Delaying financial fixes? That's dangerous

By Liz Pulliam Weston

I knew losing weight would take time, so I kept putting it off.

Maybe you see the absurdity in that statement. For years, I didn't. I understood that it would take about four months to shed the extra pounds I carried after my daughter's birth.

That seemed like an awfully long time to count calories. So I didn't start. Four months would pass, and the weight was still there. Then another four months, and another. It took five years before I finally said, "To hell with this," and signed up for Weight Watchers and got rid of the pudge.

The weight came off in about four months.

Tackling troubled finances has a lot in common with losing weight. You know you need to do it, but it just seems so hard:

• Saving up a six-month emergency fund? C'mon, that'll take years.

• Pay down your debt? But it's enormous, and sometimes it's a struggle just to pay the minimum.

• Figure out how to save for retirement? Who's got the time?

So you don't start. The months and years pass. You're still living paycheck to paycheck, worried about debt, confused about retirement. At best, you're no better off. At worst, you're sinking deeper and missing precious opportunities to get ahead.

I don't know what it will take to get you to think, "To hell with this," and get started. But I hope you'll do it soon. Here's why.

The clock is ticking

Every day you delay, the miracle of compounding is working against you rather than for you.

Here's an illustration of how compounding works: If I gave you a penny and promised to double it every day for a month, at the end of 31 days you would have -- this is no typo -- more than $10 million. At first, the doubling is no big deal, as 2 cents becomes 4 cents becomes 8 cents. As we keep going, though, those gains start to build up. The return on your money earns its own returns, and by the end we're talking real cash. (See how compounding works with this calculator.)

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That's how working people wind up with million-dollar 401(k)s: They start small, keep contributing, and their returns earn returns -- over time, big returns. (And even if you manage to save only a few thousand dollars, that's a lot better than facing retirement broke.)

If compound interest is working against you, though, you're in a world of hurt. That's what happens when you build up credit card debt or any other toxic debt, especially if you fall behind. You wind up paying more interest on the unpaid interest, a spiral that can cost you a fortune and lead you straight into bankruptcy.

It may not be as hard as you think

There's a definite learning curve when you're trying to get a handle on your finances, just as there is with losing weight. Once you get the systems in place, though, the effort of managing them isn't as tough as you might think.

Figuring out the Weight Watchers system and learning to plan meals took some time, as did attending once-a-week meetings. After that investment, though, I was surprised how easy it was to stay on track without feeling hungry.

• Talk back: What money matters have you put off or avoided?

I hear similar stories from readers who finally tackle their debt, build up savings and start investing for retirement. After the heavy lifting of examining their spending, trimming unnecessary expenses and setting up automatic money transfers, they're pleasantly surprised how easy it is to keep going and make progress.

No bailout for you, buddy

Your paychecks may be a little bigger lately, thanks to the stimulus package. But don't expect big bailout money to come your way. The government's not going to write you a check. You're not going to win the lottery, and your rich auntie is going to leave all her money to her poodle. You can't even count on raises anymore, with pay cuts, layoffs and furloughs more the order of the day.

So it's up to you. You've got to find the cash to pay off your past (debt) and fund your future (including retirements, college educations and great vacations). That means cutting expenses, finding ways to make more money or, better yet, both.

Of course, it's pretty tough to fix your finances if you're in the midst of a crisis. If you've lost your job, you're losing your home or you're filing for bankruptcy, true financial progress may have to wait until your situation stabilizes.

If you've got money coming in and the basics covered, though, you need to get started.

Continued: What you need to do

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