Death by Indecision
Imagine you’re walking. You hear a noise and turn around. Coming towards you is a large, slick, black panther. Your primal instincts kick in. It’s fight or flight. You know you have to do something, but your mind is completely blank. Do I run? Do I fight? Do I run? Do I fight?
Suddenly, the panther jumps at you! You scream, fall backwards… and realize you’re protected by the glass. The panther is at the zoo and can’t harm you, phew!
Ok, I know this is kind of a goofy story, but did you know that “freeze” is also a physiological response to fear? Fight, flight or freeze.
Although the majority of humankind no longer battles panthers in the jungle, we still have those same ancient responses to fear. Whether it’s being attacked by a panther, or trying to manage your 401k the “fight, flight or freeze” response to fear is the same.
Did you know that “freeze” is also a physiological response to fear? Many of us respond to fear of money by “freezing”. Instead of taking action, we choose… nothing.
If you’re reading this and thinking “but, money isn’t scary”, you’ve probably never had $100,000 of debt, wondered how you were going to pay next month’s rent, or driven to work every day in a beat-up, old car praying that it won’t break down.
Many of us with fears about money tend to choose “flight or freeze” responses (ie - do nothing or actively avoid it). Maybe you’re scared to open up a 401k with your company because you’re worried you won’t know how to invest the money in the account. Just looking at the words “allocation” or “contribution” causes you to break out in a nervous sweat so instead you choose... nothing.
This is actually a pretty common response to fear. I’ve done it myself plenty of times. I don’t have the (time, money, intelligence, pick your excuse) to figure it out so I choose “nothing” instead.
But here’s the problem. By choosing “nothing” for your retirement savings you are risking potentially millions of dollars. Are you really going to let your fear win for millions of dollars?
The problem is this pesky little guy called inflation. Inflation, as it turns out, EATS your money for lunch! Although you might think “my money is safer in a savings account” or “retirement is decades away, I’ll figure it out later” by not investing now you are getting hit by two bullets. The first is the potential money that you could be making by investing now. The second is your money losing value every day that it sits in a savings account.
You might think your money is “safe” in a savings account, but it’s actually losing 4% (or more) every year to inflation. Doing nothing with your money will cost you a lot of money.
Yes, it is possible to lose money by investing. But remember, you’re already losing money from your savings account because of inflation. At least if you lose money through investing, you’ve tried something new. And I promise, the more you practice, the more you will understand, and the less likely it will be for you to lose money.
You’re going to make mistakes in your investments. It’s happened to me too. Here are some of the mistakes I made:
I contributed to an IRA and didn’t know I was ineligible for one, so I had to withdraw the money before tax season (this was when I lived abroad and didn’t have “taxable income”).
I opened my 401k, but only contributed the minimum for my company match, even though I knew I could and should contribute more.
I invested in a taxable account before maxing out (or even getting close to maxing out) my retirement accounts.
I tried investing in individual stocks, only to find out that all the research required is really boring and I don’t want to do it.
I let my 401k sit in a Target Date fund, even though I knew the expense fees were too high, because I didn’t know what else I should do with the money.
Like most things in life, you learn by doing. Imagine a baby taking its first steps. It takes a couple wobbly shuffles forward and then falls down on its butt. But do you yell at the baby for being so bad at walking? No! You smile and clap and give an encouraging “you’ll do better next time!”
You can learn to manage your money. You might be a wobbly baby at first since you’ve never done this before. You’ll probably fall down on your butt a couple times. That’s ok. But, no baby ever just sits there and thinks, “you know what, I don’t think this walking thing is for me. I’ll just stick to crawling forever”. A baby knows that if it just keeps trying, it’ll get the hang of it. And you will too. Don’t let fear and indecision cost you money.
Action items:
When you think of your money, like an IRA, a 401k, or your savings account…what do you feel? Is there a dropping feeling in the pit of your stomach? Do you feel the blood rush to your face because you’re embarrassed that you don’t understand them? Those are fear responses. I won’t tell you to not be afraid, because money can be scary! But I will tell you to choose to face your fears. How is fear of money holding you back from your goals? Are you willing to let that fear win, and cost you money? Make the decision to not let your fear cost you any more money.
If you haven’t opened a 401k with your company because you’re scared, go do it now. If you have a 401k, but you don’t know what the balance or investments are, log onto your account and check. This is your retirement savings we’re talking about. The only one who loses when you do nothing, is you.
Want to start saving for retirement, but not sure where to start? Check out my posts Traditional vs. Roth IRA and What Types of Retirement Accounts are Available to Me? for more information about how you can start saving for retirement.
Your life may not be perfect, but it is imperfectly yours. The only way to live it is your way.
