Manage episode 235726297 series 2148531
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.
- Make it a competition
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.
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