Money can be scary. Even downright intimidating. So much so that often people will ignore their money for years rather than face that fear. The financially literate find this fear bizarre, but that's only because they've forgotten what it felt like. The first time you do a financial task, it IS scary. You're doing something with real money that you worked really hard for and maybe disciplined yourself not to spend on something you really wanted. It's easy to make a mistake, and entire industries are trying to help you make those mistakes (not to mention outright fraudsters).
Let's discuss eight financial tasks that are really, really scary to do, but only the first time. I'm sure these aren't the only eight scary things out there, but these are eight that if you can just get yourself to do them once, they'll be dramatically easier the second time.
The 8 Scary Tasks
#1 Choose 401(k) Investments
This one is so intimidating that some people don't even get around to funding their 401(k)s, or worse, they just leave the money in the 401(k) sitting in cash for years. This is one reason that 401(k)s are now being designed with “default” investments like lifecycle funds. Jack Bogle famously said, “Invest you must,” and he was right. Remember that perfect is the enemy of good enough. Once you have a real written investing plan, choosing investments (step #4 of that plan after defining goals, choosing accounts, and deciding on an asset allocation) is really easy.
Do whatever it takes to get that written investing plan. Maybe that means taking our Fire Your Financial Advisor online course. Maybe it means hiring a good financial planner to help you for a few years (or even indefinitely). Just do it. I promise it's easier the second time.
#2 Place a Trade
Actually logging in to your employer retirement account, your Fidelity HSA, your Schwab IRA, or your Vanguard brokerage account and buying something is scary, too. What if you screw it up? Well, let's talk about screwing it up. Since trading is basically now free, you lose almost nothing if you immediately reverse a trade. You can have a do-over here, at least on a purchase. And in a tax-protected account (401(k), IRA, HSA, 529, etc.), there are never tax consequences to trades. So, if it's super scary, make your first trade a tiny amount. Let's say $100. The next one will be easier.
Sometimes, the fear is that the market will fall shortly after you buy into your chosen investment. Yes, that happens. But investing when you have the money is still the right thing to do, even at all-time market highs. Time in the market matters more than timing the market.
More information here:- Fear of the Decumulation Stage in Retirement
- Some Sobering (and Scary) Statistics on People’s Retirement Preparedness
#3 Retirement Account Rollover
You know what else is scary? Moving money from one company to another. This is often an old 401(k) or 403(b) that you're moving to your new one or to an IRA. Each company might require you to do pages of paperwork and get notary signatures or even fancy medallion signature guarantees. The process takes weeks, and you're wondering if your money will ever show up in the new account. But once you've done it, you realize it's not a big deal, and you can do it again. You'll probably do this sort of thing a half dozen or more times during your investing career, so you might as well get started.
#4 Fund a Roth IRA . . . via the Backdoor
The Backdoor Roth IRA Process is even more complicated. Not only do you have to move money between retirement accounts, choose investments, and place trades, but there are all these different ways to screw it up (and doing so is very common among white coat investors). Plus, people usually procrastinate, and the process is a little more complicated when you do it late. Use the linked tutorial. It gives step-by-step instructions, and we even have screenshots to show you exactly what to do. It'll be much less intimidating next year.
#5 Tax-Loss Harvest
Tax-loss harvesting is literally just placing two trades: a sell and a buy. Sometimes it can be done with a single trade when you exchange mutual funds. But it can be screwed up, too, especially if you don't understand the 30-day wash sale rule and the 60-day qualified dividend rule. Plus, if you take too long, the market might move against you, and that opportunity cost could be even larger than the tax benefit of doing it in the first place. So yes, you do need to place that second trade relatively quickly after the first one, but this is another of those things that is dramatically easier the second time.
#6 Buy a Used Car from a Private Seller
Some of the best deals on transportation come from buying a used car from a private seller. Of course, some of the worst deals on transportation also come from buying a used car from a private seller. There is some risk here, but not nearly as much as people think. The vast majority of car problems are easily identifiable on a short test drive and a quick walk-around with an experienced eye. Most sellers will even let you take the car over to your mechanic to get that experienced eye or even do some more complex testing, like checking compression on the engine. Some hassle? Sure, but you'll be paid well for it, considering how much more a dealership will charge you for a “certified pre-owned car.” And if you don't like the car, you can always turn around and sell it for about what you paid for it a few weeks later. This won't seem like a big deal once you've done it, and especially once you've sold a car, too.
#7 Make a Budget
A surprisingly high percentage of people have never made any sort of written spending plan. It's hard the first time. Sure, you can go back through three months of bank and credit card statements and come up with some sort of average of your past spending, but budgeting IS hard for the first six months or so. Then it's a trivial process. Just get started and stick with it for a few months.
More information here:#8 Have a Money Date with Your Spouse
Another hard thing for many couples is getting on the same page as their spouse. Most couples don't need to be on the same page, but they do need to be reading from the same book. Meeting together regularly (monthly is the typically suggested interval) to discuss the five money activities in our lives (earning, saving, investing, spending, and giving) is well worth the effort—and much easier the second time.
It's fine to learn about personal finance and investing. It's much more important to actually do it—to get the insurance policies you need, to create and follow that budget, to negotiate that contract or ask for that raise, to get your money invested, and to stay the course with your plan for a decade or two. When you run up against an activity that seems intimidating, console yourself with the idea that it's probably only hard the first time.
What do you think? What other activities belong on this list? Which one of these was the hardest for you the first time?