How To Overcome Financial Inertia

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.

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.

Related: 25 Tips For Filing Your Own Tax Return

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.

Automatic investing

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.

Related: Market Corrections – Buy, Sell or Ignore?

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?


6 Responses to How To Overcome Financial Inertia

  1. Money Beagle says:

    I think that everybody should try to look at one thing a month that they could improve, whether it’s a bill that they could potentially lower (cell phone, cable), a recurring cost that they think nothing of (buying a coffee, getting name brand stuff at the grocery store). Bottom line, there’s always something that you could do better when it comes to your finances.

    • Boomer says:

      @Money Beagle: Have you ever gone to a work seminar or workshop and gone home all fired up about the changes you’ll make? Then the next day the paperwork gets shoved in a drawer and you’re back to the same old habits.

      Likewise, your examples are a good way to improve your finances – but I doubt many will take the initiative to do them.

    • Elizabeth says:

      I do this regularly. I’ve saved money on my phone and my insurance, for example. Just this week I was researching my internet and long distance usage to see if I can find better value.

      However, I’ve been meaning to get a second opinion on part of my RRSP portfolio — so I really need to get on that!

  2. krantcents says:

    I don’t think I have a problem of inertia, instead it may be complacency. I am pretty good at things, so it comes up rarely.

  3. Bet Crooks says:

    It’s unfortunate that the one time investors overcome their inertia is when the markets are plummeting. Instead of ignoring it and waiting for the rebound, they often sell at a huge loss.

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