Jun 10, 2019
Welcome to Finance & Fury, today we’re going to be looking at
what stops people from investing.
The common reasons I see;
- Fear and misconceptions
- Not knowing what to invest in
- Not knowing how to invest
- Not knowing the benefit
- Not having enough to invest
The last one is a self-determinant from the previous 4 reasons.
A form of financial procrastination creeps in;
- If you fear, don’t know, what, how or why, then you won’t
allocate any resources (money) to it
- If you don’t know what to do, or how to do it, then you aren’t
likely to bother
- If you don’t know the benefit – of realising that at some point
– you will need to give up working
Or – if you think something is a long time period off, or too
large a value, you may procrastinate as well
- Why invest for retirement in 30 years? What is the point of
trying to save a $110k deposit for a home?
- Most things that become larger (time periods, or their size in
monetary terms) also become harder for us to achieve - $110k seems
like a lot but $70 per day for 4 years
- Procrastinating is a part of being human, and creeps into our
lives without really consciously thinking about it. One of the
worst parts about procrastinating is that we justify this
behaviour, using some very clever tricks:
- Avoidance and distractions – Looking for other tasks to do
instead of taking action on what we need to.
- Blaming – We blame external events for why we delayed doing a
task.
- Denial – We can tell ourselves that what we are doing now is
more important than what we need to do tomorrow.
- Comparisons – Other people haven’t gotten around to do this, so
why should we?
Sadly, while these may make us feel better in the short term,
all that they do is delay the inevitable pain we will feel
- We end up beating ourselves up mentally because we didn’t get
to where we wanted
- We retire with very limited options regarding income, wealth
and essentially our financial independence
What is investment procrastination?
Same as
any normal procrastination and it has been around for as long as
humans have been alive, and can be in relation to everything we
have ever needed to do;
- Socrates and Aristotle wrote about this in Ancient Greece,
describing it as a state of acting against your better
judgement.
- Put a little simpler, it is delaying doing important tasks for
less important ones. It is much easier for us to still feel
productive by getting through easy non-urgent tasks in preference
of doing demanding ones. Also, it is much easier to do something
fun compared to something hard. Therefore, if we are given a
choice, we will often choose the fun thing over the hard thing,
even if the hard thing will benefit us.
- With long term investments we don’t see any immediate benefit -
your future self (once retired, or in a few years) is not you today
so it’s hard to stay motivated and benefit your future self
Why do we procrastinate?
Behavioural
psychologists have a term called ‘time inconsistency’ which helps
to explain why we procrastinate. This refers to us as individuals
valuing short term rewards more highly than future rewards, even if
these may be greater in the future.
- All goals and plans are for your future self. So, based on
this, you sabotage your future self by seeking rewards for your
present self, even if it is not really that great a reward.
- This internal battle between your future self and present self
can be said to be the key cause for procrastinating. The fact that
your present self is the one that needs to take action and it can
be hard to make your present ‘self’ take action.
- As you cannot rely on long term rewards or consequences to
provide motivation, you need to implement strategies to either
provide some immediate reward or consequence for
procrastinating.
Achieving any tasks comes in two phases as well. The first is
procrastinating and the second is taking action.
- Acting first saves pain – this is why an action plan is
important.
- Create an action plan today (go to the Members’ Area on the
Finance & Fury website, we have a lot of free resources, workbooks,
calculators that will help)
- The longer we delay, the greater the pain we feel from
procrastinating. However, the longer the time is away until we
absolutely must take action, the less pain we feel delaying. It is
funny however, as generally as soon as you go over the break even
point you will see that taking action isn’t that painful at
all.
Have you ever had a small task to complete, delayed it for a few
weeks and then, when you actually got around to doing it, it only
took you 10 minutes? The act of delaying causes more mental pain in
most cases than just taking action.
How to get over any hurdle for investing?
- Fear and misconceptions. Are you afraid of making a bad
investment, like it’s a ‘double or nothing’ investment? That’s
gambling, not investing. If you have been listening to this podcast
long enough, or been doing your own research this hopefully isn’t
an issue. You know the real difference between what is an
investment and what is not, and you have few misconceptions.
- Not seeing the benefit of investing – well, this is pretty easy
to overcome. Imagine if you had to retire today.
- Not knowing how to invest, or what to invest in? Have someone
help you or ask someone who has done it… or check out the resources
on Finance and Fury (what to invest in) – or even check out
youtube
Not having enough to invest
This is normally due to having a large target to hit, or it
being too far off
Option 1 – Follow your action plan without
thinking or delaying – plus reward your action immediately through
‘temptation bundling’.
- Sounds fairly easy to just ‘follow the plan’ however it takes
some habits to form around this
- Give yourself an instant reward – something to build a habit
loop. The concept behind this option is to only do what you love
while doing what you are procrastinating about. The reason this has
been proven to be so effective is that you are rewarding your
present self for taking action to benefit your future self.
- This reward can also be something more tangible, such as giving
yourself a treat for completing a task
- Opportunity cost – what would have you done with the money
saved? Bought clothing? Gone out? Reward yourself with this once
your target is met
Option 2 – Make the consequences of
procrastination more immediate. This helps to keep you on
track.
- This relies on having a system in place where there are real
consequences for not taking action for your present self.
- This is similar to following through with goals, where having
someone or something to keep you accountable drastically increases
your chances of succeeding.
- You can either have a ‘bet’ with someone or with yourself where
if you don’t complete what you need to by a certain time, some
negative consequence comes into play.
- This may be in the form of money or not allowing yourself to do
something else you really enjoy.
How to make this stick?
- Make an action plan – Again, check out the Members’ Area of the
website where you’ll find workbooks, and calculators to help
- Once you have your action plan in place, see what works for you
- implementing either rewards or consequences.
- From there, habits need to be formed around this as part of
your daily routine. Habits are formed because your brain has a lot
to think about, so if we do an activity for a little while, our
brain wires it to become a habit so we don’t think about it
anymore. However bad things creep in, like procrastination over
time.