The Hidden Costs of Financial Procrastination and How to Overcome Them

Financial procrastination is when people postpone their financial obligations until the last minute. In many cases, people procrastinate about their finances by making moves that are unrelated to their financial obligations.

Financial procrastinators are less likely to save or have saving plans. An example is the lack of emergency fund because people tend to use part of their emergency fund on fun things. Because of the costs associated with financial procrastination, there is need to establish ways to overcome them. 

The Hidden Costs of Financial Procrastination

Procrastination is majorly a way of putting off doing something now until the last minute. While some people can thrive in procrastination such as meeting a deadline for school work, it can mean extra money when it comes to managing the finances. 

For some people, these extra finances can push their finances to the far limits. One typical characteristic of financial procrastinators is that they are less likely to participate in saving plans or initiate the ‘save later’ ideology in their financial management and plans. 

Financial procrastination is incredibly common, especially when people are dealing with complicated things that need money. It can lead to some hidden costs that can be huge unless people figure out how to overcome them. Here are some of these hidden costs associated with financial procrastination. 

Hidden costs associated with financial procrastination

Lacking Adequate Emergency Fund

Sometimes, saving money for future use can be hard or challenging while on others, it is a common practice to save a percentage of their income. However, even if these people have enough to cover all their monthly bills, it is often appealing that they have to spend it on fun things than stocking it for future emergencies. 

In such cases, it will be challenging for them to meet unexpected emergencies because they have used up money they would have build up as emergency funds. Hence, they will be forced to borrow money in extreme financial need. When people spend more amount of money on other things without saving to cover for future emergencies, they will probably have to use their credit. This decision will cause them to accrue more debts that will be added to their monthly payments. 

It is just as important to save for your emergencies as it for the periodic expenses such as monthly shopping for groceries. Lack of emergency funds might also have other challenges such as depression, insomnia, and low self-esteem. 

For example, ignoring the call to save for emergency funds can lead people into finding themselves with worsening health conditions. If they are still working, they will have to miss work, which can be detrimental if they have families to take care.

In such cases, depending on your benefits would lead to costly situations, especially if you do not have paid time off to cover up all the missed days. Under these extreme circumstances, financial procrastination may lead to double-consequences to procrastinators or even members of the family.

Not having enough for Retirement

Everyone will at some point leave active workforce and retire. The problem is that when people are at their young age, they tend not to think about retirement. Therefore, they ignore or put off retirement savings, which can be the worst thing they can do.

Majority of people wait until they are 30 or 40 when they start thinking about retiring, which is a plenty of time. However, the problem with waiting for such period of time is that retirement savings use special tax-advantaged accounts such as the 401 (k) and the Individual Retirement Account (IRA). In many cases, these accounts have limits for which people can contribute each year. 

• For example, in 2021, the limits were $19,500 for 401(k)s and $6,000 for IRAs. 
• It means that if they do not fill up their contribution spaces every year in time, the remainder of that space will disappear and they cannot back up the contribution space for the future.

Therefore, every year that they do not make such contribution, the potential for tax savings is lost. When it comes to building the most powerful plan for retirement, time is a crucial consideration. It means that financial procrastination will lead to people having inadequate retirement funds to meet their future expenses when they are not part of the active workforce. 

Poor Credit Score

It is always easier for people to manage their credit score as long as they are not applying for any loan. Credit score is one of the important considerations at specific points when people want to pull out big projects that require additional financing. 

When people want to apply for a loan, they will probably do anything to boost their credit scores. There are other ways that people use to boost their credit scores in the short-run. However, these techniques are sometimes not effective and can lead people into additional costs. Besides, building credit scores is a challenge even though people think it is something they can do overnight. Instead, there are two important factors that are always considered when boosting credit scores. 

The first one is payment history, which is always obvious because it is only making monthly payment before the due date. The more timely payment an individual makes, the higher their credit scores. The second consideration is the age of the accounts, which is less obvious. For example, if you have more old accounts, it is likely that the new accounts are few, which consequently boosts the credit score. 

The challenge of financial procrastination comes when someone needs additional financing to complete a project. For example, if you want to purchase a car, you will need to start building your credit score early enough or sign up for credit card early enough. The problem with financial procrastination is that people will repay their loans later than the stated dates, which will damage their credit scores. 

Damaged credit scores means that you will not save a lot on interest rates when you apply for bigger loans because the rates will be higher, leading to additional costs. The amount of interest rates charged on a person with a great credit score is smaller than a person with lower credit score but applying for the same loan. In this case, a financial procrastinator will likely pay more for the same loan. Often, these people end up paying more for something they ought to have paid less money because of the additional interest charges. 

Incorrect Tax Withholding

Countries such as the US have notoriously complicated and difficult tax codes. In the US, there are entire companies that were created to help the country in filing taxes every year. Nevertheless, there are some basic things that people can do to improve their financial situations. For example, when you start a new job with a new employer, you will have to fill out tax forms such as Form W-4. Some of these forms will ask you the amount of allowances you would want to claim. It will affect the amount of money the new employer will withhold from your paycheck to pay for the taxes. 

Meanwhile, a personal situation change is an important consideration when claiming for the allowances. People have to fill accurate information in their tax forms to avoid their companies withholding too much. Of course, you will get the money back at the end of the year. But, getting a tax refund has never been a nice idea. It is the main reason people are advised to save because every dollar you get with tax refund will be the same to the one you loaned to the government for free. But with saving, you are likely to reap a lot of profit. 

What can we do to overcome hidden costs of financial procrastination? 

First, we need to automate our bills. Many people are still resorting to snail mail to pay and receive their monthly bills. Unfortunately, it is a waste of time, resources, and efforts because it is something that you can do automatically. Therefore, the best way to fight the hidden costs associated with financial procrastination is to set up automatic payments. You can set up automatic payments for;

• Utilities 
• Subscriptions 
• Rent 
• Credit cards and loans

Automatic biller will collect the correct payment without your involvement. However, you must take time to review the bill for accuracy.

Second, we can prioritize on debt consolidation and refinancing. These are two great ways that can help you save money by significantly reducing your monthly bills. If you have debts to pay, especially credit card debts, consolidating them into one monthly payment or refinancing will reduce your interest rates. However, you need to be careful with debt consolidation and refinancing.

The huge number of debt consolidation services and refinancing options will allow you to get into a cycle of constant consolidation and refinancing without the intention to pay the balance down. If you refinance your debts and make significant repayments, it will take decades before fully repaying your debt balances.

To avoid this, you should come up with a payment plan before deciding to refinance or consolidate your debts. After coming up with the payment plan, stick to it. The payment plan will make it easier to execute than refinancing.

What about saving for emergency?

Even though saving could be hard, building some form of an emergency fund will be an important step for your financial life. Building some form of an emergency fund is an important step to help in avoiding future financial hardship. For example;

To start	Ideal goal	Super safe
$2000	2-5 months of essential expenses	Up to 12 months of expenses

If you are hit by an unexpected expense, you will have to take a loan, which will attract interest in repayment. To avoid this, you do not have to think about building and emergency find because it does not require complicated procedures. 

A better alternative is to sign up for an online saving account. With an online saving account, there will be amount from your income that will be pulled from your pay cheque into your savings account. It will help you in case of any future emergency. 

The same technique can be applied when saving money for retirement planning. A one-time effort will result in long-term financial security that will even help in retirement. Consider this example;

• If you start saving $5, 000 every year at the age of 25 while planning to retire at the age of 65, the investment will earn up to 9% return every year. 
• Over the course of 40 years, the total contribution will be $200, 000 to the retirement account. 
• It means that at 65, the retirement account will have a total of $1.84 million. But if you decide to delay your saving for the retirement starting at the age of 35 and saving $10, 000. 
• In the course of 30 years, you will contribute $300, 000 to the retirement account. 
• In this case, you will end up with $1.45 million in the retirement account, which will be $300, 000. 

The above $300, 000 is because of financial procrastination. It is evident that financial procrastination can lead to hidden costs that can affect our financial planning in the future. It means that we should develop the culture of saving from the early age. 

What do we need?

Financial procrastination is common thing amongst us. Even though some costs associated with it are evident, it is something that is hard to avoid. However, getting over it is essential to ensuring your financial life is in order. Therefore, all you need is the motivation to encourage you to save and do anything to fight the urge for financial procrastination. The benefits of fighting financial procrastination are more than the worth of it.