1) What does ‘inertia’ mean?
2) What is financial inertia?
3) What causes financial inertia?
4) How to overcome financial inertia
What does ‘inertia’ mean?
First things first: what is inertia?
The word actually comes from physics. You might be familiar with Newton’s law of inertia:
‘An object at rest stays at rest and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force.’
A somewhat confusing concept can be broken down simply:
Imagine you’re given three weeks to complete a task. You may have a hard time getting started initially. Suddenly, the deadline is right around the corner and you’re forced into action.
Once you get into a good rhythm, you may find that it’s effortless to keep going. In this scenario, the due date was the ‘force’ that kicked you into action, beating the inertia (or inaction). But how can inertia impact our finances?
What is financial inertia?
Inertia is a powerful concept and can affect various aspects of our lives, including our finances.
Financial inertia happens when we put off financial planning even though we know we need to start. Instead of taking action, we continue to do what we’re comfortable with until there’s a sufficient reason to change.
Although some might consider it an issue of ‘laziness’, this isn’t usually the case.
What causes financial inertia?
There’s normally an emotional or psychological blocker that prevents people from advancing on their financial journey, including:
- Fear: Naturally, and for self-preservation reasons, people worry about their finances. Over time, the fear of making a mistake or losing money can build up to the point where it actually prevents people from taking action and making the most of their finances.
- Confusion: Financial planning, investing, saving… With so much to think about, simply not knowing where or how to start can be a significant blocker to progress. Regardless of the desire to start investing, for instance, the jargon-filled guides or confusing concept of the stock market can make people's heads spin, stopping them from creating good money habits.
- ‘It can wait’: When it comes to long-term financial planning (such as pensions and retirement planning), it’s all too easy to consider it a low priority because we believe that time is on our side. However, putting off key money decisions now can lead to reduced earnings in the long run. Of course, it can wait… but should it?
These justifications can quickly turn into habitual thinking. We get comfortable doing nothing because it seems like the easiest and safest option, which is completely fair.
Against the backdrop of the current cost of living crisis, doing nothing could feel preferable to making any move at all. However, the best way to make your money go further, particularly in times like these, is to make a financial plan and put it into action.
How to overcome financial inertia
1. Start small
Every January, millions of us make bold New Year’s Resolutions, and by February, most forget that the resolutions ever existed in the first place (guilty!) 😳
Often it’s because we tend to set an unattainable goal; we expect our attitudes to change overnight when that’s simply not feasible. Starting small, and building consistent habits is more sustainable for continued success.
In other words, dream big but start small.
Now, apply the same logic to your finances. Instead of thinking about the big figures, break them down into manageable chunks. Whether you want to boost your savings or grow your investments, start off with a small amount of money first to get the ball rolling. It’s a simple, yet effective way of breaking the status quo and building sound money habits.
Please bear in mind that your capital is at risk when you invest.
2. Set goals, but be realistic
As we mentioned earlier, New Year’s Resolutions don’t work when we're overly ambitious. But setting realistic goals can do wonders for overcoming financial inertia.
Having a clear purpose for your efforts can help you stick with them in the long term. For example, by creating a designated ‘pot’ for certain events (e.g., a wedding, house or just a special night out) along with a desired target, you will feel empowered to contribute to it regularly, keeping it a priority in your financial life.
3. Take advantage of technology
86% of UK consumers now use digital apps and services to manage their daily financial lives. And there’s little wonder why.
Technology and the open banking revolution have made managing financial goals, investing and saving more straightforward and less time-consuming. When it comes to tackling financial inaction, it’s crucial to lean on the power of tech to make your money work for you.
For example, by automating your savings, you can begin moving toward your financial targets. The convenience that technology affords enables you to spend less time worrying about what you could do, and more time putting your money into action — whatever that might mean for you.
Plum makes financial planning simpler
In short: the longer you wait to put your money to work, the harder your money will have to work to achieve the same outcome. We know it can be difficult to get started with investing, saving and budgeting, but that’s why Plum exists.
Plum, the finance super-app, can help you kickstart your financial planning through an intuitive, easy-to-use interface.
Investing powered by automation
Automated investing rules could help you move from financial inertia to momentum. If you want to start investing in funds, for instance, you can turn on the Splitter. It will automatically apportion deposits directly to investment funds you’ve previously selected, helping you stick to a consistent investing strategy. Capital at risk.
If you want to build a nest egg, Plum’s algorithm will analyse your income and expenditure to identify where small amounts can be set aside on your behalf every few days.
You can also turn on features like Rainy Days and Round-ups to start building healthy financial behaviours with virtually no effort.
Your financial future on auto-pilot
By contributing to a self-invested personal pension (SIPP), you could secure the retirement you’ve always wanted. Plum makes it simple by automating the depositing process, giving you peace of mind that you’re always moving towards your financial goal. Remember, as with all investing, your capital is at risk, and the value of your investments can go down as well as up.
Check out our website and start putting your money in motion today.Download Plum