Have you ever given some thought as to why the snooze button exists? Logically speaking, how does it make any sense to set an alarm to wake up at a specific time, only to delay waking up by a few minutes? Studies show that more than one in three adults will delay starting their day every day by hitting their snooze button three times before getting out of bed. Some may say, wouldn’t it be easier to just set your alarm for later? Or even better, just wake up on the first instance? Why start your day off with procrastination?
Procrastination is the act is delaying something we need to do by doing something that we want to do. We never find ourselves procrastinating things that are pleasurable, we don’t want to delay these things. We put off things that are tedious, like studying; difficult, like dieting; or that require diligence, like saving money. These things all require us to sacrifice something now in exchange for a better outcome in the future. They require us to make a rational decision to give up instant gratification in preparation for a future event. Procrastination is a very interesting human trait that we are all guilty of to some degree – many of us will push off tasks until the very last minute possible. One more minute of sleep makes all the difference in the morning, doesn’t it? It’s alright as long as we get up and dressed for work in time. But when does this become problematic? Can procrastination negatively impact your life, work, or your finances?
Christopher Parker once said, “procrastination is like a credit card: it’s a lot of fun until you get the bill”. When it comes to your finances, procrastination can rank-up quite a bill. It may also put us at risk for poverty – in 2017, one in seven pensioners risked poverty in the EU, equivalent to around 14% of pensioners, a figure that has been gradually increasing across the years. State pensions are typically not more than 67% of your salary before retirement and this is rarely enough to maintain a comfortable lifestyle once you stop working. This income will typically need to be supplemented by your own savings pot. The time we spend delaying savings and planning for our future financial security translates to a loss of potential earnings that our savings could have generated for us, the compounded returns these earnings could have generated, and the opportunity to create more value in the future. The sooner you start, the more money you will have when you retire. But how does this work?
When you invest a sum of money in a portfolio, you will earn two forms of return: dividend income, which is the distribution of profits from the underlying companies; and capital gains, which is an increase in the value of the share that you hold. These returns are not typically withdrawn from your portfolio, and therefore the value of your portfolio will continue to grow over time. What’s more is that you will use these returns to make further investments and earn even more returns. The longer you leave your money in your portfolio, the more money it will generate for you over time and the greater its capacity to grow bigger.
Starting is always the most difficult part of any task. Experts say that in order to stop using a snooze button, you need to get yourself into a sleeping routine – go to bed at the same time everyday and wake up at the same time, ensuring you have gotten enough sleep in-between. The average human being needs around 8 hours of sleep per night, so waking up at 07:00 would mean that you would need to be asleep before 23:00. It may seem difficult to go to bed earlier than usual, and even harder to wake up on the first ring of your alarm. But once you get used to it, you won’t need to think about it each evening, you will just go to bed at 23:00hrs. Your savings will be no different. Set a goal as to how much you want to save for the retirement, and work backwards to see what you need to save to reach your goal. It’s sometimes useful to track your spending for a few months and understand where you are spending your money. This will allow you to better budget your money and be comfortable with the amount you are putting aside each month. Consider opening a specific savings account, or a retirement account, to help build your nest egg. Create a standing order to automatically transfer part of your salary to this account and consider it as a bill that needs payment at the end of the month. This will allow you to grow your nest without having to think about it each month. The younger you are when you set this up, the more time you have to build your nest.
In an ideal world, we all started saving for retirement from the time we received our first salary. Unfortunately, we do not live in an ideal world. I imagine that very few people have been so diligent; I for one can say that I spent all of my summer job money before winter was over every year. Starting to save later on in life is perfectly normal. No matter how many years you have left for your retirement, now is always a good time to set retirement goals and start nesting some money away. An adviser can help you set up a financial plan that is aligned with your retirement objectives.
Our two cents: Procrastination is part of our nature – but it doesn’t mean that we cannot rebound from it. Don’t feel ashamed if you have been procrastinating. Now that you are aware of what is happening, you can do something about it. Use the years you have left until retirement wisely and let your money make money for you.