How Inertia Can Devastate or Save Your Financial Future

by Kevin on August 22, 2008

Dave Ramsey likes to say that 80% of personal finance is psychology. I don’t know if this fits under the psychology title, but I think inertia is a big part of personal finance.

It’s easier to do nothing. To not make a change in your life. To ignore the advice you receive and read.

A definition from Wikipedia: “inertia is the resistance an object has to a change in its state of motion.”

Personal Finance Change is Hard

Positive or negative, change is difficult to start. It’s true in many aspects of our life. Personal finance is no different. If you can avoid making a difficult decision or looking at your mistakes, you will. If you can keep everything the way it is now, you will. The result is usually poor financial performance.

I’m guilty of this too. I am sticking with my Roth 401k for many reasons — one of which is it is the easiest option right now since I am invested in it currently.

Much has been lost for lack of effort. And when you get down to it, taking a look at your receipts and credit card statement really isn’t too much effort. There are many online tools that can help you analyze your spending habits easily. I still prefer Excel spreadsheets, but you have to start somewhere.

You’re pushing the boulder up the hill. It’s a lot of hard work to get to the top of the mountain, but you know the rewards are worth it.

Some examples of bad inertia:

  • You never rebalance your portfolio because that requires time and work. “75% Chinese stocks is fine, right?”
  • You never open up a Roth IRA, or if you do, you forget to fund it. “Saving money hurts.”
  • You never check around for better interest rates on your savings account. “3% versus 0.02% isn’t too much difference, I guess.”
  • You never shop around and get pre-approved for a home loan. “We’ll get approved for whatever we need…”

Not All Inertia is Bad

Inertia can prevent you from making good financial moves. It can also help you avoid making poor financial moves as well. You’ve pushed the boulder to the top of the hill and it’s started rolling down at great speed. Why try and stop it?

  • You don’t buy the penny stock that you’re foaming at the mouth over.
  • You don’t stop your automatic investments into your 401k and IRA accounts.
  • You don’t go to the next get rich quick scheme meeting at the local hotel.

Overcoming Inertia

If inertia is holding you back in a bad way, here are a few things you can try to get past it. To use the example above, see this as getting a truck to attach your boulder to — let’s drag this thing up hill.

  • Get educated. Perhaps you are unaware of the benefits of rebalancing your portfolio or opening a Roth IRA. Read magazines, books, blogs, whatever it takes to give you that “light bulb” moment. Having an understanding of how important different financial issues are in your life should lead to giving you some inspiration to move forward.
  • Get automatic. Set up all of your financial transactions on auto-pilot. The Automatic Millionaire is based on this idea. Make your 401k and IRA contributions come out of your check every month. Automatically save $100 from your checking account into your savings account. Pay you bills on time, every time with automatic bill pay.
  • Get acquainted. Find a group of acquaintances that can help you make the right decisions down the road. This could be a group of bloggers, a few friends from work, or even a parent.

What are your biggest struggles with inertia? Is something holding you back, or have you gotten to the top of the mountain?

{ 3 comments }

JB August 22, 2008 at 8:02 am

Well, inertia seems to be moving in the wrong direction lately… woke up with $0.49 in my bank account yesterday, my phone stopped working this morning…

I will fight that inertia though! Tonight I go to work for my first day at my second job. I will not let the inertia drag me down.

I think it’s very hard to get inertia moved in the right direction…. it’s hard to get rolling on a debt snowball… the first debt is the hardest. But once you get that inertia… you have to keep moving with it!

Blake August 26, 2008 at 3:59 pm

I completely agree. When it comes to breaking a bad habit or starting a new one, it’s the initial resistance that is SO hard to overcome.

Have you heard of Steve Pavlina’s 30-day challenge? Essentially you pick a habit that you want to break or begin, then vow to do what you need to do for at least 30 days. It’s really neat, and although it works better with repetitive tasks/habits instead of occasional things, it can be adapted in a lot of ways to improve in just about any are of life. After you make it for 30 days on a new budgeting plan, for example, your inertia should be strong enough for the change to be long-term.

This is a good post. I absolutely love the psychology of money! 😀

Kevin August 27, 2008 at 7:07 pm

@JB: Keep it up and it will eventually turn around if you use the right techniques and mentalities.

@Blake: You’re exactly right. I haven’t heard of the challenge — I’ll take a look. Thanks for the kind words. Writing for this has been the same way. It is now a habit. I do it every day. Hard at first, but becomes easier with time.

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