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Procrastination from the ‘Time Equals Money’ Equation
 (ARA) -- Most of the time there’s
no harm in procrastination. It’s no big deal if you put
off household chores or leave that project at work until the
last minute. But procrastination of the financial kind could
either make you or break you, depending on how you handle it.
Yet, because financial planning decisions aren’t much fun
to think about, they are readily postponed, according to Suzanne
Olson, author of “I Hate Financial Planning: A Guide for
People Who Love Money but Hate Planning.”
“It’s easy to ignore
everything from paying bills on time to making savings a priority,
but the longer you put it off, the further behind you get,”
she says.
And that’s because time
equals money. In her book, Olson compares “Alan” who
starts investing $100 per month at age 25 with “Carol”
who waits until age 45 to start. Both investors earn a steady
8-percent return on their hypothetical investments. When they’re
both 65, Alan’s $48,000 has become a sizeable $351,428 nest
egg, while Carol’s $24,000 investment has grown to just
$59,295.
The scenario, which doesn’t
reflect any particular investment or fees and income taxes investors
pay, shows that time has the potential to multiply an investment
substantially.
The key is to get started and
keep adding money over time. “Normal fluctuations in the
market may have less of an impact if you can stay invested over
many years,” Olson says. And compound interest -- or the
interest on the interest that banks pay -- can have an amazing
impact when given a chance.
“All procrastinators could
write a list of reasons to explain their behavior,” Olson
says, “but they never get around to it.” Maybe you
think you don’t make enough money, or you don’t know
where to start. Perhaps you’re waiting for your partner
to handle it. Or you’re confused by what you don’t
understand. Maybe you don’t want to be told what to do.
“No matter what’s standing in your way, it’s still
just an excuse,” Olson says.
She emphasizes that saving
and investing aren’t the only things that may suffer if
you procrastinate. “By resisting decisions or neglecting
to make them, procrastinators can unwittingly put their personal
finances in jeopardy in ways that are hard to calculate,”
Olson adds. She suggests four basic financial planning areas
for procrastinators to consider and decide if it’s time
to turn inaction into action:
* Take a serious look at your
current debt. Escalating debt can stifle your future plans in
most areas of your financial life. To reduce credit card debt,
list all your bills, from highest interest rate to lowest. Pay
as much as you can on the bill on top, even if it means making
minimum payments on the others. Once that card is paid off, hit
the next one hard, and so on.
* Review your insurance needs.
Failing to have adequate disability income insurance could be
devastating if you suddenly find yourself unable to earn an income.
“For most people, the ability to earn an income is their
biggest asset, yet they don’t make an effort to learn about
disability coverage,” Olson says. Also, it’s easy to
overlook money savings on auto and homeowners insurance, but
you may be able to lower premiums by increasing deductibles or
switching insurance companies.
* Check your beneficiary designations
on retirement accounts and insurance policies. Life circumstances
change, but procrastinators oftentimes forget to update their
records. Do you have a will? Neglecting such estate planning
basics can leave questions that need to be settled by the courts
instead of by surviving family members.
* Finally, save money. Direct
deposit can make saving a painless exercise--even a few dollars
each paycheck can add up. “It’s easier to increase
the amount you save once you see your good habit growing in your
bank account,” Olson says.
“The best part is that
there’s never a wrong time to stop procrastinating and start
making progress,” Olson says. “That means the ‘it’s-too-late-so-I’ll-skip-it’
excuse won’t work when it comes to financial matters.”
_______________________________________
Suzanne Olson is the editor
and spokesperson for ihatefinancialplanning.com (www.ihatefinancialplanning.com).
About I Hate Financial Planning
I Hate Financial Planning (McGraw-Hill
Trade; August; Original Paper: $14.95) speaks to people with
a refreshing attitude for straightening out their finances. Engaging
and humorous, it provides readers with a welcome change of pace
from the standard dry, serious tome as it gives them information
on everything from saving for a house to managing their 401(k)
or other retirement accounts. The book gives readers the tools
and strategies they need to take the dread out of managing their
money.
Courtesy of ARA Content
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ARTICLE POSTED
AUGUST 2, 2004
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