We all put off unpleasant tasks. In surveys 95% of all people admit to procrastinating, with about a quarter of them saying it is a chronic, defining characteristic. Our innate human behavior is to put off less appeasing tasks regardless of importance. I struggle at times to get out of bed, to tackle mundane tasks, or to get my workout in. I even had an urge to delay writing the article you’re reading today.
It’s unfortunate the consequences or benefits of procrastination are many times unknown. Fortunately, in the investing world, the numbers paint a clear picture. For instance, if we save $20,000 in a retirement account, the investment would double in 9 years (assuming an increase of 8% per year). If we have a long time horizon, in 18 years at 8% we would be four times richer with $80,000 in our account. This is a small example of how an investment can compound over time, if we did not procrastinate initiating the investment.
Now let’s say we did the opposite and borrowed $20,000 today to put towards a brand-new car. The car was a fun purchase in the moment, but 9 years later the car is gone and the loan is not. The loan festered at an interest rate of 8% per year. Now in 9 years we spent two times more than the original cost of the car ($40k). While dramatic, consider if the loan stayed around for 18 years, our debt would have increased four times. So in 18 years our $20,000 car loan turned into $80,000, a debt that is 43% greater than an average American family’s annual income*! Procrastination can be like a new car, it all feels great until the loan payments arrive.
As we can see, the financial decisions made today have great implications on tomorrow, for better or for worse. Not many of us have an 18-year-old car loan, but consider that many of us do have student debt, a home mortgage, and a retirement account that collectively will be around for longer than 18 years and involve more than $20,000. The examples now become real. The benefits of investing and paying down or avoiding unnecessary debt today, however unpleasant, lead to substantial benefits down the road.
*2015 Census ACS Survey
Can Stopping Procrastinating Make Us Happier?