Overcoming Inertia to Achieve Your Financial Goals
Newton’s first law of motion states that an object at rest will remain at rest and an object in motion will remain on course unless acted upon by an outside force. Most of us can relate to this concept from events in our daily lives. The act of getting out of bed in the morning sometimes seems like an insurmountable obstacle! But if we can just get our feet to the ground, force ourselves upright, and start moving forward, the tasks for the day begin to seem doable.
Financial planning is no different. Inertia is a powerful force and taking that first step is the hardest. Perhaps you need to develop a retirement plan, improve your investment returns, or just create a budget. Change is hard and it is scary! It’s easier to keep doing what you are already doing – or not doing – than to start something new, even if you know there might be a better path.
Perhaps some of these issues are holding you back from making the changes that will improve your financial picture…
1) You don’t know what to do – Maybe you know you need to prepare for retirement, but you don’t know how. Is your employer plan enough? Should you start an IRA? Traditional or Roth?
2) You don’t know the steps to take – Perhaps you know you need additional savings outside of your employer retirement plan to achieve your goals. Maybe you even know you want a Roth IRA, because you’ve heard it can help you build tax-free future income. Are you eligible? How much should you contribute? Which broker should you use? What investments should you choose?
3) You don’t know if you are on track – You’ve done all the things you’ve read about. You are maximizing your 401(k) deductions, contributing to an IRA, and sticking to a monthly budget. Is it enough? Is your dream of early retirement possible? What effect will taxes have on your nest egg? Can you take a vacation or tackle some home improvements in the meantime without derailing your plans?
These kinds of questions can create decision paralysis. When faced with too many options, most people just continue doing what they are already doing. The problem is that our most valuable asset is time!
Consider this...If you begin saving $100 per month at age 30 earning an 8% return, by age 60 you would have about $150,000. If you wait until age 40 to start saving, you will have to put away $255 per month to accumulate the same $150,000. If you wait until age 50 to begin, you’ll have to save $820 per month!
Well of course, you might say, you are saving for fewer years so you have to save a larger monthly amount if you start later. The TOTAL amount you have to put toward your savings grows every year you delay too, however. By starting at age 30, you only contribute a total of $36,000 ($100 per month x 12 months x 30 years). If you start at age 50, you lose many years of compounding and have to contribute over $98,000 for the same outcome ($820 per month x 12 months x 10 years). By procrastinating, we squander away the substantial impact that even small improvements can have on our financial futures. What could you do with that extra $62,000 along the way?
The good news is that the second part of Newton’s law also proves true for financial planning. Momentum is an equally powerful force! Once you begin to make improvements, your confidence grows, you begin to see results, and you are motivated to take further action. By paying off debt, for example, you begin to see your balance decrease and may be inspired to accelerate your progress.
Here are a few simple steps to take to overcome your financial inertia and begin creating the momentum that will carry you forward…
1) Set a goal – Deciding where you are headed is the first step in any journey. Do you want to retire early? Purchase a vacation home? Send the kids to college debt-free? Determine what financial goals are most important to you.
2) Get informed – There are many online resources to help you educate yourself or select a professional that can support you in creating a plan. Investopedia is a great place to start for basic information on almost any financial topic. If you are wondering whether hiring a professional makes sense for you, check out our FAQs for more information and criteria to consider in choosing the right advisor.
3) Take action – Time truly is money, so start now!
Behavior change is never easy, and Newton explained why taking that first step is always the hardest. Fortunately, once you overcome inertia and take action, next steps become easier. Developing confidence and seeing positive results will generate the momentum you need to stay on track and achieve your goals!
