Financial Inertia – Friend or Foe?

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It’s happened to all of us at one point or another, getting too busy with “life” and neglecting our finances.  Or maybe we intentionally have our head in the sand because ignoring managing our money seems easier than dealing with it. But sometimes this financial inertia can be a good thing, a friend of sorts. And other times financial inertia is a foe and can wreak havoc on our long term wealth.

What is Financial Inertia?

Broken down into its two parts financial inertia is one-part money and one-part a tendency to maintain the status quo – i.e.: do nothing.

So financial inertia is a tendency to maintain the status quo when it comes to your money or finances. Think of it like sticking your head in the sand and ignoring what’s going on around you.

Behaviourally, this can be both a good thing at times and a not to good thing in other circumstances.

Financial inertia – friend

Sometimes doing nothing with your money is a good thing. And as a busy momma, I love it when doing nothing has a positive impact. Anything I can do to make my life easier, I’m going to try and do.

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Automation

By taking the time to set up automatic transfers into your savings account with every paycheque you can essentially “set it and forget it.”  Once the automation is set up, the less you tweak or change it the more doing nothing helps you.

I can set up automatic transfers to my high-interest savings account at EQ Bank and sit back while my money earns interest while I sleep.  Then when I’m ready to invest those funds it’s another easy transfer.

The same can be said for your investments.  According to Investopedia (and many other sources), buy and hold investing (essentially setting it and forgetting it) outperforms active investing the majority of the time.

Sounds good to me – make an educated decision and then let your money continue to grow.

Avoiding lifestyle inflation

Lifestyle inflation, spending more when your income increases can have negative effects on your savings. But being too lazy (or consciously choosing not) to spend more money or succumb to lifestyle inflation is a good thing.

This is a positive benefit of financial inertia. Continuing to spend the same amount even when you make more money, leaves more money to be saved or invested.

But maintaining the status quo is only positive if you consciously increase your savings/investments while avoiding lifestyle inflation.

How to benefit from financial inertia with your money 

Here are a few simple things you can do to make financial inertia your friend:

  • Set up your savings on autopilot. 
    • Have the money transferred into a separate savings account every time your paycheque gets deposited.
  • Leave your investments alone
    • If you are a long term buy and hold investor, then be just that. Do you research in the beginning to invest in what is right for you and then leave the money there to do its thing.
  • Avoid lifestyle inflation
    • I know, easier said than done sometimes. But the next time you get a raise, increase the amount you put into savings.  This can help trick your mind into thinking there is less money available to spend.

Financial inertia – foe

But don’t get too caught up in the positives.  Sometimes doing nothing with your money, or maintaining the status quo can really affect your ability to accumulate long term wealth.

Spending mindlessly without keeping track of your expenses

If you have always shopped a certain way or spent a certain amount of money on something without thinking about it, then financial inertia is your foe.

Mindlessly spending money without considering it can easily lead to overspending.

I find this to be especially true if you are a higher income earner.  Maybe you have the mindset of, well I make good money so I should be able to spend money without having to think about it.

The problem with this thinking is that it will not help you get ahead at all. Without consciously thinking to save money, you will not save money. It will be much easier to run out of month before you run out of money.

Not reviewing and optimizing your expenses

Okay, maybe you’re thinking – I got this. I check my bank statement somewhat regularly and know where my money is going. I’m good right? 

When as the last time you negotiated your cable bill? Or looked into seeing if your cell phone plan was the right plan for your needs? If you are not reviewing your expenses and looking for ways to optimize them, then you’re stuck and there’s room for improvement.

Keeping the status quo with our expenses and never questioning them can end up costing us hundreds if not thousands of dollars a year. 

But this doesn’t have to be difficult or time-consuming momma.  This is the very reason I created the expense tracking workbook that you can get for free right here.  It will help walk you through your expenses and come up with a plan to optimize or eliminate them.

Companies are banking on your financial inertia

There are companies if not whole industries that rely on your inaction for their profit.  They are not going to call you up to tell you that there is a better deal on their product.  These companies are hoping to profit from your laziness.

Sometimes it frustrates me when banks offer ridiculous signup bonuses to open a new account and set up your direct deposit. Meanwhile, I’m over here thinking, hey I’ve been a loyal customer for X number of years, where’s my bonus?

But you see, the bank already has me.  They don’t need to offer me a bonus to stay because they are banking (pun intended) on me not doing anything and keeping me as a customer.

Free trial trap

Then there is the free trial trap. Think about all of the free trials that are offered as long as you provide your credit card. The company is hoping you forget to cancel the free trial so that they can charge your credit card the full fee.  

This is a great marketing strategy. One of three things is going to happen after the “free” trial. 

One, you love the product so much and can’t live without it that you don’t mind paying for it. 

Two, you forget about the free trial period (financial inertia in action), don’t cancel, and are charged for the ongoing use of the product. 

Or three, you have created a system so that you don’t forget to cancel the free trial and you make sure to cancel it on time and are not charged.

As a busy momma, many things to take priority over cancelling a free trial or looking for a better deal.  But here’s my trick, I set reminders on my phone. I would be lost without the messages that pop up that remind me to do something.

The moment I sign up for a free trial of something I set the reminder on my phone to cancel it the day before the free trial is over. I have annual reminders in my phone to review my service providers and see if there is a better option.

And by taking the time to plan in advance I can hope to prevent financial inertia from being my foe. Without taking up too much of my already busy schedule.

Being content with the first steps

I am all for celebrating small accomplishments along the journey to financial independence. Or any journey for that matter.  But don’t let your initial victories sabotage your long term success.

Being content with the first few steps of any financial journey and then not continuing to take action is an example of financial inertia being your foe. Doing nothing is robbing your long term success. For some, this is their biggest money mistake.

Now, I’m not saying that you have to pursue every goal so intensely that it kills your spirit or makes you unhappy.  I am saying that continuous progress, at whatever pace you are comfortable with will continue to provide ongoing rewards – both psychologically and financially.

I have fallen prey to this foe in the past. After we bought our rental properties I thought that we were good and could just coast for a few years.

And that thinking worked for a little while. 

But then expenses started to come up for our real estate business and we weren’t 100% prepared for them as we could have been. This led to an increase in stress levels and diverting funds away from other priorities.

Be careful of these financial inertia traps

  • Spending mindlessly without keeping track of your expenses 
    • Keeping track of your expenses is one of the easiest first steps you can do to be in control of your finances.
  • Not reviewing and optimizing your expenses
    • Schedule some time every month to do a quick review of your expenses. Use the free expense tracking workbook to help you find ways to optimize your expense and save money without compromising your lifestyle.
  • Being happy with the first steps
    • Take some time to celebrate small victories, but also schedule in the next action step. Keep going and don’t always be happy with the status quo.

Financial Inertia – Friend or Foe Recap

Here are 3 times when maintaining the status quo with your money works in your favour:

  •  Set up your savings on autopilot
  •  leave your investments alone
  •  Avoid lifestyle inflation

And here are 3 times when doing nothing with your money does more harm than good:

  •  Spending mindlessly without keeping track of your expenses
  •  Not reviewing and optimizing your expenses
  •  Being happy with the first steps

Final Thoughts

So, has financial inertia been your friend or your foe lately? Maybe you were not even aware of it prior to reading this. That’s okay too.

One thing I try to remind myself to do every day is to take action. Even if that action is as simple as journaling or making a plan for what needs to get done. 

But I’m also trying to be mindful to not take too much action – financial inertia can be my friend sometimes too.

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4 thoughts on “Financial Inertia – Friend or Foe?”

  1. Its funny, I read a few PF blogs and everyone talks about tracking your spending. I’ll confess – I don’t really. However, I track to make sure I am meeting my savings goals and not taking on debt so I don’t worry about the rest of the details. I am sure if I did a deep dive I’d shock myself on how much I eat out or other things but as long as I am maxing out my RRSP/TFSA, have some extra to put towards principle payments on the mortgage I haven’t stressed about it. I am fortunate (and I know it) that money isn’t tight and I am not having to struggle to make ends meet and put some away. I give my self a bit of a pass on tracking spending as long as it doesn’t mean I don’t have the cash to pay off my credit card at the end of the month.
    I do occasionally do a “eat at home month” to break myself of that habit and it has the unintended consequence of being good for the pocket book.
    I think I’d be in more trouble if I actually liked to shop 🙂

    1. Pam – if you are meeting your saving goals and not taking any more debt then I think you are doing great without tracking your spending. Tracking your expenses is a great way to check-in, maybe once a year or when you’re just getting started. Once you have things on autopilot if there are no issues and you can still reach your goal then you are good to go.

      I agree I would also be in more trouble if I liked to shop but I really don’t enjoy it.

    1. Latestarterfire – glad this post and my comment on your post had an impact. Sometimes we are so quick to give ourselves a hard time that we may miss the silver lining.

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