Financial procrastination, your pocket or theirs?

THIS WAY TO WEALTH:

By John Gotschall

When you were in school, did you ever wait until the last minute to write a paper or study for an exam? Did you like the pressure of the moment or was it that there were other things in your life that were more important--like socializing or sleeping?

Your parents probably got upset with you for procrastinating. When we look back, most of us would agree that putting off writing a paper or studying didn’t have a huge effect on our lives in the long run.

When it comes to financial procrastination, however, this is definitely not the case. It is one of the biggest problems that affect the finances of individuals and families today.

Procrastinating financially could not only have a big impact on your pocket book today, but will potentially dramatically affect your pocket book in the future. Procrastinating with a paper may have cost you a grade, but delaying financial decisions could cost you or your family thousands of dollars.

It is natural to put off things that we feel are not important in our lives. The things that are most important to us get the most attention. In addition, if something is perceived to be painful, then the easiest thing is to delay working on it. However, when it comes to your finances, what impact could a delay have on your cash flow, expenses or cash reserves?

When people delay making financial decisions or even reviewing their portfolio it is because they either fear their current situation or they believe there is always plenty of time to make changes. That fear or belief that there is time could ultimately lead to regret because no action was taken.

Let’s take a look at Sue who is worried about her retirement. She is in her mid-thirties and wants to start saving. She can afford to put $200 per month into her 401(K) plan at work, but also wants to redo her kitchen. She really can’t afford to do both. What’s more important? How will waiting one year affect her retirement?

If Sue sets aside $200 per month for 360 months and earns an average of 8 percent, she will have approximately $300,059 in her retirement fund. By waiting twelve months to get started and investing the same amount over 348 months earning the same interest rate, she will only have approximately $274,748.

Not investing that $2,400 for one year in her retirement actually cost her approximately $25,311. These are only estimates—as we know interest rates will change and are not guaranteed. The results could turn out to be an even greater difference.

Was the remodeling of the kitchen more important? Was there a way to do both? Could she have cut expenses in another area? Would that extra money be useful in retirement?

Another way that procrastinating could affect your finances is based on Jerry’s story. Jerry wanted to buy $500,000 of life insurance at 59 years old. Jerry believed he was in good health and decided to wait six months before taking the physical exam. The premium that was originally quoted based on his medical history was at a preferred rate of $2,235 for 15 years. This fit his goals perfectly.

Unfortunately for Jerry, however, in month number five, he experienced some medical issues and his whole health picture changed. Because of his new medical condition, the insurance company had to charge him the standard rate of $3,465. By waiting the extra six months it cost Jerry $1,230 for the first year and an additional $18,450 over the next 15 years.

Procrastinating when you have to take out the garbage only gets you a stinky kitchen! When you procrastinate financially, it could cost you thousands of dollars that are better kept in your pocket than someone else’s.

If you have been delaying reviewing your finances, making financial decisions, or if you aren’t making your finances important enough, then you need to have a heart-to-heart chat with yourself. The only person that can make this a priority is you.

If you are motivated by fear, think of all the financial consequences or money that you could potentially lose. If you are motivated by success, think of how good or secure you will feel knowing that you’ve covered everything.

Financial procrastination can be solved and cured. Do you want procrastination to be the cause of your financial failure? If you are having trouble getting started, seek out the guidance of a financial professional—their role is to guide you down the right path and help you to succeed.

John Gotschall, CLU, is president and founder of Des Plaines-based Coaching Financial Concepts, Inc. The company provides both offensive and defensive financial strategies for families and businesses with an emphasis on educating its clients. He can be reached either by phone at (847) 813-5511 or by e-mail at coachfinancial@aol.com. John is a registered representative for securities. Securities offered through: The Leaders Group, Inc., Member FINRA/SIPC, 26 W. Dry Creek Circle, Ste. 575, Littleton, CO 80120, (303) 797-9080.