Did you know that National Procrastination Week is actually a thing? It generally takes place in early March or whenever it’s most convenient for you. If you missed it this year, no worries. You can always get around to it later.
Procrastination is interesting. It’s a uniquely human trait and something we all engage in to varying degrees, despite the knowledge that we will likely be worse off for having done so. Nonetheless, putting off tasks that you find unpleasant, boring or stressful is generally harmless, as long as you get around to them later. It’s when procrastination becomes habitual that it can be problematic. Obligations, deadlines and opportunities that are missed on a regular basis can negatively impact your work, relationships, health and finances. The British actor and TV personality, Christopher Parker, may have said it best, “Procrastination is like a credit card: it’s a lot of fun until you get the bill.”
When it comes to your finances, that “bill” can be pretty high. That’s because procrastination can cost you time, money and opportunity. Let’s look at why.
The time value of money
The time value of money demonstrates that, all things being equal, money is more valuable to us in the present than in the future. For example, given the choice between receiving $10,000 now or the same amount three years from now, most people would instinctively take the money now. Receiving the money now allows you to use it to create future value, thanks to the power of compounding. That’s when the money you earn from your investments is reinvested for the opportunity to earn even more. However, that opportunity is lost if you wait several years to receive the money, because you effectively lose the potential return you may have otherwise earned. As a result, you’ve lost:
- Time that your money could have been earning more
- Money from the compounded earnings that didn’t happen
- Opportunity to create future value
Another point to keep in mind is that your money will never go further than it does today due to inflation. That’s because the rising prices of goods and services over time erodes the value of each dollar you hold. While a $10 bill received today will still have the same face value as a $10 bill received three years from now, your future $10 bill will likely pay for fewer goods and services. That makes it worth more to you today, than tomorrow.
That’s among many reasons why waiting to begin saving and investing for your future can jeopardize your long-term financial wellbeing. Below we look at six areas where procrastination and your money don’t mix and easy ways you can turn things around now to get back on track toward your goals.
Waiting for tomorrow’s busy schedule to magically clear up so you can finally get around to creating a budget is probably not going to happen. Begin by examining the possible reasons for your hesitancy when it comes to creating and following a budget. Maybe you don’t know where to start or it just seems too tedious, boring, or time consuming. Emotions, such as fear or guilt, often get in the way of replacing poor habits with positive financial behaviors. Maybe you’re afraid of discovering how much you’re really spending on pizza delivery each week or feel guilty about not saving more each month. Introspection is important, because you can’t correct a potential problem or reverse a behavior that you don’t acknowledge.
While it can be painful in the moment, opening yourself to greater transparency and accountability will lead to less stress and more abundance in your life. Determining what you’re spending your money on is critical for managing the money that is going in and out of your household each month, avoiding unnecessary debt (i.e., using high-interest credit cards to hold you over until payday) and finding opportunities to save more.
Next, focus on removing the obstacles that make budgeting seem difficult. Dozens of free budget apps will do much of the work for you and many will link directly to your financial accounts to automatically download savings and spending data by category and in real time. Check with your bank or other financial institutions you work with; most offer an array of online budgeting tools, apps and educational articles and videos to help you get started. If you need more help, consider reaching out to a financial advisor or hire a financial coach for assistance.
2. Saving for retirement
The longer you wait to begin saving for retirement, the less money you may have when you’re ready to stop working. Keep in mind, Social Security only replaces about 40% of the average workers’ pre-retirement income in retirement. Even if you plan on working later in life to close the gap between what Social Security and a pension may provide (if you’re lucky enough to have one), circumstances outside of your control could dictate a change in plans, such as an illness, injury or layoff. So, if you haven’t saved enough to support the lifestyle you desire in retirement, you run the very real risk of having to make significant lifestyle changes or tradeoffs to avoid outliving your income.
Fortunately, where your savings are concerned, time is always your friend. This is especially true when you save through a qualified retirement plan, such as a 401(k), 403(b), or individual retirement account (IRA). Thanks to tax-deferred compounding, your retirement account investments have the potential to grow even faster than comparable taxable investments, since the earnings are not subject to taxes until they’re distributed, usually in retirement.
Ideally, you want to optimize your savings potential by contributing the maximum amounts on an annual basis to any plans you’re eligible to participate in, including catch-up contributions, once you’re eligible. For 2021, the maximum contribution limit for 401(k), 403(b), and most 457 plans remains unchanged from 2020, at $19,500. If you’re 50 or older, you can contribute an additional $6,500 in catch-up contributions, for a total of $26,000. The limit for IRA contributions also remains the same for 2021, at $6,000 with an additional $1,000 for catch-up contributions, if you’re 50+, for a total of $7,000.
If you can’t contribute the maximum allowable amount now, try to contribute enough to receive all or a portion of employer matching contributions, if your plan offers a match. Even if you can only save a small amount now, do it! Every day that goes by is a missed opportunity to use today’s dollars to create future value.
3. Maintaining emergency cash reserves
The COVID-19 pandemic has provided a dramatic example of why emergency savings are important at every stage of life—whether you’re working or retired. But keep in mind that unexpected events, such as a job loss, accident or medical emergency can happen even in the best of times. While most financial advisors recommend setting aside three to six months’ worth of living expenses, the amount you may need will be based on your personal circumstances and lifestyle goals. At a minimum, you want to be able to cover your essential expenses, which include food, housing, clothing, transportation and healthcare. Below are a few important rules of thumb when it comes to maintaining cash reserves:
- Keep the money in a separate account that you aren’t tempted to dip into to pay for other expenses.
- Make sure the account is liquid, such as a bank savings or checking account, and free from early withdrawal fees or penalties so you have ready access to cash when you need it most.
- If you’re married, it’s important that you and your spouse agree on when and how the money will be used. Conflicts can arise when spouses are not aligned in their definition of what constitutes an emergency. (Hint: It’s not a vacation or a new bass boat.)
4. Managing debt
Mismanagement of debt is one of the most visible examples of how procrastination can cost you time, money and opportunity. Let’s say you make a late payment on a credit card. That may result in a one-time fee of $25 or more. However, multiple late payments not only take cash out of your pocket but will damage your credit rating, which can take years to repair. A poor credit rating can result in paying thousands of dollars more in interest on car loans, mortgage interest, credit cards, etc. When you have to pay more to service debt in the form of higher interest rates, that’s money out of your pocket that could otherwise be used to boost savings or pay down existing debt. The higher and more stable your credit rating, the more likely you are to qualify for attractive loan terms and lower interest rates when seeking credit.
5. Protecting what matters most to you
We all want to protect the people and things that are most important to us in life. Estate planning provides the tools to accomplish that goal. However, its often an area of planning where we see the highest degree of procrastination. Among the reasons people put off estate planning is because they think they have unlimited time to get around to it, don’t want to think about incapacity or death, or don’t think they have enough assets to bother. All of these miss the point.
Estate planning is about protecting your interests during your lifetime and the people you care about after you’re gone. That makes incapacity planning one of the most important components of estate planning. Think about who will make important financial, health and life decisions on your behalf if you are not able to do so yourself, due to an illness or injury? If you don’t appoint someone as your agent before an unexpected event occurs, one will be appointed for you. The same goes for appointing a guardian for your minor children. It’s always better to choose who will make decisions on your behalf or raise your children if something happens to you and/or your spouse, versus leaving it up to a court to decide.
Income protection, which includes life and disability insurance, is another component. You want to make sure your dependents have adequate income at their disposal should you become disabled or die during your working years. Think about what would happen to family members if they were unable to replace the income you generate today. How would it impact their lifestyle? Could they still afford to pay the mortgage and remain in the family home? Would your kids still be able to attend college? Would your spouse be able to retire as scheduled? In the event of your death, it’s also critical to ensure that your assets transfer to your dependents, heirs and the organizations you care about in the most tax-efficient manner. That helps to ensure that more of your assets are utilized by the people you care about, rather than paying estate taxes that could have otherwise been avoided.
If all of this sounds complicated, it is. But think for a moment about what happens if you don’t have a plan in place and a sudden medical crisis or death occurs. That creates unintended stress, chaos and consequences for your loved ones who are left to navigate without the proper legal authority or knowledge of how you would have wanted things handled. What’s not complicated is the ease in which you can obtain the help you need to put important legal documents in place to protect you and your family members, such as a will, trust, durable powers of attorney, healthcare proxies, and more. If you’re not sure how to get started, begin by asking friends, family members, or your trusted financial advisor, for referrals to estate planning attorneys they have worked with to help you put important legal documents in place to protect your interests, dependents and loved ones. Your financial advisor can work closely with your estate planning attorney and other professional advisors to coordinate and implement your estate plans as part of your larger, comprehensive financial plan.
6. Financial planning
Often, clients wait until a crisis occurs to seek help from a wealth advisor. This could be a divorce, loss of a spouse, forced early retirement, or serious medical diagnosis, among others. Ideally, the time to engage in the planning process is well before a crisis or life event occurs, such as the birth of a child, career move or retirement. That provides you and your advisor increased flexibility in finding workable solutions for any challenges you face. More importantly, it can help head off certain challenges or crises.
How early should you begin working with a financial advisor? Ideally, as early in your working life as possible. While you may not have amassed a lot of wealth at that point, working with an advisor will help to ensure you have a clear path to follow as you begin to accumulate and build the wealth you will need to accomplish your goals at every stage of your life and career.
What if you’re 20 or 30 years into your career, or close to retirement and haven’t engaged in the planning process? The good news is, it’s never too late to put a plan in place. That’s because a comprehensive financial plan provides a roadmap for how you will generate income, protect the people and things that matter the most to you in life, and accomplish your goals for the next 30 or 40 years.
Take the next step now
There’s no doubt that procrastination can wreak havoc on your finances, and the potential damage generally isn’t limited to a single area. That’s because all of your financial decisions are inextricably tied. So a poor decision in one area, such as poor credit management, impacts other areas, like the amount of money you’re able to save or how quickly you’re able to pay off existing debt. In turn, that could have long-term ramifications, including how you live in retirement and whether you’re able to accomplish all of your goals in life.
Yet, past behaviors don’t have to define your future. It’s the steps you choose to take now that will enable you to move forward with confidence. That begins with scheduling time to meet with an independent financial advisor who can serve as a financial coach and mentor, helping to keep you on track so you don’t have to do it alone.
To learn more about ways to remain on course toward the future you desire, don’t wait to download our complimentary guide: 3 Methods to Not Run Out of Money.
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