Financial Implications of Financial Procrastination

Every one of us does in one way or another display tendencies to procrastinate on unpleasant tasks. Sometimes, it is okay to procrastinate. Sometimes, there is no harm. But don’t let  “sometimes” become all the time. Once procrastination becomes a habit, problems begin to accumulate. Even more so in money matters, procrastination can cost you dearly. Learn how to safeguard your financial well-being against procrastination.

The word “procrastination” itself has a negative implication. It portrays laziness, a tidak apa (I-don’t-care) attitude, and leads to unfortunate outcomes and failures. Especially in personal finances, your financial future can get derailed if you let procrastination take control over your financial health.

Quantifying the effect of procrastination is inaccurate at best. But, to a certain extent, you can quantify the costs of inaction on your personal wealth management. Would you be surprised to know the financial cost of procrastination is high?

What are the financial consequences (costs) of not taking care of your finances?

We can analyse the costs by examining these five main areas of financial procrastination:

  1. Time value of money: dilly-dallying on executing your first investment.
  2. Indiscipline in managing own personal finances.
  3. Delaying in making crucial financial decisions (usually involved a big sum of money).
  4. Not maintaining proper tax records, last-minute or late filing of the tax return.
  5. Health and relationship costs.

 

1. Time Value of Money

Time is money with retirement planning or long-term goals. Invest early so that your hard-earned money can work longer and harder for you. Don’t put off to tomorrow what you can do today.

But with the rush and hum of everyday living, we occasionally forget the important things or to procrastinate. And if you procrastinate in investing, it will cost you. How? Compounding interest.

A simple illustration of how delaying investing can cost you: –

Eric and Karen, both 50 years old, each has RM250,000 (two hundred fifty thousand ringgit Malaysia) to invest into a retirement fund. Karen contributes RM25,000 a year to an account that earns 6% per annum. After ten years, when she is 60 years old, she stops making the annual payments.

Eric puts off his investing program and placed RM250,000 in a Fixed Deposit account earning 3% interest p.a. At age 60, he set aside RM25,000 a year into an account that also earns 6% p.a. Though both have contributed equal amounts Karen has the magic of compound interest working for her. When they both reach age 70, Karen’s account balance is almost twice the size of Eric’s!

Procrastination is costly, and as Eric painfully learnt, when you get a late start it is difficult to make up for lost time. Don’t dilly-dally on executing your first investment!

2. Financial Indiscipline

We often neglect the practice of making sure our personal finances are in the best of health. “There are just too many daily tasks needing my attention”, said one procrastinator. You can give whatever reason you want but always remember, your financial wellbeing is your own responsibility. If you want to achieve financial freedom, you must manage your personal finances from the get-go.

Always start with budgeting. A budget is a must and a tool for managing your money. Without it, you are going thru life blindly not knowing what, when, why, where and how on your money. You may not realize that you are overspending, spending more on the wants over the needs or late in paying your loans on time thus attracting penalty. These are all avoidable additional costs.

No emergency fund? Then prepare for a stressful not-so-fun time when faced with an unexpected emergency, such as being terminated from your job or facing a major health issue that requires a large sum of money.

Other example of financial indiscipline costs include:

  • The lost cost of not using an RM30 gift coupon before expiry.
  • Not paying bills or credit cards on time incurring late fees and penalties.
  • Constant late payment of bills and loans lead to a bad credit profile. As a high-risk borrower, a vendor will charge higher interest for taking on greater risk.

 

3. Delaying Crucial Financial Decisions

Financial procrastination on major life events which usually coincide with major life stages will be increasingly expensive if not dealt with early. These include the following:

  • Getting married
  • Buying your first home
  • Starting a family
  • Risk management and insurance planning
  • Retirement planning

You need to consider many factors before making these important major decisions. Do your research and learn the basics (while avoiding the extreme of analysis paralysis).

For example, when buying your first house, key factors for consideration includes:

  • The loan amount you can qualify and comfortably pay monthly.
  • Down payment amount and available developer rebates.
  • Loan facility at a fixed or variable rate, loan type and lock-in period.
  • Property insurance options and whether to finance your insurance.
  • Purpose of purchase, yield and returns projections.

If you don’t take actions earlier to consider the various financial factors concerning a life-changing event, it may lead to a number of perils which includes:

  • A wrong decision made. Last minute (constraint of time) decision with no proper research has higher chances of getting it wrong. For example, buying an overpriced house without evaluating its investment potential.
  • Not reading and understand the “fine print” before signing agreements. There are reasons why these clauses are called “fine print”. For example, not realising your variable rate loan will revert to a standard rate that is much higher than the initial “teaser” (introductory) rate or that your lock-in period begins only after your property completion.
  • Poor risk management. Not buying sufficient insurance coverage. For example, being diagnosed with an incurable long-term illness causing you to lose your property together with your job.

These unfortunate events can take a huge portion of your savings. But, with a little bit of preparedness and be financially proactive, will at least mitigate the losses if not avert it.

Apply this principle to our next area of procrastination, taxes.

 

4. Tax Procrastination

Taxes is generally regarded by most as a dreaded, boring and painful task. But at the same time, paying your taxes is one of the most important things to do. Why? The consequences of non-compliance can be severe including fines and international travel restrictions. So, make sure you submit your tax return correctly and on time!

Proper tax return submission requires at least some basic tax knowledge and planning. You need to know what expenses qualifies for tax exemptions, deductions and reliefs respectively. Documents for these qualified expenses must be available when requested. Otherwise, the tax authorities will view your tax submission as incorrect. To avoid this, file your expenses documents as and when incurred. Don’t wait until the tax submission monthly dig everything out from your smelly shoebox. Do it right and in a timely manner and will find your tax return submission a breeze and on time.

Inland Revenue Board of Malaysia (IRB) is very strict with submission deadline. Thus, it makes good financial sense to submit your tax return early before the due date. Late submission will attract a penalty which can be costly. Please refer the full list of penalties by IRB here.

Procrastination not only costs you money but also your health and relationship. How? Read on.

 

5. Health and Relationships Costs

Doesn’t procrastinating feel good at the time? You have more time to spend on things you like to do rather than things you should do. For example, instead of updating your weekly budget, you are busy saving the world playing video games. Its feel good right? But when deadlines loom or an unexpected financial emergency arises, tension starts. Things will get frantic, moods swings and stress level start sky-rocketing.

Poor financial habits not only rob you of your hard earned money but also affect you mentally. When there is a financial emergency, your mental health is affected due to anxiety. And when your health is bad, everything else is unimportant.

It is also well known that the money problem is one of the main contributors to a divorce among couples.

 

Conclusion

Just do it and do it now. Not tomorrow or next week.

Procrastination is a habit. Break this habit. It’s never too late to change for the better. Taking simple actions today will change your future finances for the better. Your financial habits and discipline will decide your direction towards financial freedom.

Can you do it? Yes, you can!

 

Share your experiences related to financial procrastination.

Eric Kiang
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Eric Kiang

Writer at MyPF
Eric is a qualified chartered accountant since 1992 and a member of Malaysian Institute of Accountants (MIA). He received his Diploma in Financial Accounting from TAR College and subsequently professional accountancy from ACCA.

He has 25 years working experience in different finance-related jobs. He is now a consultant, and personal finance and business writer. His main goal is to help and educate non-finance professionals to understand and solve their personal finances problems. He believes everyone should be financially literate because everything we do has money implications!

Eric currently resides in Kuala Lumpur, Malaysia with his wife and two young children.
Eric Kiang
Connect
Eric Kiang

Eric Kiang

Eric is a qualified chartered accountant since 1992 and a member of Malaysian Institute of Accountants (MIA). He received his Diploma in Financial Accounting from TAR College and subsequently professional accountancy from ACCA. He has 25 years working experience in different finance-related jobs. He is now a consultant, and personal finance and business writer. His main goal is to help and educate non-finance professionals to understand and solve their personal finances problems. He believes everyone should be financially literate because everything we do has money implications! Eric currently resides in Kuala Lumpur, Malaysia with his wife and two young children.

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