We like to think we make rational decisions with our money. But time and again, we fall into predictable traps—especially when it comes to how we frame our finances.
One of the biggest culprits? Mental accounting. It’s a behavioural bias where we treat money differently depending on its source, use, or location—even though, on paper, a dollar is always worth a dollar.
Here are some of the most common (and costly) examples of mental accounting I’ve seen in financial planning conversations – and a few from my own life too.
“The carbon tax got cancelled—gas is cheaper!”
Sure, you might feel like you’re saving money at the pump now that the carbon tax is reduced or removed. But don’t forget—you’re also no longer receiving quarterly rebate payments (in Alberta, that’s $450 every three months for a family of four—$1,800 a year!).
That rebate was real cash. Now it’s just being offset at the gas station. If you only focus on what you’re “saving” when you fill up, you’re ignoring the full picture. That’s mental accounting.
“I owed thousands at tax time—what a rip-off!”
This is a common one. You get your tax return and discover a big balance owing. Maybe you didn’t have enough deducted at the source. It feels like you’re being punished, or that you paid more tax than usual.
But it’s not a penalty – it’s just a mismatch in timing. Whether you paid gradually through payroll deductions or in one lump sum in April, the result is the same. But emotionally? That lump-sum payment hurts.
“I use my RRIF withdrawal to top up my TFSA.”
This one sounds strategic: you take your required RRIF withdrawal and move it into your TFSA. The implication is that you’re being efficient—using retirement income to fund tax-free savings.
But here’s the truth: you could’ve used any money for the TFSA. From regular cash flow. From your savings account. There’s no need to withdraw your RRIF in January just so you can contribute to your TFSA right away.
It’s all one big bucket in retirement – what matters is total income, taxes, and where it makes the most sense to pull from at the time.
“We live off one spouse’s income—my RRSP is just sitting there.”
Here’s a great example where mental accounting leads to missed tax opportunities. One spouse is early retired, while the other is still working full-time. You’ve got a shared household budget, but you’re only spending from one paycheque.
Meanwhile, the early retiree has their own RRSP sitting idle—even though with no other income, they could withdraw at a very low tax rate.
It doesn’t matter which spouse’s money is being spent. What matters is using all your available tools to minimize lifetime tax—and in this case, drawing down the RRSP early is often a smart move.
“I’m buying the dip—stocks are on sale!”
This one gets a lot of attention on Reddit and Twitter. Stocks drop 10–20%, and investors get excited: “Time to buy the dip!”
But let’s say you have a $500,000 portfolio. A 10% drop means you just lost $50,000 on paper—and you’re now trying to “buy the dip” with an extra $5,000 or $10,000. That’s only 1–2% of your portfolio.
Yes, buying at lower prices is a good long-term habit. But let’s not pretend you’re going to turn the tide with a tiny top-up. It feels like a win, but it’s more of an emotional comfort than a portfolio-changing move.
“We live off one income and invest the other.”
This sounds like a smart budgeting tactic—and it is! But let’s not forget, money is fungible. Whether you earmark one spouse’s income for spending and the other’s for investing, or simply pool both and track your savings rate, the financial outcome is the same.
Don’t let these mental labels trick you into thinking you’re doing something extra special—focus on your total savings and investment contributions instead.
Bonus Examples:
- Tax refund = free money?
People often treat tax refunds as a windfall—a reason to splurge. But it’s just your money being returned after an interest-free loan to the government. If you wouldn’t blow $3,000 from your savings, why do it just because it came from your tax return? - Treating inheritance or bonuses differently than regular income
A $20,000 work bonus feels different than $20,000 from your salary—even though they’re taxed the same. Same with an inheritance. Mental accounting makes us more likely to spend money we see as “found” rather than earned. But again—it’s all part of the same financial picture.
Final Thoughts:
Mental accounting is sneaky. It helps us organize our finances, but it can also trick us into suboptimal decisions. The antidote? Think in terms of total resources, total taxes, and long-term goals—not just labels.
In retirement especially, it helps to blur the lines between accounts and buckets. Your TFSA, RRIF, non-registered accounts—they’re all tools, and the trick is using the right one at the right time for the best tax and income outcome.
