I help people. Get clarity and move them in the right direction of their financial goals. So thank you for listening and I'll see you in the next one. This podcast is for educational purposes only. It's not meant to be financial or investment advice. Please do not make decisions solely based on this podcast alone. Please seek professional help when making those decisions.