Financial procrastination can come with a high price
Difficult times in the recession
A new concern in the post-recessionary market is financial procrastination. Many consumers had a difficult time managing their budgets during the economic downturn of 2008/2009. Mary Casey, housewife in Los Angeles, California, said, “We were aggressive savers, but once my husband lost his job, we had to use every last resource we had to cover our expenses… it was either do that, or lose everything.” Casey is not alone, because many consumers found themselves having to forgo saving for their survival.
The recession is over
Now that the recession is over, studies are showing many consumers fell into the category of abandoning their savings plan. Though it is understandable, financial experts are saying that there are serious repercussions of ending a savings initiative, even if it is only for a few months.
There is also another group of consumers who never began saving. They put off saving for retirement altogether due to a number of other issues. Some claim that they never had enough of a reserve to start saving, while others claim that they prioritized more immediate financial needs over retirement. Regardless of the reason for financial procrastination, the result can be devastating. Here are some problems with financial procrastination.
Financial procrastination’s results
One of the biggest issues of financial procrastination is delaying investing. Delays in investing can end up costing consumers a lot of money. For example, consider Mr. A and Mr. B who each began investing $2,000 annually at 30 and 40 years old, respectively, in an IRA. If the long-term average annual rate of return earned by both was 5%, when they turn 60, their financial outlooks will be drastically different. Mr. A would have about $132,800 saved, whereas Mr. B would only have $66,100. The difference is a startling $66,700. Of course part of the added return was the additional decade Mr. A had to invest, but the point is that procrastinating costs.
Another issue when it comes to financial procrastination is avoiding looking at personal finances. When a person has a savings plan, he or she most likely did some research to set it up. A financial planner will do an intake interview for any investor. They will ask what goals the customer has, what their expenses are, what their revenues are, and delve into their long-term financial goals. Martin Laurel, financial planner in Dallas, Texas, said, “Some consumers are surprised at their financial position when they really take an honest look at it. It may be difficult, but it’s critical to creating a workable plan and sticking to it.”
Finally, people who procrastinate with their financial planning tend to also procrastinate with filing taxes. This is a critical mistake that can cost a consumer dearly. The IRS charges a monthly penalty of 5% of the tax payable for failure to file income tax returns by their due date, up to a maximum of 25%. That means that if someone has a tax balance of $5,000 and fails to pay it on time, the penalty would be $1,250, plus other interest and fees tacked on.
Commit to a financial plan
Though it’s easy to fall into financial procrastination, it is also dangerous. For consumers who have agendas and goals, even a small lag in saving can throw their plans off and they may never fully recover. For anyone who wants a healthy financial future, it’s best to come up with a plan and then stick to it, regardless of the fluctuations in the market.