Financial Inertia

Inertia is a powerful force, and I’m not talking about “ball rolling down a hill” kind. No, I’m talking about the kind that keeps us stuck-in-a-rut, maintaining bad habits and preventing us from starting good ones.

When it comes to money, we call this “Financial Inertia,” and it’s something behavioral economists and financial advisors alike have studied for years in hopes of improving financial outcomes.

The idea of inertia has been on my mind a lot lately because of two habits I re-started within the last year. The first began last August when I started going to the gym after a two-and-a-half year pandemic-induced hiatus. The second is Emily and I re-started saving for retirement in January, something we stopped doing in order to make the move to Beacon. (I wrote about this a few years ago.)

While both are positives, both have also had their hiccups. At the gym, I’m finding that my body isn’t holding up like it used to. The workouts I do today couldn’t be more different from the ones I did a few years ago. Same with saving for retirement. While we can finally afford to save, the absence of that line-item leading up to this year allowed for some laziness to creep into our budget. Now Emily and I have to be more disciplined. Literally and figuratively, both new habits require new muscles which is why breaking old patterns to start news ones is challenging.

But it’s not just the potential challenges that come after we create new inertia that gets in the way. We can also feel overwhelmed before making the change. It can be that we’re afraid of making a bad decision, or that the availability of information leads to confusion which leads to paralysis. Here’s what the New York Times had to say about this:

“A large part of the problem is the sheer volume of information. New financial products hit the market almost daily, and there has barely been a year since the beginning of the decade when the tax laws haven’t been changed in one way or another.”

This quote becomes even more powerful when you realize it’s from an article that was written back in 1988! This was thirty-five years ago, before cell phones, the internet, 24 hours news, twitter, Tik Tok, Instagram, etc. People were complaining about too much information then! New products are still being created every day, and I don’t need to remind you about the many recent tax law changes.

Creating new inertia can be hard, and the initial idea of how we accomplish it should be held onto loosely. As I’ve found at the gym, how I exercise needs to change. I expected to pick up right where I left off, but that hasn’t been the case. Frustrating as it has been to feel limited, my goals for working out are still the same: stress relief, more energy to keep up with the kids, and long-term health. The goals are still intact, it’s just the method of how they’re accomplished that looks different. The same goes for our saving. At the outset, I was too aggressive with how much we contributed. Our budget couldn’t tolerate it, so I had to dial it back with the goal of increasing it next year. Sure, I’m a little frustrated we can’t do more, but we made the first, most difficult step, and now each successive step will be easier.

You have your own reasons for wanting to create new inertia, and it’s important to hold on tight to what they are because there may be bumps along the way. Remaining focused on your goals and being willing to modify your approach is crucial, but there’s a third key ingredient: having a trusted partner whose role it is to filter out the noise, the overwhelming amount of information that is thrown at us every day, and to keep you focused and accountable to your goals.

It’s a role we play in the lives of our clients. If that’s what you’re looking for, we would love to hear from you.

The content above is for informational and educational purposes only. The links and graphs are being provided as a convenience; they do not constitute an endorsement or an approval by Beacon Wealthcare, nor does Beacon guarantee the accuracy of the information.

Ryan Smith
[email protected]

Born and raised on the North Shore of Massachusetts, I moved to Raleigh in 2011 to marry my wife, Emily. We have two kids, Jack and Gwen, a golden retriever named Olly, and are members of Church of the Apostles. I have been a Financial Advisor since 2005 and earned a Master’s of Science in Financial Planning from Bentley University in 2007. I became a CFP® professional in 2009, a Retirement Income Certified Professional® in 2015, and a Certified Tax Specialist™ in 2023.