“Most investors don’t actually write a check for their fees. They’re deducted from your fund or investment account automatically. When something is so out of sight, out of mind, you don’t pay rational attention to them in the same way you do, say, the price of a gallon of gasoline.
The result is that investment fees may be one of the largest – if not the largest – annual expenses for upper-middle-class households. A couple nearing retirement with $800,000 in mutual funds could easily pay 1% in fund fees, 1% to a financial advisor, and 0.5% in trading and other costs.
So, 2.5% in fees on $800,000 is $1,666 a month – an amount that is very real but for which the customer never actually sees or pays an actual bill. For perspective, the average mortgage payment in America is about $1,300 a month.”
Since fees are taken from investment accounts without sending investors a bill, most people have no clue how much they actually pay in fees each year. This default option of paying 2% + fees is a wealth killer.
What Can You Do?
Most default settings are suboptimal. Fortunately, with a few simple tweaks, you can improve upon them.
Investing: Analyze how much you’re paying in investment fees. Minimize them as much as possible. Personal Capital has the best Fee Analyzer tool I have come across:
Saving: Make sure your cash is in a savings account that pays close to 1.5% annual interest or higher. I personally use Ally Bank. Don’t let all your cash sit in an account earning zero interest.
Phone Bills: Search for cheaper phone plans. There’s no excuse for paying outrageous monthly bills to the default major players like Verizon or AT&T. I personally use TING and usually pay less than $25 per month. I have heard many finance bloggers recommend Republic Wireless as well.
Smartphone Addiction: I love smartphones as much as the next person, but they can be a real productivity killer. To make your phone less addicting, enable grayscale on your phone by going to Settings > General > Accessibility >Display Accommodations >Color Filters.
Seeing everything in black and white makes apps less addicting. I learned this hack from Tristan Harris, a former design ethicist at Google.
Health: Change the background of your laptop to a picture of nature. Studies show that seeing nature improves your mood. I learned this hack from The Nature Fix. In addition, if you’re someone who stares at a screen all day at work, change the background of your programs to darker colors. Your eyes will thank you.
Reading: When I used to come home in the evenings after work, my default behavior was to watch hours of YouTube. I recently blocked YouTube on my laptop. Now, when I’m bored, I pick up a book. It’s becoming my default choice. I still watch TV and waste time on the internet, but not nearly as much as I used to.
This article was republished with permission from Four Pillar Freedom.