Every February 2nd, a groundhog emerges from its burrow. If the sky is cloudy and the groundhog does not see its shadow, then it will remain outside and spring will arrive early. But if the groundhog does see its shadow, it will scurry back underground to wait out six more weeks of winter.
It’s a charming tradition—but it also illustrates a common financial mistake.
When you think about it, the groundhog’s decision-making doesn’t really make sense, does it? After all, you can’t accurately predict the weather based on whether you see your shadow or not. In some cases, the groundhog might miss out on weeks of warmth and sunshine, all because of its shadow. In others, the groundhog might have to endure the freezing cold, just because it was fooled by a cloudy day.
What does this have to do with finances? Well, many people make financial decisions based on similarly faulty logic. They may delay investing and miss out on a great opportunity … or else invest too much, too fast, thereby taking on too much risk. They may decide not to study their Social Security options, or procrastinate in creating a will, just because they want to wait for some unrelated event to happen first. They give excuses instead of actually taking action.
In short, they make the same mistake the groundhog does.
Here’s a short list of actual reasons I’ve heard people give for making financial decisions the way they do … or for not making a decision at all!
January: “I can’t invest right now because I spent all my money during the holidays.”
February: “I don’t have time to create a will because the month is too short.”
March: “I’ll worry about my credit score after March Madness is over.”
April: “I’m too preoccupied with income taxes right now to worry about anything else.”
May: “The market is too high. I want to wait before I make a decision.”
June: “The market is too low. I want to wait before I make a decision.”
July: “I know I need to look at how my 401(k) is doing, but it’s too nice outside.”
August: “I’m going away on vacation. I’ll consider my investments next month.”
September: “I’m back from my vacation … broke!”
October: “I want to wait to see how the elections turn out before I do any tax planning.”
November: “I’m upset over the elections.”
December: “How can I think about money right now? It’s the holiday season!”
You see how silly it is to let things like the season or the weather affect your financial decision making? But it’s also really easy to do. As human beings, we have a tendency to be even worse than groundhogs—because we, too, are easily distracted by shadows.
So this year, don’t make the groundhog’s mistake. If you know something needs to be done, do it! And if you ever have a quandary and are wondering what the right decision is, use logic, information, and observations actually related to finance to help you make it.
Don’t be scared of your shadow. Don’t be beguiled by a cloudy day. Instead, make your own personal Spring come early this year by taking action.
Have a great February!