Why CPAs Are Terrible With Their Finances

As I write new posts, I do a lot of looking back to the past. I want to be able to pass along the mistakes I’ve made, so others do not make the same mistakes, and to share the things that have really put me ahead of the game.

As a kid fresh out of college, the people I looked to most for personal finance advice were my seniors at work. They were probably four or five years out of college, CPAs, and I thought they could enlighten me on getting ahead with my finances. This seems like a decent idea, but the problem was, the people I was taking advice from had car loans, overreached when purchasing a home, were day trading stocks, etc. I started to notice this when one of them was eating bologna sandwiches for lunch on the regular.

I was in my early 20’s and instead of saving up for an emergency fund, or accelerating my student loan payments, or contributing to an IRA, I was taking penny stock trading advice from my coworkers. I assumed that since they had their CPA, they would know about personal finance and personal income taxes. These are untrue assumptions based on a few reasons.

Number One – No personal finance education is taught in accounting classes

As I was getting my accounting degree, there was one class on tax and only a small part of the class was on personal income tax, and NO classes on personal finance. I did not encounter a class that involved personal finance until my masters program, and that class was an elective and therefore not required to graduate.

From what I recall, I’m almost positive that no personal finance knowledge was tested on the CPA exam. There are four tests which make up the exam, and only one part of one test was on personal income taxes.

Number Two – Accountants may become very specialized

Just like any career after years on the job, accountants find themselves in an niche, and perhaps specialize in one area of accounting. One year I had a question on qualified dividends and asked my buddy who is a tax accountant by trade, figuring he’d be able to help me out. Well it turns out he did corporate tax returns for one huge corporate client basically all year long, and had no idea about personal taxes and relied on TurboTax to do his 1040.

Number Three – “Financial adviser” internships in college are very deceiving

Some of my friends received “financial adviser” internships during college, some of which were accounting majors. What these jobs really were was a way for large insurance companies to peddle their high commission insurance products on the interns’ friends and families. From what I saw there was no actual advising going on, and this probably gave students and their friends a poor perception of what financial advisers really do or at least should be doing.

Number Four – Their bosses have very high incomes

This right off the bat leads to lifestyle inflation. When I started working I became very star struck by the partners in the firm I worked for. They made a ton of money, and some more senior partners at bigger firms push seven figure incomes. They all have summer homes, spouses that don’t work, and go on amazing vacations. One partner at the firm I worked for right out of college even raced Porches on the weekends (he owned the Porches).

This was very mesmerizing to a young 20-something professional. People start to think (myself included) “well if I’m going to be making hundreds of thousands of dollars in 15 years, why save now?” To try and keep up with their superiors, CPAs will start to stretch themselves financially. They’ll buy cars on credit, overreach for a home, and spend, spend, spend. Basically the “I’ll spend now and save later” mentality sets in.

Moral of the story is don’t go to your neighbor or coworker who has a CPA for personal finance advice, because unless they have been specifically trained, or they have taken time to personally research and teach themselves, you’re better off listening to strangers on the internet*. I know the strangers on the internet approach has definitely helped me the most.

Who did you take personal finance advice from right out of school? Has taking personal finance advice from strangers on the internet worked out for the better?

* – Just to be clear, take this with a grain of salt and consult professionals before you make any financial decision 🙂

42 thoughts on “Why CPAs Are Terrible With Their Finances

  1. Mark@BareBudgetGuy

    I’m not going to take this article personally 🙂 I can see your point of no personal finance courses being required for an accounting degree, but I still think the kind of person that it attracts is usually more inclined to personal finance and less intimidated by numbers. At least that was the case for me.
    Mark@BareBudgetGuy recently posted…My dad just retired earlyMy Profile

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    1. Fervent Finance Post author

      Did you not like my rash generalizations Mark? 🙂 You would think that accountants would be more inclined to take care and learn about their personal finances, but from what I’ve seen personally this is not the case. I think you and I are anomalies.

      Reply
  2. TheMoneyMine

    I knew a contracts manager that had never read a single contract for himself (like a lease or utilities contract) because it felts like work. Another friend working in supply chain and multi-million dollar contracts couldn’t manage his own finances. Since I’ve been working in IT, I’ve bought Apple products so I don’t have to bother with the maintenance.
    So yes I guess you’re right that sometimes what we do well for a living we might not do well for ourselves.
    TheMoneyMine recently posted…Sunshine Blogger AwardMy Profile

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    1. Fervent Finance Post author

      Great perspective! I bet this applies to a lot of professions. Someone pointed out on Twitter about doctors not taking care of their own health.

      Reply
  3. Mrs. Budgets @MrandMrsBudgets

    Luckily I started reading personal finance blogs right out of graduate school so I’ve never consulted with a “professional” for investing advice. We did have someone do our taxes last year, big mistake. He charged us $200 each (for my husband and I) and I had to correct him on a mistake he made on my own taxes (it was in regards to my student loan interest deduction). Needless to say we won’t be going back and I think I am more capable than the majority of CPA’s out there.
    Mrs. Budgets @MrandMrsBudgets recently posted…Upper Back Pain ReliefMy Profile

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    1. Fervent Finance Post author

      How much better is in-sourcing your finances than paying others??!! It’s great I tell you! I’ve thought about paying someone to do my taxes before (in a year I moved states) just for ease. But then I remembered that the way most firms are leveraged is they have a 23 year old preparing the returns, do a 10 second review, and ship them off. Better to save the money and exert a little time and effort and do myself.

      Reply
  4. Jeff @ The Lifestyle Accountant

    Just like how all CPAs don’t necessarily do taxes, they aren’t all good at managing their own finances. Unfortunately, they don’t teach you this in accounting classes and they certainly should. It wasn’t until my last semester in college that I voluntarily took a personal finance 101 class. A PF class should be mandatory for all college freshmen…no wait..all high schoolers.

    What most personal finance education I learned in school was way too mainstream in retrospect. It wasn’t until I read stuff from Mr. Money Mustache, Financial Samurai, ERE and other strangers on the internet that I really stepped up my PF game and threw the old school stuff out.

    Also, if you’ve seen the tv show American Greed on CNBC, you’ll notice how there’s clearly some really bad CPAs that commit fraud because they go into debt and mismanage their client’s money. Besides being unethical, they probably could have used some basic PF skills.
    Jeff @ The Lifestyle Accountant recently posted…July 2015 Net Worth & Cash Flow UpdateMy Profile

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    1. Fervent Finance Post author

      It seems we figured things out the same way. I had to wait until grad school for my personal finance class. I have seen American Greed, some of those stories are nuts! How do people think they can get away with that stuff? Balls of steel I guess.

      Reply
  5. Mr. SSC

    I had the great fortune of meeting Mrs. SSC right out of grad school, and she was great with finances and the like. Until then, I’d taken the approach that I was doing better than most of my family and friends at handling money, but it was still a pretty horrid personal finance situation. I found that the few times I had someone else do my taxes so I could get the immediate refund, I’ve had to correct them on a few things and go from owing money to getting the return I’d already calculated prior to going to their office.

    I found the best advice from strangers on the internet and the books they’ve recommended. Keep it up guys! 🙂
    Mr. SSC recently posted…The “About Series” rolls on!My Profile

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  6. Norm

    I can back that up. I have my bachelor’s in accounting, and there wasn’t any personal finance taught specifically. Although I did take some personal lessons from the finance classes I took, mainly one called Investment Analysis that was all about the business cycle, classes of investments, the different types of risk, etc. And I did run into a lot of people who were pretty much counting on earning tons of money later in life.

    I probably got my frugality life lessons from my parents. I learned the nuts and bolts of finance in school. And I got investment advice from my first boss out of college, an 80 year-old Italian woman who had been an accountant all her life. I can still hear in her accent, “Do you know what compound interest is? It’s the greatest thing in the world!” She also taught me about DRIP funds, keeping track of all your expenses (she’s the reason I started using Quicken) and also what File 13 is (the garbage can).

    The things I’ve learned from strangers on the internet basically is how to take all these lessons and use them as the foundation for a different type of lifestyle, and some of those nitty-gritty details about cutting expenses here and there.
    Norm recently posted…Building The Patio, Part 1: Garage DemolitionMy Profile

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    1. Fervent Finance Post author

      Wow seems like you had some great mentors. I learned DIY and frugality from some family members, but then I was left to figure out FI and compound interest on the interwebs.

      Reply
    1. Fervent Finance Post author

      I really want to institute a financial literacy requirement for senior year of high school. I’ll design the course, but someone else has to teach it. 🙂

      Reply
  7. Luke Fitzgerald @ FinanciallyFitz

    Yes, its quite ironic that CPA’s and even CFP’s are terrible money managers. For CPA’s, what people forget is that they (we) crunch numbers…for other people. Not ourselves 🙂

    I think “professionals” end up doing really dumb stuff in the name of sophistication. My favorite example: Home mortgages. “KEEP THEM!!! Because of the deduction!!!!” That will spice up a CPA’s life real quick.
    Luke Fitzgerald @ FinanciallyFitz recently posted…Tuesday’s Long Read! Plus, New Feature on FinanciallyFitz…My Profile

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    1. Fervent Finance Post author

      I read an article on Yahoo or CNN Money the other day about a woman who was a money couch, and basically her financially life was unraveling.

      Appearances are key. I guess I wouldn’t want an obese physical trainer, or a financial adviser that dressed like a slob.

      Reply
  8. Robert

    I’ve spent most of my career in a different professional field (management consulting) but see many of the same things you do. Perhaps less financial illiteracy than in the average workplace, but the same level of financial insanity.

    In my first year, one of the partners told me that first-year associates shouldn’t even *think* about saving any money. “You’ll be making so much in 10 years that it won’t even matter,” he said. Of course, in my opinion, this is batshit crazy: predicated upon working for decades and completely ignorant of rapid lifestyle inflation (and the power of compound interest).

    Reply
    1. Fervent Finance Post author

      Haha great story. That partner probably could have retired already if he started saving when he was fresh out of college.

      Reply
  9. Brian @DebtDiscipline

    I didn’t take advice from anyone. 🙁 That was part of the problem. When I finally started to seek a personal finance education the internet was the first place I hit. I did find a lot of valuable info and than more on to books.

    Reply
  10. InsiderAccountant

    I agree with what you’re saying – most financial advisers are total hypocrites, which is why I wrote the post below:

    http://insideraccountant.com/2015/03/21/is-your-financial-adviser-a-hypocrite-2/

    Many of my peers in our accounting firm are like this, and if they had decent money management skills they wouldn’t still be working. If my plan works out the way I hope, I will be retired before the current age of the next youngest partner, and I put most of that down to an interest in personal finance that has really ramped up since I started reading PF blogs from strangers on the Internet.

    Reply
    1. Fervent Finance Post author

      No stranger danger on the PF blogosphere! I think lifestyle inflation is the main killer for our coworkers’ finances.

      Reply
  11. Andrew@LivingRichCheaply

    I went to law school and I definitely saw lifestyle inflation among many of my classmates…even before graduation! Hey, we’re going to be lawyers and rich right? Wrong! Sadly, only some get the jobs at the white shoe law firms starting in the 6-figures (not that those are necessarily great jobs being that you work insane hours). Many learned that entry level salaries may be around $40k and with student loans and consumer debt, they are just getting by. I’ve always been frugal…that trait has been ingrained in me by my parents. And I also work in government so there seems to be less of the “keeping up with the Joneses” attitude compared to the corporate world.
    Andrew@LivingRichCheaply recently posted…Frugal Dating GuideMy Profile

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    1. Fervent Finance Post author

      Lifestyle inflation is a killer. I’ve actually found in the corporate world I have to pretend to keep up with the Joneses to a degree so that I’m not an outlier amongst my work peers. But little do they know I’m socking away a big portion of my pay 🙂

      Reply
    1. Fervent Finance Post author

      It’s sad that people care more about their client’s (who is a corporation) finances, than their own. I’m glad I learned mine take precedent 🙂

      Reply
    1. Fervent Finance Post author

      Ahhh you make a good point. You can usually sniff those out by pages with less pop-ups and email lists 🙂

      Reply
  12. DP @ Someday Extraordinary

    I think so much of it has to do with separating your ingrained habits from your professional life. I guarantee we’d all treat someone else’s money much different than we treat our own. “Do as I say, not as I do!” seems to fit here . . .

    Lifestyle inflation is huge. I wish I was mature enough in my early 20’s to fight off the temptation to make unnecessary purchases!
    DP @ Someday Extraordinary recently posted…The Opportunity Cost of Fantasy FootballMy Profile

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    1. Fervent Finance Post author

      Hindsight is 20/20, no use dwelling over what you could have done. Can just make the changes now, and see the fruits of our labor 🙂 Thanks for stopping by.

      Reply
  13. Mr. Enchumbao

    Great article. The best personal finance tips have come from books that I’ve read on my own and PF bloggers. Bloggers are people that walk the talk and the advice is genuine. For example, it’s hard to follow Get Out of Debt advice from someone that lives in debt.
    Also, I agree on the fact that CPA’s might not know any better than us about personal finance. I have a friend that is going for a CPA license and he has no clue about the tax loopholes available to us.
    And as far as personal finance, it’s not being taught in the school and I firmly believe that that’s mostly intentional. There’s a huge interest in keeping us dumb and working forever as big corporations profit from it.
    Mr. Enchumbao recently posted…The Self-Insurance Experiment: How Much Risk Can We Afford to Take?My Profile

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    1. Fervent Finance Post author

      It’s really sad that it’s not taught in school. So many less people (I would hope) would find themselves without enough for emergencies or retirement, or in CC debt. Maybe once I reach FI, I’ll be able to at least help out my local high school with this. Thanks for stopping by.

      Reply
  14. Keith

    First –I am a CPA, Second I hold a PH.D. in Accounting. Third, their was nothing in my education that led me to understand anything about investing — other that how to analyze a financial statement. I woke up one day and my little portofolio was down 50%. How could that happen? Well all te comments above are true– do you own analysis, form your own assumptions then model them… the truth will set you free..

    Reply
    1. Fervent Finance Post author

      I’m with you Keith – whenever I think I might not understand something, I research it to death because no one is going to care more about my money (or health, or education, etc.) than me.

      Reply
    1. Fervent Finance Post author

      Don’t get me started the financial advising community (as a whole). There are great advisers out there, but I hear too many stories of peddling insurance and annuity products that only benefit the seller, not the client looking for advice. I know there are great ones out there, but they must be hard to find.

      Reply
  15. John

    As a CPA I was naturally drawn to this post!

    As many have commented already, CPA’s aren’t required to take personal finance courses. Most accounting graduates (and CPA candidates) end up with jobs as an auditor, tax preparer or financial accountant. All of these positions look to the past to make sure transactions are posted properly (either on a financial statement or a tax return). Planning for the future isn’t really emphasized.

    As with all service providers (doctors, lawyers, CPA’s or financial advisers), I recommend interviewing them to understand their background, experience and philosophy. It’s a mistake to assume a CPA knows all things financial…..just as it would be assume a doctor understood all things medical!

    Great post – keep up the good work!

    John
    John recently posted…Learning from Investing MistakesMy Profile

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    1. Fervent Finance Post author

      CPAs UNITE! Thanks for stopping by John, it’s sad how many people are in tune with their client’s business finances, but not in tune with their own finances! People need to run their finances like they are the CFO of their life… too bad that’s not the case. I’m just happy I’ve figured this out 🙂

      Reply

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