When thinking about costly financial mistakes, things that may come to mind are taking on bad debt, poor spending habits, or investments that miss the mark. But there’s a common mistake you may want to add to that list: simply doing nothing.
Financial procrastination may not feel like a mistake in the moment. Waiting another month, which can sometimes turn into a year, to start saving. Putting off updating your estate plan. Ignoring the cash accumulating in a 0% checking account or a very low-interest savings account. These all seem like nonpriority items in the busy lives we lead. Over time, though, these small procrastinations can become major issues.
Delaying Saving
Investors around the world are always looking for the next great “tool” to help them reach their financial goals. But one of the most powerful tools investors have is time. The earlier money is invested, the longer it has the potential to benefit from compounding.
For instance, assume someone contributes $500 per month for 30 years and earns a hypothetical 7% annual return. Under those assumptions, the account could grow to approximately $610,000*. Wait five years to get started, and that number could drop to about $405,000. That five-year delay in this illustration doesn’t just cost $30,000 in missed contributions. In this example, the five-year delay results in a difference of more than $200,000 in ending value.
You don’t need the perfect investment strategy to get started. For many people, consistently saving something today may be more valuable than waiting until they feel they can save the “right” amount.
*This hypothetical example is for illustrative purposes only, assumes a constant 7% annual return, does not account for fees, expenses, or taxes. Actual returns will vary, and investing involves risk, including the possible loss of principal.
Putting off Estate Plans
Nobody enjoys discussions about wills, powers of attorney, trusts, beneficiaries, and titles. However, estate planning is an important piece of your overall financial strategy. Estate documents communicate how you would like your assets distributed after your death and who may act on your behalf if you become incapacitated.
Marriage, divorce, the birth of a child, a home purchase, and other major life events are good reasons to review your estate plan. Even something as simple as an outdated beneficiary designation can create unintended complications. Small oversights in this area can sometimes lead to delays, disputes, or additional costs for loved ones.
Taking time to review your estate planning documents periodically and consulting qualified legal professionals when appropriate may help ensure those documents remain aligned with your wishes.
Cash Accumulation
It’s an accomplishment to build cash reserves, let alone have what might be considered an excess amount.
So, how much is too much? This answer can vary from person to person, but a common rule of thumb is to have approximately six months of expenses readily accessible as an emergency fund.
Once that reserve is established, additional cash may warrant a review. With some traditional bank savings accounts offering relatively low interest rates, other vehicles may be worth evaluating as alternatives for certain cash positions.
Depending on an individual’s goals, time horizon, and risk tolerance, a portion of excess cash may also be appropriate for longer-term investments. Cash sitting in an account earning little to no interest may feel safe, but it can come with tradeoffs. Inflation can gradually reduce purchasing power over time, while investors may forego potential interest earnings or investment growth opportunities.
The Bottom Line
Financial procrastination usually doesn’t feel expensive in the moment, and that’s what makes it so easy to ignore. Putting off a savings goal, postponing estate planning discussions, or leaving excess cash in a checking account may seem harmless at the time. But over the years, those small delays can lead to missed opportunities.
The good news is that financial planning doesn’t have to be perfect. You don’t need to predict the market, have every dollar invested perfectly, or make every financial decision at exactly the right time. Instead, it can be helpful to be intentional with your financial decisions and revisit your plan as your circumstances evolve.
At Rea Wealth, we work alongside individuals and families to develop financial strategies tailored to their goals and circumstances. As life changes, we can help you review your plan and evaluate whether adjustments may be appropriate.
Please contact us to schedule a consultation. We look forward to working with you!
By Max Feller
Rea Wealth Management
This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation. Diversification does not assure a profit or protect against loss in declining markets and cannot guarantee that any objective or goal will be achieved. Tax-loss harvesting does not ensure a profit or guarantee against loss. Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Edited with assistance from Copilot.
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