“It’s the job that’s never started that takes the longest to finish.” J.R.R. Tolkien
I have been putting off writing this article for no apparent reason.
And I am not even the procrastinator in our home. My husband is!
Procrastination is the enemy of good financial planning.
For those who procrastinate, tomorrow is always a better day to start to making better financial decisions about saving and investing. Procrastinators voluntarily delay doing something like paying their bills, despite knowing they will be worse off due to the delay.
College students are big procrastinators
Procrastination tends to be particularly prevalent among college students. An estimated 25%-75% procrastinate on academic work. As a professor, I can attest to grappling with students handing in assignments well after deadlines despite having known the due dates at the start of the term, and amplified often by me in the classroom.
Ferrari, Johnson, and McGown have written academic research on students and their tendencies to:
- appropriate too little time to perform tasks;
- overestimate how motivated they will be in the future, and
- mistakenly assume that they need to be in the right mind to do the project.
It’s not just college students who procrastinate. According to Ferrari, 20% of US adults are chronic procrastinators. Delaying is part of their lifestyle.
Surveys show employees often put off opting into an employer-sponsored retirement plan because they are confused by choices given. Yet, they often are aware that they can make future changes to their plan.
Behavioral economics refer to procrastinators as having “present bias” tendencies. They frequently overweight today with instant gratification and underweight resulting pain and losses in the future.
Academic research is plentiful in confirming that procrastination is a significant predictor of impulsive financial behavior and poor financial planning.
Procrastination can be costly but here are 11 tips to help you fix some of these bad financial habits:
#1 Pay your credit card monthly balance in full. balances Making late payments on our credit cards result in late fees and potentially the penalty interest rate. Total revenues for these fees amount to over $10 billion annually for the credit card companies.
One in 5 credit card accounts incur a fee. Don’t wait for your ballooning credit card debt to further paralyze you. Work on a plan to reduce these debt levels and ask the card companies to waive fees.
#2 Avoid paying all your bills late. You should use as many automated paying options as possible to pay your rent, your student loans, your credit cards, your mortgage, utilities, phone, cable or streaming services.
#3 Pay your income taxes on time. Filing your taxes late means you may have to have to pay the IRS more. The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.
When filing your taxes late is simple procrastination
There is rarely a good reason for filing of taxes to be delayed yet in our home it has been a chronic happening. The excuses range from simply waiting too long to put records together, delayed K-1 records, or our accountant asking “one more question.”
These excuses (from my husband who is in charge with filing taxes) truly amount to laziness. I love my husband but this pet peeve has become huge.
#4 Keep some cash as a cushion to avoid bouncing checks.Overdraft fees are charged by most banks when you don’t pay attention to your bank account balances. You can opt-in for overdraft coverage. You can also ask your bank to waive these fees and do better in the future.
#5 Be proactive about participation in your workplace retirement plan. Delaying your participation in an employee-sponsored 401K retirement plan often results from decision inertia if there are too many choices to make. Yet you benefit by saving with tax-deferred dollars. Companies should automate saving through direct-deposit paychecks for employees.
Some companies offer these plans with an “opt-out” provision and participation has increased.
Fidelity pointed out that 76% of 20-24 year olds saved for retirement when “opt-out” was used versus 20% saving when the company used an “opt-in” instruction. Saving for retirement in your 20s is a relatively painless way to benefit long term from the positive effects of compound interest.
The earlier you can fund your 401K and Roth IRA, the greater your retirement nest egg will be.
Schlomo Bernartz and Richard Thaler have pioneered “Save More Tomorrow” behavioral intervention program. Thus far it has helped the more than 15 million people in their program with increasing savings results.
The program has a 3 prong approach:
- people are asked to commit now to saving more in the future, helping to avoid present bias;
- planned increases in savings rates are linked to future pay raises, minimizing influence of loss aversion since their take-home pay never decreases; and
- once employees are enrolled, they remain in the program, unless they “opt-out.”
#6 Setting up a 529 college savings plan provides tax deferred benefits like a retirement savings. Saving for your children’s college education with a 529 savings plan is easy to set up. You should begin as soon as possible as compound interest works well when you have as much as 18 years to save for your children.
Don’t let the plan choices overwhelm you as you are able to make changes.Your incentive is to save now rather than borrow more later.
#7 Your savings, after you create your emergency fund, should be earmarked for investing. Investing outside of retirement is also often delayed with excuses that you don’t understand how to invest. Yet, there has never been a better time to buy low cost diversified S& P 500 stock funds if you don’t have the time or inclination to pick individual stocks
#8 Practice spending limits. Impulsive spending behaviors are particularly problematic for procrastinators. A 2016 study in the Journal of Academy Marketing Science points out that procrastinators spend a great amount online shopping, to avoid work tasks. This leads to increased impulsive purchases.
Change your spending patterns
For some people, this amounts to a shopping addiction so changing spending patterns is important.
- Carry cash with you rather than credit cards so you have some kind of spending limit.
- When you shop online, put items of interest into the cart and abandon the cart. If you still need it, it may not be an impulsive buy.
- Track your spending for 30 days in a diary or use spending apps.
Marketers thrive on impulsive shopping
Marketers are well aware of impulse buying tendencies. The Internet is loaded with articles, “How to Encourage Impulse Buys and Unplanned Purchases In Your Retail Store.” This is akin to having a bar at an Alcoholics Anonymous meeting.
#9 Avoid last minute shopping for presents. Those who delay buying presents during holiday season or for anniversaries and birthdays, often are in a panic to buy quickly. Choices may dwindle and you may face having to pay for shipping to make sure the gift gets to that person on time. Sometimes we feel guilty at having waited until the last minute, so we overcompensate by spending more.
It is always important to shop wisely. Send yourself a reminder or pay heed to the Facebook reminders of upcoming friends’ birthdays.
#10 Checking your credit report regularly. If you particularly procrastinate with paying bills, it is likely your credit scores are less than stellar. As your credit report is used to buy a car, home, college loan, rent an apartment, get a job and to check for fraud, review your report to prevent future problems that may be harder to fix with delay.
#11 Estate planning delays could be costly. If you have accumulated wealth and assets during your lifetime, creating a will, a durable power of attorney and healthcare proxy are the minimum you need to do, often for the sake of family harmony. This will alleviate stress in your family in the event you or a loved one becomes disabled or are unable to make life decisions.
Attending to your estate planning may allow your family to avoid unnecessary tax payments. Consult with a tax professional.
How we can use technology to help us
As digital overload is often the culprit, getting in the way of making better financial decisions, it can often be used to benefit us.
While some of these were mentioned above, here are ways we can use technology to avoid delays:
- Automate your payment where it is available.
- Pay your credit cards in full to avoid fees and higher debt costs.
- Set up automatic withdrawals from your paychecks
- for retirement, health insurance, insurance and investing so you can participate in workplace programs that are beneficial for you.
- Track your spending either in a simple diary or in a budget app like Mint or Wally. Look for simplicity if that appeals to you.
- For an investing account, sign up with an online broker like Ameritrade or Fidelity and research a number of low cost index funds. If an app is more appealing, try Robin Hood which is free trading without the frills.
- To change bad habits, look into Coach.me, a habit tracker that allows you to create short term and long term goals.
Most employers have Employee Assistance Programs that help with financial and non-financial matters. They can help on a number of financial issues like buying a home, credit counseling, tax preparation, retirement plans, and health insurance.
Procrastination is a tough behavioral issue for the procrastinator who doesn’t necessarily minimize his or her stress levels by avoiding tasks and decision-making, and for their families, co-workers and friends who often suffer the consequences of their actions.
Bad financial habits can be turned around by those with strong motivation and dedication to address their problems.
Getting professional help for chronic procrastination may work.
We all procrastinate at one time or another but most of know how to snap out of the lull of not being productive. I fight with myself all the time, delaying the harder task and tackling the easy one first. We all have our own tricks to change these potential patterns. How do you get yourself back on track? We would love to hear from you!
With a passion for investing and personal finance, I began The Cents of Money to help and teach others. My experience as an equity analyst, professor, and mom provide me with unique insights about money and wealth creation and a desire to share with you.