Today Is the Best Time to Check on Your Financial Health

Two easy solutions to help you get started.

Danielle Labotka 13 March, 2024 | 4:06AM
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It’s a lie we’ve all told ourselves: “I’ll get to it tomorrow.”

But “tomorrow” never seems to come, and inertia is often to blame.

Inertia is our tendency to choose to do nothing when faced with a decision. The strength of inertia can keep us from addressing issues on our to-do list, and it can be even more powerful when the issues are complex, abstract, and require long-term thinking—which describes many financial decisions. It’s no wonder, then, that it’s difficult for people to get a handle on their personal finances.

But does that mean there is no hope? Or is there a way to motivate ourselves to tackle our financial to-do list?

Does It Take a Crisis to Make Us Improve Our Financial Management?

Though we are prone to inertia on a day-to-day basis, times of stress or crisis can activate our action bias.

That is, stressful situations often make us want to do something, even if it may not be the best course of action. Crisis can sometimes help us narrow our focus and home in on what is most important. So, does this mean that the threat of a crisis can be what it takes to help people get their financial homes in order?

In a recent study, we found investors overwhelmingly took some form of action when they felt the threat of a recession: In fact, 83% of investors started trying to get their personal finances in order. Though this sounds like good news, a further look into the specific things they were doing reveals that still many were missing some low-hanging fruit for financial health.

The most common actions that people cited were beefing up their emergency savings and paying down debt—which are important steps, but they weren’t taken by enough people to solve the problem across the board.

For emergency savings, only 38% indicated they were increasing their cash on hand, whereas 55% of Americans can’t afford to cover a $1,000 emergency. Furthermore, only 34% of investors were spurred to pay down debt, even though high-interest debt—like credit card debt—is something that needs to be addressed by many more.

Altogether, this suggests that although the threat of an oncoming financial storm (like a recession) may compel some investors to take that first step to improve their finances, it doesn’t get everyone on board. Many investors were not using their motivation to take key actions for their financial health.

Can Little Solutions Combat People’s Financial Inertia?

How else can we combat inertia? A (not so) radical idea is simply to make it easier to do the things that benefit you.

Here are two easy solutions you can put to work in your finances:

1. Let the robots do the work for you.

Studies show that automatically enrolling employees in their employer-sponsored retirement plan drastically increases participation rates. The logic here is beautifully simple: People save more when it’s easier to save. You can use the power of automation for your personal saving goals like building up emergency savings or paying down debt, too. There are already a number of tools that can help automate these processes, such as getting part of each paycheck sent to a savings bank account or ensuring that the autopay for a credit card balance is as high as you can afford.

2. Let conventional wisdom guide your decisions.

In addition to making things easier via automation, you can also simplify making those financial decisions in the first place. The fact is, there’s a lot of personal financial advice out there (and not all of it is good). Some people may want to pay down their debt or stock away more money for emergencies, but that’s easier said than done. How much should they save? Which debt should be paid down first? These questions add complexity that can allow inertia to win out.

However, rules of thumb can help people quickly answer such questions so they can move on to enacting them. For example, common rules of thumb suggest saving three to six months’ worth of spending for an emergency fund or using the “avalanche” strategy for prioritizing paying down high-interest debt first.

So, a simple solution to your financial inertia may start with identifying the issue you’d like to tackle and which rule of thumb you’ll use. From there, you can figure out how much money you can put toward that goal each month and use automation so that money goes directly to your goal without you needing to do anything more.

Rules of thumb and automation may not be the solution for all your financial issues, but these little solutions are a starting point to help you overcome that initial inertia. Once you hit that first financial goal, you can use that momentum to carry you forward to making bigger, more complex personal finance decisions.


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Danielle Labotka  is a contributor to Morningstar.

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