Getting Money Has A Price

Many larger estates have far too little cash.

Income taxes can be a large amount and easy to see, but do not fail to notice charitable or specific cash bequests, and amounts required to equalize the value received by heirs.  The costs of probate, lawyers, estate trustees, a funeral, various filings with the attendant valuations can add up too.

The first step in a good estate plan is to minimize the things that will cost cash in the estate.  Better tax plans are the most common.  Estate freeze, trusts, and so on.  Charitable bequests while living sometimes work.  In the end there will be some irreducible minimum amount that must remain because the cost to make it less is more than the saving.

The key revelation is how much the estate requires is not a problem.  Having a way to make the deposit to cover the resulting checks is a problem.

Listen to Harvey MacKay from “Swim With The Sharks Without Being Eaten Alive”

Lesson 62  —  “If you have a problem you can buy your way out of, you don’t have a problem, you have an expense.”

Now I don’t know about you, but for me if I have a certain expense the first thing I want to know is how can go about paying for it more efficiently.  Like paying life insurance premiums annually is cheaper than paying monthly.  

Paying estate costs is more subtle and once the minimum need is planned, finding a way to have the money available becomes the challenge.  As it turns out there are just four ways.  Each has a cost.  You control two of them and your executors control the other two.

Your executor will control sell assets and borrow.

1. Selling assets is a risky choice because of the executor year problem, the costs and fees to dispose of assets, and the potentially adverse market at the time of sale.  Everyone knows “estate sale” means bargain and that means a negotiated discount.  Executors tend to sell what they can, not what they should.
2. Borrowing requires security and that could tie up a big piece of the estate, maybe for a long time.  Meanwhile, interest is not deductible for tax purposes and there really is no guarantee that there will be a willing lender at a low price.  Borrowing is usually just a deferred sale.

You control own cash or own life insurance

1. Owning guaranteed cash is problematic because of the opportunity cost.  Low interest and bad taxation of income makes this a very expensive choice.
2. Life insurance is a conditional option on money.  Its tax advantages and ability to provide money exactly when needed, even if very soon, makes it a high yield investment for estate purposes.

If you decide value by the amount the heirs finally receive, life insurance is the least costly way to be sure the borrow and sell problems don’t arise.  It is simple and easy to arrange.  It should be carefully considered before choosing another way.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

Good, Better, Best

Jim Rohn was an author, trainer and motivational speaker.  He died in 2009.  His wisdom and thoughts continue to resonate with people today.  Think about the idea of Good, Better, and Best way to achieve success.

It’s important to learn from your mistakes, but it is better to learn from other people’s mistakes, and it is BEST to learn from other people’s successes. It accelerates your own success.

We know our mistakes teach. As with other teachers sometimes we drift off and miss the lesson.  So, while it is fine to learn from your mistakes, you have neither the time nor the resources to make them all.  So learn from the mistakes of others.  Learning from their success is a bit harder because success hides many of the mistakes that they made along the way.

While it is known that careless comparison is the thief of joy, comparison is not a bad thing if it is focused.  Comparing to the mistakes of others can help us learn.  The “Darwin Awards” provide absolute examples.  Most of those are self evident.  You will have to pay careful attention to learn the more subtle mistakes others make.  Comparing our achievement to the success of others is useful if it guides us into the processes that have historically worked.  If you are an immigrant, better language skills is an advantage.  Attending school can be an advantage if you learn more about what works and less about the ideologies about what should work, but does not.

In general, education will help.  Here’s why.

“Fundamentally he was an amateur – though a gifted one – who learned from his mistakes readily enough, but who lacked the formal training that might have enabled him to learn from the mistakes of others ……..”  Tom Clancy, Clear & Present Danger

Formal training allows you to understand the mistakes others have made.  It can provide meaning by clarifying their significance in a particular context.  It provides you with clues to recognize the factors that preceded them.  The same ideas apply to success of others.  Biographies sometimes help, but you must be careful extending the lesson.  Steve Jobs and David Packard both started their businesses in a garage, yet owning a garage is not necessarily a precursor of great success.

Jim Rohn has other thoughts about success and there are many on the internet.  One pervasive theme is discipline.

1. Discipline is the bridge between goals and accomplishment.
2. Success is nothing more than a few simple disciplines, practiced every day.
3. The difference between a successful person and others is not a lack of strength, not a lack of knowledge, but rather in a lack of will.
4. We must all suffer one of two things: the pain of discipline or the pain of regret.

Success is within us and by diligent, focused and insightful effort we can reach it.  Enjoy the journey.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

Taking Responsibility Is Character

To devise a method to guarantee success is improbable.  A method to guarantee failure, well-intentioned but failing, is much easier.  Never admit a mistake and treat the unintended consequences as new problems when they arise.

Governments do it all the time.  Policy distorts some part of the economy so there must be a second program to overcome that defect.  Tax rates too high.  Fast depreciation rules or super-deductions for research or lower rates for specific industries.  Paperwork too big a burden for smaller businesses.  Make some of it exempt below  a threshold.  Spending more to fix a problem you created seems foolish.  You would think if the unintended cost is greater than the expected benefit, it is an easy decision.  But NO.

It happens with some medical practitioners.  Here is drug B to overcome the side effects of Drug A.  Perhaps a better study of the condition would make more sense, but would admittedly be harder.

People do it all the time, too.  Quick and easy today is much better than more difficult and costly fixes say some.  That position is near certain because many people use a process called hyperbolic discounting to compare the time, trouble and cost of future events to the time, trouble and cost today.  Hyperbolic discounting assigns a near zero value to the future cost and thus validates the quick fix.  We’ll cross that bridge when we come to it is a common thought.

To get the most from life,  making mistakes is allowed, even required, so long as the lesson is retained.  Quit quick is good advice despite the try try again mantra. Sometimes try try again just digs a deeper hole.  There should be some judgement in making that decision.

If you wish to double down on the idea of never admitting mistakes and repairing the consequences instead of fixing the root cause, there is a a gold-plated guarantee for failure.

Never blame yourself for the outcome.

“When you blame others you give up your power to change.” Robert Anthony

Giving up power is a losing tactic.  If you blame others for your mistakes, life will be difficult.  You will never grow and will make smaller and smaller mistakes until you have no achievements whatsoever.

“Blame doesn’t empower you. It keeps you stuck in a place you don’t want to be because you don’t want to make the temporary, but painful decision, to be responsible for the outcome of your own life’s happiness.”  Shannon L. Adler

To deny mistakes is a serious mistake.  It is a mistake often practiced by passive aggressive people.  If you are an advisor you might wish to stay away from these people, for they can only harm you.

“People with a style of denial and blaming are definitely on the list of unsafe people to avoid.”  Henry Cloud, in Safe People: How to Find Relationships That Are Good for You and Avoid Those That Aren’t

Take responsibility for your actions and avoid those who do not.  It is that simple.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

Email Scams

One of my pet theories is that things that don’t work don’t last.  I am reassessing it.  Some things that should not work seem to.

My test case is the email offer of vast wealth with some legal or other twist, always from obscure sources and with just a small upfront cost to me. I am sure we have all seen the request from a deposed dictator to help him move money for a share of the proceeds.  Usually millions of course.  Just a small fee to handle the wire transfer.  Until lately I had no idea how common they were because my SPAM filters were removing them from my notice.

So I checked the SPAM.  Over the past 60 days, I have 52 offers of riches in exchange for help of one kind of another.  A few were just outright gifts because someone won a lottery or felt I deserved money.  That generosity is outside my experience, but judging by the four offers, it must be more common than I thought.

What is surprising is that these email solicitations must work.  Someone sends these people money. If they did not,  no one would pursue the solicitation. I am unable to understand why they work, but perhaps the something for nothing lust is strong in us.

I assume it is a business, so while wearing my consultant hat, I would suggest some changes to their method.

1. Grammar matters and especially so does spelling.  No law firm, no bank, even the United Nations, The World Bank, the Federal Reserve and the IMF would use English badly.   (All represented in my survey)
2. Avoid representing a bank, law firm or trust in Nigeria.  No one believes Nigerian stories.  Seven of those.
3. Named firms, Bank of America, Standard Life, The FBI, Bank of International Settlements, and so on.  They have letterhead, return addresses and phone numbers and they publish them.  Missing them is a tip off.  Another eight.
4. Accountants mistrust round numbers.  No estate share is $5,000,000 exactly.
5. Wordy titles for the sender.
6. Duplicates close together in time, especially ones with different sender names. Very weak.
7. Learn the lying indicators.  Too much precision is disturbing.  That means you Richard Patrick  OFFICE OF THE DIRECTOR OF OPERATIONS, INTERNATIONAL CREDIT SETTLEMENT, CENTRAL BANK OF NIGERIA.  That my ATM card for US$2,850,000 arrived at your desk at 3:37 pm is off putting.
8. All caps.  No one thinks an email is a telegram
9. Inconsistent return email.  If you represent the Bank of America don’t you think return email would be @BOA.com instead of some obscure Yahoo address.
10. Weak subject lines.  Of the 52 I received, there were only 2 that I could not tell what they were before I looked at them

If you are someone who is legitimate and in the business of sending money to strangers, there is one absolute guaranteed way to get both my attention and my action.

Send a bank draft for the US$12,500,000 you are holding for me.  One of them mentioned that sum.  If you call the number below, I will give you my snail mail address.  I know it will take much longer to go this route than would a wire transfer, but I am willing to wait.  Once the draft clears, I will be happy to send you a release, a thank you and reimburse you for any reasonable costs you may have incurred. Alternatively,  you may deduct the cost of the stamps and phone call from the $12,500,000.

Call now.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

What Does It Mean To Be A Failure?

Back when I had children playing hockey, baseball, and volleyball, I noticed that there were two kinds of mistakes.  Physical mistakes and mental mistakes.

Physical mistakes were never a real problem although sometimes they seemed important at the time.  Everyone steps on the puck sooner or later.  Everyone misses a pass.  Everyone strikes out.  That is the nature of sports.  Physical effort is not as precise as we might like.  A little more practice might help.

Mental mistakes on the other hand are less easy to tolerate.  Goalies are not supposed to count the crowd while the game goes on.  Shortstops need to know how many people are out.  It is wise to know the score.  Mental mistakes come about from lack of focus or sometimes from a lack of understanding.  These mistakes must be identified, brought strongly to the attention of the player, and a method of noticing and changing behaviour that they can implement recommended.  Not everyone can have the skills of a professional athlete, but everyone can pay attention to the process.

Mistakes are narrow.  They may identify a way to behave differently and better in the future.  Everyone has an inventory of them and each of us can learn from them if we want to do so.

The problem is that we often leap from a mistake to a decision that we are a failure.  Misidentifying the problem is a serious mistake.  Mistakes are something we can recover from.  Plans fail. Some actions do not work out.  These do not make a person a failure.

Assessing personal failure is error prone.

Sometimes it is an excuse to stop trying.  “I am not good at math.” eliminates some work and guarantees the low grade to come.  Self-fulfilling prophesy.

Sometimes the assessment of personal failure is based on a single exemplar.  In statistics, there is the small sample error to worry about.  We should not assess ourselves to be a failure based on a small sample.

The sample size may mislead too, unless the events are not correlated.

If I phoned 30 people and ask for an opportunity to review their life insurance portfolio and receive not a single positive response, then I might reasonably assume I am a failure at phone solicitation.  That would be a poor assumption.  Despite the significant size of the sample, it is really just a single trial, unless I used a different approach for each of them.  It is far more likely my approach is wrong and not that I am a failure.

Life will become easier if we criticize ourselves properly.  Notice the difference between a mistake and a failure.  Learn about functionally different mistakes.  Learn that mistakes don’t make failures.  Learn that failure is a condition that is easily misunderstood.  Learn that techniques can lead to failure, while the person still has opportunities.

Every life has a some things that did not work.  Sometimes a project can fail without a mistake.  Those are lessons not the defining moment of failure.  The late Muhammed Ali says it best:

Inside of a ring or out, ain’t nothing wrong with going down. It’s staying down that’s wrong.

When you think about it, it is easy to fail and very hard to be a failure.  You could become a seasoned student of life, but a failure, not so much.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

Understand When Debt Is Risky

Economists talk about the debt to income ratio as an important measure of overhanging risk in an economy. In Canada personal debt is about 167% of income.  Is that too much, too little or about right?  The answer of course, is “Yes!”  We’re all different.

One side says that is historically high and therefore bad.

A second argument says that it is not a problem because income is a flow question while debt is static.  They are not really the same thing, so the comparison is misleading.  The argument is the proper comparison is static debt to static assets.  In Canada, debt is about 17% of assets and that seems pretty good.

The debt to asset argument fails on examination too.

Assets and liabilities are balance sheet items. We know them only at a point in time. Like a snap shot. Assets require valuation, while liabilities are contractual.  What if asset value depends on the level of liabilities?  Static says nothing about a year from now. 

Income is a dynamic.  The number does not mean much by itself, but has meaning over a period of time instead of at a point in time.  All analysis should look for a way to connect income flow with static liability.  The initial ratio of debt to income is easy but meaningless. 

In the case of debt to income the connector is debt service cost.  If I owe 167% of income and pay only interest at 3%, I pay around 5% of income.  The debt is innocuous and my debt service capability is quite strong.  If though, I pay 5% interest and am required to pay the debt off over 20 years, then the debt service of principal and interest is 13% of income.  To pay in 10 years is 21%.  Now I am not so safe.  Even less so if interest is 8%

Worse still, in Canada a good deal of the asset total is personal real estate and most of the debt is a mortgage on it.  While that asset value looks like a static thing, it is not.  The value of the house will vary with the cost of financing.  A house that is affordable when rates are 3% is much less affordable when they are 6%.  At renewal higher share of income.  On a sale, the purchaser will demand a price reduction so their resulting mortgage payments are affordable.  So the asset value is part of the flow problem of income and debt service.

In both analyses, another important factor is that the asset stack we have been discussing seldom displays the biggest asset.  The ability to earn income.  For a young person the ability to earn income is a far more valuable asset than is the house where they live.  The present value of future income depends on tax rates, investment rates, inflation and the duration of earning.  Just arithmetic to calculate.  Today, for someone five years established in their career, the after tax value of future earnings is between 15 and 20 times their present annual income. 

Houses are a small fraction of that.  Probably no more than 4 times earnings.

Moral of the story.

1. Don’t get caught up in average ratios.  They mean nothing on an individual basis. Work out your own situation.  Find what is affordable and build in a cushion for change.
2. Your house and your used furniture are fully insured.  I will bet your income value is not.  Do something about that.  Without your income, the ratios can become very adverse.

Too detailed and analytical to worry about?  

Rational helps you understand meaning and meaning matters. It’s hard to be rational, but you don’t have to do it very often.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

Problem Definition Precedes Solution

Why think about the problem before working on the solution?  Because it is efficient to do so.  Knowing specifically what the problem is, what it is not and especially what it means, assist solutions.

It is usually a mistake to try to solve a problem before you understand it.  Sometimes the problem is not really a problem and should be ignored, other times it is several problems in a single container. They must be dealt with differently than a single problem.  Clear understanding of the problem usually narrows the field of possible solutions.

A common mistake is to treat a problem that is merely a symptom of something else.  People like to treat symptoms because they are usually more apparent and there are often simple, easily obtained and wrong approaches.

Someone who is feeling a little down may decide a medication is the answer.  Someone else with the same condition may step up their gym schedule.  A third may seek a new job.  All of the solutions may work, but they involve a different understanding of the relationship between symptom and problem.  In the first case, the symptom is believed to be the problem.  In the second, the cause is assumed to be physical, while in the third it is situational.  Right solutions are not always absolute.

People get caught up with correlations. Correlation usually has little to do with causation, but it is an easy shortcut for people who do not know how to think or who do not want to do so.

Suppose I am down and decide to go to the gym to make more of the chemicals that will counteract that feeling.  Not going to the gym and feeling down are correlated but not getting enough exercise might or might not be the cause.  Suppose I was not going to the gym because my job required me to work 70 hours a week and that left too little time for the gym and my other duties.  Going to the gym at the cost of something else might help the feeling down problem for a while, but it will not address the cause.

Causation is a very difficult problem sometimes.  Most of the time we don’t want to know because it is hard and we must challenge some of our sacred beliefs.  Easier to address the symptoms.

What humans are best at doing is interpreting all new information so their prior conclusions remain intact.
Warren Buffett.

We seek things to support what we believe.  When we even notice things that contradict them, we assume the purveyor of those ideas are charlatans or the facts are wrong or misinterpreted or inapplicable in the case at hand.  Psychologists call it “confirmation bias” We notice things like those we already believe. 

Guessing or using intuition and then noticing only the information that supports the decision leads to new and harder to solve problems.  It is the mark of a disciplined mind that it can hold contradictory information long enough to decide if it presents a new or better understanding.  

Understanding what new information and your beliefs mean will help.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772