In-er-tia: a property of matter where it remains at rest or in uniform motion unless otherwise acted upon; a tendency to keep things as they are.
Financial Inertia: It’s easy to do nothing
Despite all the advice to think ahead, set goals, work at achieving your goals, and make a life of your choosing, many people opt to stick with the status quo and let life just propel them along, often complaining all the way. It’s a lot easier just to do nothing.
Marketers are well aware of this tendency.
- The cable company that offers you free programming for three months.
- The credit card that offers you 6 months free balance protection insurance.
They could easily delete it at the end of the period. But, no! They put the onus on you (yes, you) to call them to cancel.
How many of us are paying for services we neither want nor need all because we didn’t bother to make a phone call?
That’s financial inertia in action (or non-action if you will).
Inertia is not the same as procrastination. A procrastinator will eventually get around to doing the required task – mostly at the last minute.
These are the people who run to the bank on March 1st to make their RRSP contribution, or work the whole previous night the day their project/proposal/term paper is due.
For a procrastinator, tomorrow is often the busiest day of the year.
Take control with autopilot
The tax department knows about our inclination towards financial inertia so they set up automatic tax deductions from our paychecks.
Banks followed with loan and mortgage payments whisked out of our accounts before we could get to the money first.
With the wonders of technology it’s easy to handle most of our financial affairs with systems that can keep us on the right course without having to be reminded each month.
Once you overcome your own inertia, it only takes a one-time effort to:
- Complete the enrollment forms
- Choose a contribution amount for your savings
- Decide which investments to hold and in what allocation
- Select a beneficiary
- Set up your bills for automatic payments
It makes life so much easier. By doing nothing you’re doing the right thing. But are you? It can become too easy to let it slide.
When my utility bills and statements came in the mail, I used to thoroughly scrutinize them. Now that I have almost everything set them up automatically with e-services, I’m embarrassed to say that I very rarely even look at a statement. If a bill payment amount seems right, it gets paid!
Once you’ve taken the initiative to put your automatic programs in place you need to overcome the same inertia to occasionally monitor your plans.
Investing is one area that can easily be forgotten about. Initially, sticking with regular automatic purchases takes the emotion out of investing and reduces the temptation to make hasty changes when the markets have a bit of a drop.
When Sarah started university, she worked at a part-time job to help cover her expenses. After reading David Chilton’s The Wealth Barber she decided to contribute $25 per bi-weekly pay to a balanced mutual fund at her bank.
Fifteen years later she’s working at a well paying job and still enrolled in her $25 savings plan. Yes, she now has over $10,000 in savings that she may not otherwise have – but inertia kept her from increasing her contribution even though she had the financial means.
Sarah should re-read David’s book, or, better yet, take the time to schedule a review of her financial situation and set up a more appropriate plan.
By selecting appropriate investments and allocating your portfolio just one time, and then not making any changes for years, or even decades, you are making a big mistake.
“Buy and hold” is a popular investment strategy but it doesn’t mean, “buy and forget.”
Related: Why Your Financial Plan Sucks
You still need to take the time to re-balance, re-evaluate and re-allocate as your situation changes. And what if you made bad choices in the first place?
Many of us don’t want to do the boring operational follow through to keep up with it. We have good intentions to do it ourselves but usually wind up doing nothing because it’s too complicated and we don’t have time.
We either end up spending a lot of time worrying instead of managing, or take a look at our portfolio one day in the future and discover a financial mess.
Others opt to have it all done for them by financial professionals, and pay a hefty fee for the privilege.
In what areas is inertia a problem in your life?