The cost of delayed financial action and how to avoid it

During a financial planning discussion, a client realized he had several major actions to take to streamline his finances. Although everything was clear, he was slightly overwhelmed and didn’t know where to start.

To ease his anxiety, I asked him one question: What is the one most important thing you can do now to start with? In an epiphany, he realized that rather than getting swamped by the actionable list, he needed to figure out what was the one important thing he could do in the present. We agreed on the first step and set a deadline for it, with a weekly reminder email prompting him to take timely action.

From a decade-long experience in the financial planning profession, I can say with certainty that delayed action differentiates people who have chaotic financial lives from people who have gradually built long-term wealth over the years.

Procrastination is the bane which prevents people from accomplishing things in life. And, it costs a lot when it comes to finances, as money has a time value to it. The longer the delay, greater the financial loss. Delayed action stems from not just decision paralysis. People are too busy and distracted in their lives, lacking willingness to take suitable financial action at the right time. 

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The cost of delayed action

•  If a 25-year-old delays starting his equity SIP of ₹20,000 by only three years, he will end up having ₹3 crore less at age 60, assuming a post-tax compounded average return of 10.5% per annum.
• A 40-year-old will pay a term life insurance premium of around ₹20,000, nearly 60-70% more compared to what he would pay 10 years ago.
• If a 35-year-old delays and starts quarterly prepayment of ₹3 lakh home loan in year four at 8.75% interest per annum, he will end up paying ₹27 lakh more interest than if he had started the loan prepayment from the first year itself.

Other examples of delayed action in financial life include:

•  Surrender of insurance policies which cannot beat inflation and offer peanuts cover.
• Settling full credit card bill and continue paying expensive credit.
•  Exiting bad investments and succumbing to sunk-cost fallacy.
• Closing down multiple bank accounts, demat accounts where maintenance charges are unnecessarily paid.

It is axiomatic that delayed financial actions create a long-term ripple effect and prove costlier than inflation or choosing even a few unsuitable financial products. However, the impact of procrastination on finances is often undermined in the long run.

As popularly quoted by Meister Eckhart: The price of inaction is far greater than the cost of making a mistake. 

Also Read: Beware, a financial plan that neglects insurance can leave you high and dry

So, how do you inculcate the discipline to take timely action?

One, accept the fact that you will always be busy or pre-occupied with something. Understand that you will have to accommodate a time slot in your schedule to periodically review finances.

Second, technology has made lives convenient and can be a great nudge.

Figure out your next financial action step, split it into smaller parts if necessary, and take one step at a time. Set specific weekly task reminders. Follow up until the action is executed.

If you are facing time constraints, engaging a financial adviser can provide you that timely nudge to take actions and be on track.

Eventually, it all depends upon the willingness to take action to bring desirable changes in your financial life. Small actions inspire confidence and further gain momentum, snowballing into the habit of taking suitable actions. Consistency in action-taking is likely to tip the scales in favour of a healthy and secured financial future.

Think about that one important financial task which you have been procrastinating for a long time to act upon and what is that first step you can take around it. One step at a time is all you need to reach your financial milestones.

Roshni Nayak is founder, GoalBridge and a Sebi registered investment advisor.

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