“In any moment of decision, the best thing you can do is the right thing. The worst thing you can do is nothing.” – Theodore Roosevelt
There are lots of reasons why we procrastinate. Sometimes it’s because we’re delaying doing something we really don’t enjoy doing. Sometimes it’s because we’re fearful. Sometimes it’s because we’re busy or because we’re just not sure what we’re doing so we wait, in the hopes that all will become clear at some undefined point in the future.
I’d be lying if I pretended, even for a minute, that I have all the answers when it comes to overcoming procrastination and increasing productivity! I can be very productive when I put my mind to something but I can also procrastinate with the best of them (especially when the sun is shining or a great book is calling). However, one thing I have learned over the years is that putting off something that really needs to get done is always stressful and never serves me well in the end. This is especially true when it comes to finances because delays often result in penalties or lost earnings.
This week I was talking with a man in his mid-30s who was just about to leave on vacation. Fred (not his real name) was explaining to me that he’d saved $6000 for his trip to Japan but that the trip had left him in a bit of a crunch financially and so he’d had to ask his landlord if he could wait until he got back to pay his rent for April ($400). He commented that, even though he had another $8000 in the bank, he couldn’t touch any of it because, if the account balances dropped below a certain amount, he’d have to pay service fees and he didn’t want to do that. While I understood his aversion to fees, I couldn’t resist asking Fred if, perhaps, his $8000 could be making him more than the $30/month he was saving in fees. He responded that it probably could but right now he was “too busy looking for a full-time job” and so “RRSPs, TFSAs and all that stuff would have to wait.”
I didn’t push him any more on it but the conversation made me think. While there are definitely more questions to be asked, from my perspective his situation raises two red flags that could be dealt with right away:
1. Multiple Bank Accounts
Currently, his $8000 is split between three different accounts at three different financial institutions. One account was opened for him as a child by his parents; the second he opened when he started university because they offered a better student banking package; and the third is one he opened fairly recently with the institution his girlfriend banks with. Each of them pays minimal interest but they require a different minimum balance ($3500, $2500 and $2000) in order to waive their $10 service fee each month.
The first question I think Fred should consider is: does he really need three bank accounts? Having multiple accounts isn’t always a bad thing but if he has three accounts because of circumstance rather than because of choice then it probably makes sense to close at least one. The next question to consider is: “could he open an account with a no-fee institution, such as PC Financial or Tangerine, and get all the same banking features without the minimum balance requirement?” Chances are he could and he might even end up earning more interest in the process.
2. Money Without a Purpose
Currently, Fred has all of his savings in his three chequing accounts. He doesn’t have a RRSP or a TFSA because he hasn’t had the time to investigate whether setting them up makes sense for him. Fred has been working as a substitute teacher since he graduated eight years ago but he is hoping to secure a full-time teaching post at some point in the future. His income varies from month to month but he always makes more than enough to cover his expenses.
I suspect that part of the reason that Fred is “too busy” to investigate RRSPs and TFSAs is that he doesn’t feel as though he knows enough about them, or investing, to make an informed decision. He’s definitely not alone in this; I meet people every week who have money sitting in accounts because they don’t know how best to put it to work. My first question to Fred would be: “what’s the purpose for this $8000?” Once he determines how much he’d like to put aside as a contingency fund, how much is for future spending and how much is for retirement savings, he will have a much better idea of which “bucket” (TFSA, RRSP, Chequing Account, Savings Account etc.) is the best place for each amount. Once he’s figured out which buckets he needs, then he can figure out how his money should be invested inside each one.
In the individual and group financial education sessions that I run each month, I come across people like Fred all the time. Sometimes they’re aware that their money could be working harder for them but a lack of time/information/motivation etc. means that they’ve never got around to making a change. Sometimes, they’re simply handling their money the way they always have and they’ve never stopped to ask themselves if there’s a better way of doing things.
If we’re going to take control of our money and manage it effectively, we have to be aware of our options and take the time to make sure that we’re not missing out on opportunities to put our money to work simply because we’re too busy or too blinkered by habit to see them. The cost of procrastination can be much more than the amount each month that we're saving in fees.
What suggestions would you give to Fred? As always, I’m interested to hear your perspective and your comments.