TOP 5 IN REAL ESTATE NETWORK, October, 2009—(MCT)-While there are thousands of financial decisions to make over the year and thousands more strategies and actions to consider when it comes time to decide, there is one enemy that keeps most people from making those decisions — inertia.
Sir Isaac Newton’s First Law of Motion explains it all: “an object at rest remains at rest, and an object in motion remains in motion.” This law’s application to human behavior translates financially to “unless there is a really big threat, there’s no need to do anything.” This becomes a dangerous law to the health of personal finances.
Many of us are already overwhelmed by the complexities of personal finances that we develop a shield to avoid coming in contact with the thought patterns needed to improve our situation. Last year was an exception when the stock market plunged far enough for many to move and sell stocks. The recovery is showing some of the same motion as more investors are buying as stocks show steady increases. Those who lost their jobs were moved enough to make changes in their budget that could have been made long before.
Even though these movements are enough to solve inertia among our finances, they didn’t exactly make things right. For example, conventional stock wisdom is to buy low and sell high but this situation led many to do the opposite.
Where the real success in breaking inertia comes is in taking time to develop a financial plan and strategy in order to not be influenced by widespread actions of others that breeds the “herding” instinct of human behavior. Personal finances are an individual action, not a group action.
Start by developing a budget and make purchasing decisions around it. Then determine how much you can or should invest every month and set up automatic transfers from your checking account to your investment account (this avoids inertia from preventing you from having to think about doing it every month). By putting finances on automatic pilot, we prevent inertia from taking over and helping us avoid missing bill payments or investments.
When it comes to investments, many people invest and forget about it, which can be a good thing for long-term investors. But those investments do need to be watched for changes. Yahoo Finance lets you enter a portfolio of your investments and sends you alerts of changes, such as down or up by a certain percentage. That way you won’t let inertia prevent you from following your investments.
Inertia is both a blessing and a curse. It’s all in how you use the law to your advantage.
(c) 2009, McClatchy-Tribune Information Services
