Ahhhh… Fall is in the air. Well, really, it’s not. It’s almost the holidays and we are still sweltering. Maybe that’s what causes what I call the “Holi-Daze,” a tendency to procrastinate on important decisions — whether they be about which outfits to buy or the investment planning you said you’d do last year!
Avoid procrastinating on financial decisions during the holidays (or Holi-Daze!)
Essentially, the Holi-Daze causes decision-making paralysis that makes even the smallest choices during this time of year seem difficult. (Although, some people like my husband procrastinate all-year-round.) I can’t put my finger on it, but beginning around Halloween, then Thanksgiving, and then Christmas — I begin to hear so many excuses from friends, family and clients of all ages as to why they are putting things off.
From all sorts of things, from investing to dieting, the Holi-Daze stops us dead in our tracks. “I think I’ll wait until the New Year,” they say. But this can hurt, especially if you are young and have long term financial goals.
How decision-making paralysis can hurt your financial plans
First, let’s take a look at investing. A lot of people put off investing until they are older — when they could have been dollar cost averaging into their company’s retirement plan (if you have access to one) for many years beforehand. Waiting to start your contributions can have a major impact on your retirement savings in the long-term; time and the potential for compound earnings both matter.
The benefits of investing early
Here’s a hypothetical scenario to show what I mean:
- Eager Edward earns $30,000 a year, receives 4% annual raises and plans to retire in 30 years.
- He saves 4% of his salary a year into his retirement plan and earns an 8% annual return on his investment.
So if Eager Edward starts investing TODAY, he could potentially have more than $220,000 by the time he retires! However, if Eager Edward listens to his friend Procrastinator Pete and decides to wait 5 years to start his savings and investment planning, he would only have $164,878 (assuming the other variables are constant.)
As such, in this example, waiting 5 years to start investing is going to cost Procrastinator Pete $56,066. Think of all the things you could do with over fifty grand. How many shoes you could buy! You get the picture.
Dollar cost averaging: A helpful strategy
For an investor who has a chunk of money to invest all at once, there is another strategy I like to employ: dollar cost averaging. Instead of waiting to invest everything “in the new year,” I often recommend a technique which is based on buying slowly into an investment portfolio over a period of time. This strategy works best for those with a long-term investment horizon, and a financial planner will be happy to help you with that. It may not enhance your return in the long run, but it can help you get your plans moving and mitigate or manage risk, too.
Don’t procrastinate on life or health insurance, either
Second on my list of decision-making paralysis topics that can land you in hot water are insurance issues. Whether its health insurance or life insurance, you don’t want to put these off… and get caught without either. Insurance might seem low priority – until you inevitably need it. In fact, the Consumer Financial Protection Bureau estimates that 42.9 million US residents have outstanding overdue medical debt of $1766 on average!
The CFPB also reports more than half of all debt on credit reports is medical expenses. The National Bankruptcy Forum reports that medical debt is the number one reason people file for bankruptcy. Get to know the insurance benefits – medical, life, or otherwise that you have access to early on.
Make sure estate planning is in the mix
Third, stop putting off your estate planning. I know I was direct with that but it’s such an important thing and a crucial component of your overall plan. While none of us want to think about our eventual departure, we do all know deep down that anything can happen at any time.
Life happens, and maybe your next few months are full up with extra traveling and extra stress – do you want to worry that whole time about what happens if something unexpected occurs? Will your children be cared for and your assets distributed pursuant to your wishes? This is something to think about at any age.
The Holi-Daze will catch up with you – don’t let it!
So now you’re thinking I’m Miss Negative Nelly; but really, my goal is to get everyone thinking about their future. Think about these as opportunities – not stuff to put off for later – no matter whether you are old or young. And especially not to catch the “Holi-Daze” and wait until next year to make financial decisions that could benefit you today.
October 2018
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels.
This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.
