It Is Time to Act: The Secret to Taking Financial Action Today

By Kevin Mulligan, on October 13, 2011

Learning about how to save and invest for retirement, your kid’s college education, and your next big goal is an important task for any individual. Jumping into the confusion of Roth IRAs, 401ks, and 529 plans without doing some research is a costly idea. But don’t learning and your desire to know everythign prevent you from action.

Photo by David~O via Flickr

The Perfect is the Enemy of the Good

This is one of the motto’s of our favorite personal finance bloggers, J.D. Roth of Get Rich Slowly. Striving for perfection seems like a great idea, but it can really backfire if it keeps you from action.

If you wait until you perfectly understand all of your potential investment options, you will never start investing.

The investing world is constantly changing. Your world and goals are not stagnant either. Trying to achieve perfection amid the chaos of the financial markets and your life will leave you frustrated and overwhelmed. Your emotions will get the best of you, and you will inevitably delay your decision to invest at all.

If you research college education investment options for five years, you will miss out on valuable years of growth.

Which is better: a state-sponsored 529 plan from the state you live in, a state-sponsored 529 plan from a different state, or an Educational Savings Account (ESA)? Each plan has its own perks. The plan in your current state may provide income tax deductions, but the expense costs to administer the plan may wipe out those deductions. A different state’s inexpensive 529 plan might be better. But at the end of the day the expense ratio and tax deduction amounts don’t matter if you never open an account and start investing.

Analysis Paralysis Prevents Action

Too many choices can lead to no choice being made. That’s contradictory to what we expect, but there is a popular study on selling jam in grocery stores that supports this line of thinking. The New York Times provided a great summary of too many choices leading to no choice being made.

There are too many choices within each financial category for you to have a perfect understanding of them. Large investment firms have teams dedicated to understanding what is going on in specific market niches, so you shouldn’t expect to understand everything about the whole market.

Get the Basics Right, Act, and Adjust Later

Instead of seeking perfection, use the follow strategy for financial success:

1. Get the Basics Right – You don’t need perfection, you just need the basics. Know the major differences between various retirement accounts. Know how to diversify your portfolio. Know how much you need to save to reach you retirement goal and how much you can save in each account.
2. Make a Decision – Once you know the basics, make a decision and know that it might not be the best decision. An average decision is better than no decision at all. Even if your investment doesn’t earn the best return in the first year, that’s fine.
3. Adjust Later – As you continue to learn more about finance, make adjustments to your prior decision. So your Roth IRA only earned a 3% return last year? Not a problem. You have many years to get to retirement, and you can adjust your investments now for the future. A 3% return is better than no return because you never got around to opening a retirement account.

Are you holding off on making a financial decision? What is holding you back? Let’s talk about it…may be we can help.