Are you maximizing your biggest asset? Do you know what your biggest asset is?
Let me tell you something about myself. I am a world-class procrastinator. If there was an Olympic medal for procrastinating, I’d have won a gold medal. Several, actually!
What makes me feel slightly better about this is that I don’t seem to be the only one. Practically every coaching email I’ve gotten since 2011 began (and I’m on lots and lots of mailing lists) has been about procrastination. (At least I think so. I’ve been procrastinating about reading them, but “procrastinate” is often in the subject line. J)
People procrastinate for lots of reasons. The reasons that have come up most often in my financial social work and financial planning practices are:
* paralyzed perfectionism: people don’t want to do something wrong, so they end up not doing anything at all
* unpleasantness avoidance: you think that whatever needs to be done is unpleasurable, and who wants to do what’s unpleasurable? So you don’t do it/deal with it/think about it.
Aside from how procrastination might not serve you in other parts of your life, with money (and I have oodles of stories attesting to this), I can tell you that:
When dealing with your money, procrastinating is one of the most effective ways of guaranteeing that you will NOT be financially independent.
Let me say that in another way: if you procrastinate in dealing with your money, you DIRECTLY impact your ability to be financially independent.
Sorry for the tough love, but, alas, my friends, it’s true.
And now let me say it in a more positive and empowering way: if you act proactively when dealing with your money, you are on the path to achieving financial independence.
Okay, now I’m going to go into some “money talk.” Don’t give in to the urge to skip it…this could transform your life. It changed mine.
What’s your biggest asset?
For years, we’ve been told that the best and biggest asset is to own a home. Au contraire, my friends. Unless you own your home outright (no mortgage) OR your home brings in enough income (rental income, etc) to cover the costs of mortgage and repairs, your home is not an asset. It is actually a liability.
This may be hard for some of you to read, particularly since US culture has pretty much pounded into our heads that owning a home = asset = the American Dream. Sorry.
I am SO pleased to tell you that you DO have assets. One of your main assets is your time horizon.
What’s my time horizon, you ask? Well, your time horizon, quite simply, is the amount of time you have left in your life. Obviously we don’t know how long we’ll be here, and once a second has passed, you can’t get it back.
How could that possibly be an asset? Because what’s under your control is how (or if) you maximize the time you have left.
Procrastinating is a sure-fire way to ensure that you squander one of your most powerful assets.
When it comes to growing your money, time can be your ally…and it can also be your enemy. You want to make your time work for you, not against you. And you want to make it work for you in the most efficient way possible.
Here’s how: Have you ever heard of something called “The Rule of 72”?
The Rule of 72 is a handy tool that tells you roughly how long it’ll take your money to double at a certain interest rate.
Uh oh, word alert! Okay, what’s interest? Interest is, simply, the rate at which your money grows. If you have $100 and get 4% interest, you’ll have $104. If you get 6%, $106, and so on. (There are different kinds of interest. For these purposes, we’re talking about compound interest, where your interest earns interest.)
So to figure out roughly how long it’ll take your money to double, you take 72 and divide it by the interest rate, and that’s about how long. So, 72 divided by 4% = 18 years. Yup, your money will double every 18 years (ish).
If you get a higher interest rate, say 8% (which is less than the stock market has averaged over the last 15 years), your money will double every 9 years.
Let’s illustrate this. Say you’re 30 and start off with $5000. If you get 4% every year, at 48 years old, you’ll have $10,000. 18 years later, you’ll be 66 and you’ll have $20,000.
Better than nothing, right? True, but inflation is at 4%, so you’re basically staying even.
And another word alert! What’s inflation? Inflation is basically an increase in prices. Another way to think of it: with inflation, everything gets more valuable except money.
Now, let’s get you a better interest rate and say you’re earning 8%. Same scenario. You’re 30 and start off with $5000. But now, your money is doubling every 9 years, instead of 18. So when you’re $39, you’ve got $10,000, and when you’re 48 you’ve got $20,000, and so on, so that when you’re 66, you have $80,000.
$80,000 is more than $20,000, right? Which would you rather retire on? Um, neither. Neither is sufficient, but $80K is way better than $20K, right?
Now, how does this work if you keep your money under the mattress, earning 0%? What’s 72 x 0? Exactly zero, honey. Your money will NEVER grow. And keeping your money in a savings account earning .50% is better than nothing…barely…but at that rate it’ll take your money 144 years to double. (Not a typo!) So while yes, you need some liquid to take care of daily living and emergencies, that should not be where the bulk of your money lives.
I could go on and on about this, because I think it’s awesome. The main point I want you to take away from this is that the Rule of 72 helps you see that if you procrastinate, you turn one of your biggest allies into a…not ally.
The longer you wait, the less time you give your money to double. The less time you give your money to double, the less it’ll grow. And the less likely it is you’ll be financially independent.
Time is one thing you can’t buy more of…and we don’t know how much is left to us. So maximize your time horizon by acting.
If you don’t see the power of this, then I didn’t explain it clearly and we need to meet. I have many charts and graphs to help make it clearer. Or, if you do see the power but don’t know what to do next, then we still need to meet.
In case you couldn’t tell, I get really excited by all this. And I get excited about helping you figure out and overcome just why you’re procrastinating when it comes to dealing with your money. Are you a paralyzed perfectionist? You don’t want to do it “wrong”, so you do nothing at all? Or do you find this so thoroughly unpleasant to deal with your $$ that you’d rather not deal with it at all?
I can help you with both. I can help you maximize one of your greatest assets: your time horizon. And I want to tell you about your other assets, too—you have them!
Explore your procrastinate-y-ness:
* Take 10 minutes and journal about “procrastination.”
* If you’re a procrastinator extraordinaire, figure out what kind and why. Are you a paralyzed perfectionist or do you avoid discomfort? How has this served you in the past? Is it still serving you or would you like to learn differen strategies to meet your needs for perfection and/or pleasure?
* Have you set goals in the past but not met them? How does it feel when you meet a goal? And how do you feel about yourself when you don’t?
* Your resistance is beautiful because it can teach you something soooo important about yourself. The trick is to see through the resistance to the other side, because often, what you’re most resistant to is EXACTLY what would catapult you to the next level.