No one solves a problem or exploits an opportunity they don’t know they have.
Whether you are a financial advisor or a parent, that rule is always in front of you. Your job is to make the problem or opportunity come to life. To make it something in their life they want to pursue. The question is how.
People can connect at their own level. Outlining similar situations from your own life or from a celebrities life or some other easily seen person’s life allows a connection. Once the connection is there, they can ask questions that draw it to their particular situation.
For example, I like to talk about the need to insure the children when they are buying a business from the parents. The details are not important. The question is. “How hard is it to reverse a succession plan?” Mom and Dad have not been in the business for a while, the taxes work against reversing the transaction, parents may not be able physically to go back to working that hard. The frozen part may be a material piece of their estate. Money solves a lot of problems. How much should we arrange?
This is a problem that is unlikely to happen, but it has a non-zero probability. If the cost is unaffordable if the event occurs, you must ask “Could I afford the premium easier than the event?”
Stories are a little abstract so non-threatening. Once people connect to a story, they can draw inferences about their own situation and take responsible action from there. The idea of a story is to connect at an emotional level. Pages of printouts, graphs and opinion letters won’t carry the day unless there is an emotional basis.
A second and easily observed rule is, “Logic never changed anyone’s worldview.”
As an advisor or as a parent, build up your anecdote inventory. Children love to hear about your mistakes. Clients love to hear about situations they have not considered.
Work at it. It pays off.
I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.
In previous careers, I have 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 705-927-4770
There is no other kind of decision to make. All decisions affect the future and the future is uncertain. So, get over it. You will make mistakes and if you judge your decisions by their outcomes, you will continue to make more mistakes.
Uncertainty about the future is the root meaning of risk. Risk is every present. Learn processes for making decisions that matter.
Some decisions do not make a difference. No thought or planning required.
Any decision that can be reversed affordably has no risk. As the price rises to the point of irreversibility you need to think a little and eventually a lot. Don’t waste energy trying to get everything perfect. Save that for the ones that matter. What should business cards look like? Get something you might like and see how it works. If it doesn’t get another one.
Any decision that does not carry forward to the future, is riskless. Again no real effort needed. Try a new restaurant. If you like it, good. If you don’t, no big deal. Save decision energy for big things.
The only mistake you can make is to treat a decision that does matter as if it does not. Like not flossing your teeth. It won’t matter for a long time, but it will matter. Just because there is no immediate bad effect, does not make a decision a good one. My dentist is not judgmental. “You don’t have to floss all your teeth. Just floss the ones you want to keep. Learn to see long term effects and include them in your study.
These tend to be the opposite of the ones that don’t.
Decisions that are irreversible or very costly to reverse need attention. Who to marry. Have children or not. Career. Emigrate. Decisions that could have seriously adverse consequences need more attention. I suppose suicide is a serious decision. Quit job start business.
Here is the reality of life. If there are ten facts making up a perfect decision, your reality is of the 10, one is something you don’t know and can’t find out. Of the nine you think you know, two of them are wrong, obsolete, or don’t apply in this situation. The best you could reasonably hope for is to know 80% of what you need.
After research, you usually know less than 70%. You could learn more. You do that by making proto decisions. Tests if you like. Sending out scouts. However you want to think about it. The idea is to commit some resources to a decision that can be reversed and will tell you something about the real problem or opportunity.
When should some proto decisions begin to appear? According to General Colin Powell, somewhere around the 40% known mark. Test supply. Test training. Evaluate the terrain. Understand a little more about the competition and their capabilities and intentions. The idea is to learn more about the unchanging things.
Eventually you reach 70% to 80% and the implementation begins. There may still be room to draw back, but your are committed.
People like to be right or at least not harmed by their decisions. So reversible ones first. People must know more, so the finding of the little decisions add up and help make a better big decision. Some people have trouble with making decisions. Practice helps.
The clear message
There is no such thing as a perfect decision in prospect. Sometimes after the fact they can appear to have been perfect but that is not really important. Judging decisions by outcomes leads to terrible choices. Build a trust a process.
Decisions made with a good process can still turn out badly. Trust the process not the event. Perfect decisions don’t exist and we waste a lot of time and lose opportunities because we don’t know how to deal with the risk involved with the future being unpredictable.
Like a golfer. Estimate the risk and reward of every shot. Decide to play safe or to go for it depending on the need. Then trust your swing.
I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.
In previous careers, I have 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 705-927-4770
Suppose you are a fighter pilot. Tom Cruise in Top Gun. Think about a complicated, high speed, three dimensional environment. You flourish or fail based first on a single skill.
Situational awareness. You have to know what is going on.
Air battlefields are ruthlessly Darwinian. You must know what is happening and when. Just like success in life. The first step is understand your personal environment.
Air Force Colonel John Boyd developed a way to address the air battle. The OODA loop.
As you might expect situational awareness is the first step. O. Observe.
Knowing what is going on isn’t enough. You must also know what to do about it.
Orient is the most important part. It has several aspects. You must attach your capacities to the environment before the best course of action comes clear.
A key aspect of orienting involves knowing yourself. All observations of the context depend on you. Your experience gives you a unique personal viewing point. It is not the only possible viewing point. Successful operators continuously upgrade the width and depth of their self awareness.
Be curious. Be objective. Be self aware.
Once you match your capabilities to your observations, you decide what to do about it. How do your resources and capabilities compare to the adversary’s? How do you best take advantage of the situation?
Knowing everything means nothing without a decision. The world doesn’t work very well for people who can’t decide. As with the dead squirrels on the street, indecision kills.
Nothing happens before you implement your decision. It is surprising how many people develop plans and then just let them drift. Might as well not do them.
You probably seldom confront supersonic fighters at 20,000 feet. Nonetheless, there is a personal to you aspect. Life is complicated and requires OODA too. Think investing as an example.
Difficult but possible if you work at it.
Air war means processing faster than your adversary. Getting inside their OODA Loop. Same thing with financial factors. Get ahead of the problems.
One loop is not enough. The process is never ending. Each pass through gives you input into the next pass. The result of any loop is input for the next one. Success evolves.
Good information is important for good results. Get in the habit of using the OODA Loop.
I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.
In previous careers, I have 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 705-927-4770
Debt comes in many forms. We all have debts we owe others. Parents, relatives, friends, community, church, and employers. Most of those are not financial so the problem is to be dealt with in non-financial ways. Pay it forward is a good example.
Financial debt is different. It is about obligation but it is much more structured. Failing to deal with it well has different consequences.
Borrowing is a way to time shift money. It lets you pay for something without having the money. The debt time machine drags the money from the future and applies it to your purchase today. In doing so, it automatically reduces the future. You cannot spend the money today and also spend it in the future.
Costs. Time machines need energy and maintenance. You pay for those with interest. The amount they need depends on several factors. Risk is the first. Weak borrowers pay more because a predictable number of them will not repay all the money and the costs. Longer commitments by the lender require more interest. In a long time there is a greater probability of something bad happening. Security, credit history and external factors like inflation affect the rate.
How will you pay. If you look at the housing meltdown in 2008, you will find subprime borrowers are not just ones with a higher default rate. Subprime borrowers use new debt to make payments on old debt. It is a kind of Ponzi scheme. If the new money stops, the whole thing falls. Prime borrowers pay debt out of future known cash flows. If you can’t pay the amount out of cash flow now, you probably can’t in the future either unless something is different and how sure are you of that?
What is the loan for? If it is to produce income and the income is greater than the cost then there is little concern. A purchase of a rental property for example. Easy to analyze. Most of the costs are known and the management is straightforward. The only care is in picking reliable tenants. Much like the lender problem. Unreliable tenants should pay more. Education loans are the hard one. Some people look at the future income they will receive and assess the loan as affordable. Wrong approach! The investment is more than the amount of the loan. It is the four years of no income too. If the program you are in does not provide incremental income over minimum wage such that the extra income can pay the loan and repay the four year time investment, why do it. Don’t forget taxes when you do the analysis. A degree is nice, but most tradespeople make as much or more money than most degree earning people. If you leave university with a huge student loan and a ten year term, will you job pay enough extra to deal with it? If not pick another program.
Margin accounts. Leverage to buy stocks. Leverage is wonderful when it works and terrible when it does not. There is no middle ground. Great or awful. The problem is the loan is fixed and growing with interest. Highly predictable. The market, on the other hand, is volatile. If the market goes up 10%, the loan goes up only by interest. Good return. If the market falls 10% the investor is out the 10% plus the interest on the loan. In a down market, leverage can melt all the equity in a surprisingly short time.
Borrow money from pessimists. They don’t expect to be repaid.
I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.
In previous careers, I have 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 705-927-4770
Humans seem to like to measure. Every car has a speedometer and an odometer and a clock. Every baseball player knows his batting average. Every fund manager knows the current rate of return in his portfolio and in the market as a whole. There are innumerable stock market indexes that purport to tell us useful information.
What does an index tell you?
Or a bond yield. What would be the fair yield for a Venezuelan government bond given their 1,000,000% inflation rate. Likely less than a Swiss bond. Comparing yield on government bonds demands context.
Suppose I am playing bridge. I and my partner reach a contract of 4 spades and after play, I make 5. What do I know that I did not beforehand. Could be my opponents are inept. Could be I am an inept declarer. Could be we bid poorly. I would need a lot more information that the outcome to decide.
If I should have only made 4 then my opponents played poorly or I played brilliantly.
If we should have bid 6 spades and made it, then we bid poorly and I played poorly.
The score is seldom instructive.
Let’s suppose your portfolio yielded 8% last year. Is that good, bad, or indifferent?
You could argue it is a weak performance if the market as a whole returned 18% in the year. Or maybe it was a great performance because the market was down 5%. Or maybe it was just right.
You could make the argument that the market return was irrelevant if 8% was better than the 6% you built around and your portfolio is created on defensive measures that minimize losses, but cap returns.
If you buy life insurance in January, and a year later, you are still alive, then objectively you should have waited to buy. You could have saved the premium for the year. That presumes information not available in the beginning, so we must make decisions using incomplete information. You could be dead or uninsurable by next January.
No number makes sense as a measurement without context. Moving. Is it better than it was or worse? Is it what was needed or not? Is it manageable or controllable? Does it matter?
On the does it matter question, think about sports. Most people know that whichever team scores first in a game has an advantage. Do some players score the first goal, or the go-ahead goal more than others. Do some high scorers score few important goals, but many when it doesn’t matter. The seventh goal in a 7-2 win is not really of much value. All goals look the same in the career stats, though.
It is always about what does the number mean. Always know first if the number is getting you what you want and need. If yes, look for efficiencies. If no, look for better descriptions of what you want and need or better strategic use of resources.
How everyone else is doing is interesting if it gives you insight, but usually it is just noise.
Always notice the background. Connecting the number to the context is where the meaning lives.
I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.
In previous careers, I have 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 705-927-4770
Many people think they have an estate plan if they have a will. Some think they have a succession plan because their child works in the business. Looking at the annual pension statement is not a retirement plan. A life insurance policy is not a risk management plan
A product or technique is not a plan. It is part of a plan. An incomplete plan does not partially work.
“Man with one chopstick go hungry”
Plans involve many elements and ideally the pieces attached to each aspect interact and support each other.
Doing that will go a long way to working the synergy angle. If there is just one answer, you might want to think about it some more. An investment with borrowed money won’t match many markers. Savings in a tin box are the same. Private equity has a high risk of loss of both income and capital.
The What’s it for? question clarifies.
Ask it often. Especially ask it of your advisors.
I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.
In previous careers, I have 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 705-927-4770
Some planners fancy themselves indispensable. Surprising as it seems to them, many people achieve reasonable financial success without benefit of their services.
Financial planning is easier than rocket science so some people get by. People have clear intuitive ideas. Save some money for a rainy day. Avoid debt. Get a home paid for. Own insurance. Have a pension plan or save. Pay a little less tax. Upgrade skills. Have a life partner. Help others when you can. Planners can add efficiency and help with effectiveness. The win is people get where they are going easier, more predictably, cheaper, or sooner.
Planner rock stars are to be avoided. Good planners look like this.
Humbly
Observing
People
Evolving
And supporting them in their journey.
I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.
In previous careers, I have 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 705-927-4770
In our lives, we find things where many parts create a whole that is distinct from the parts employed. How many of us have ever examined a gas engine in a car? Coupled with the transmission and the differential and the axle and wheels, we have the ability to move the vehicle. I don’t know how many parts there are in the drivetrain of a car, but it fascinates me that with so many, they work at all
How many of the pieces could fail and still have the car be functional? Maybe a few, but not many and some of the pieces are uniquely required. If the fuel pump fails, itself a combination of many parts, the whole thing stops.
So, if I want to drive from home to Costco, everything must work.
There are many aspects to the plan. The list includes:
All of the pieces must be present or the entire plan is at risk.
The pieces must fit and work together or the goal is difficult or impossible. Like the car. It might not run on cheap gas and if it does at all, it won’t run as well.
Suppose you are a newly minted heart surgeon. A decade and more of advanced training. Huge earnings, but not wealthy yet. You could probably put off portfolio management and maybe the details of the accumulation plan, but only for a little while. The rest of it matters immediately.
If you overbuy and over finance a house, you will be coming from behind for quite a long time. Control lifestyle while you are still accustomed to living on less. Debt management is a function of two things. How you go about paying off debts you have incurred and how you go about incurring debt. You don’t have to pay back what you don’t borrow. Nor the interest.
Risk management and agreements matter even before you start to practice. A heart surgeon has great economic value. Years of high income just waiting to be collected. A dead heart surgeon is worth the same as everyone else. Nothing. Insure your most valuable asset – the ability to earn.
Tax management is necessary. There are options that reduce the bill. For a high earner, every dollar of tax saved is two dollars of income that need not be earned or that can be diverted to other uses.
Synergy means, “the interaction or cooperation of two or more organizations, substances, or other agents to produce a combined effect greater than the sum of their separate effects.”
A good financial plan offers synergy. 1+1=3. If well done and balanced, the result is achieved easier, cheaper, or sooner. Putting off planning is useless. The scarce resource is time. All of the parts will be done eventually. You might as well start early, gain the power of compound interest, learn the tools, and enjoy then outcome.
I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.
In previous careers, I have 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 705-927-4770
Suppose you are walking in the hall with a cup of coffee. Someone appears from an office and bumps into you. You spill some coffee.
Because there was coffee in your cup. If there had been tea, you would have spilled tea. If hot chocolate, then hot chocolate. What spills when you get bumped is whatever is inside.
What’s inside you?
If your plan gets bumped, say the market falls and your invest portfolio with it, what spills? Is it anger, or fear, or embarrassment, or opportunity seeking. The response has only a little to do with the event and quite a lot to do with what is in you. It is like the coffee cup. What’s in you is what comes out. It is what you put.
If every external event is met with emotion, you must expect emotions to appear when you are bumped, or even pushed. You should have a method to calm emotions and then behave in a way that is oriented to the nature of the problem rather than your feelings.
Focusing on the problem/opportunity rather than how you feel about it leads to progress. That will not happen unless you have prepared.
Sometimes all you need is an external guide to call you on the emotional response They can help direct you toward the problem instead of the feeling. It could be a spouse, a business partner, a spiritual guide, a friend, or a financial advisor.
Outcomes in life are a question of how you react to what happens and not so much the events themselves. You can build choices for a response. In some ways it is like taking karate. The physical part is just the beginning. Emotional control is easier because you know and understand your capabilities and those of the others around you. Those make it possible to be calm in the face of physical danger. Responses are preorganized and closely related to the nature of the problem.
Karate teaches humility and respect for your opponent too. You can act or refuse to act. When you act, it is appropriate and proportional to the the threat. Knowing you can respond and knowing how is what provides the emotional control.
Apply the same lessons to other parts of your life. Anticipation and preparation are powerful tools. Be sure you have put them into your inventory.
This article was inspired by a short video. Less than 40 seconds. You can see it here.
I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.
In previous careers, I have 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 705-927-4770
Every business and every person has an implicit strategic position, a set of tactics, and resultant unique ways to implement.
It pays to know what works, what doesn’t and the wisdom to know each.
Capital intensive businesses behave differently than others. A cell phone network costs billions to build out and very little to operate. High cost of entry, high margin. Even with high margins it can take years to earn out.
Design choices and construction must be chosen and executed near perfectly. Financing is crucial. Early mistakes are baked in forever.
Operations can be more lax, but sales are a fraction of capital. Long term.
Other businesses are less capital intensive and have lower margins. Like a supermarket. Sales are a multiple of the capital employed. Financing is not trivial but close. Operations matter. Tiny mistakes can destroy a significant share of margin .
You behave differently when you make money a dollar at a time instead of a penny at a time.
It depends on the capital owned and needed. Someone who has three times their need employs different tactics. Time will fix their losses so variability is not consequential. Someone who has just enough may not be able to afford immediate losses, so invests to make the near term more predictable.
The older you are the more predictability matters. Younger people can behave like the people with a lot of capital. They do. Time and ability to earn is as good as cash invested for most purposes. That’s why you insure it.
AT&T cares about different things than Safeway. Both try to be effective and efficient, but the technique must be different because the nature of the businesses is so dissimilar.
In the same way, what works for Warren Buffett will be different from what will work for you. You should know how it differs and what you should do about it.
An advisor will help.
I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.
In previous careers, I have 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 705-927-4770
Some people want to live a long time, but they organize their financial affairs as if they won’t. Living too long, even in good health, can be financially catastrophic. The old idea of being careful with what you wish for comes into play.
A formidable problem.
You must do something to get what you want and need. It helps if you have a target. You must adjust as you go. The target relies on nothing more than informed guesswork and arithmetic. Strangely, the more guesses you make, the more likely the end result will be right. When you guess, some are high, some are low. It averages out. Wanting perfection is an error. This kind of problem does not lend itself to perfect planning.
Start now.
I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.
In previous careers, I have 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 705-927-4770
Life insurance companies usually write several kinds of insurance relating to things that affect finances after death, illness, injury, and in the case of annuities, long life.
You can acquire coverage for any of life’s outcomes. Die too soon, live too long, become unable to work.
If you lost your house to fire, you would have insurance to rebuild it. If you made a mistake in your business or profession, errors and omission, or liability insurance would cover the loss. If you are involved in a car accident, insurance covers the costs and any damage to others that might occur.
We all understand insurance, but for some reason we don’t think losing our most valuable asset would matter.
Death and living too long are for another day.
There are several varieties. Some are suitable for you and some are not.
Disability income insurance is the first general category. You receive money, usually monthly, if because of illness or injury you are unable to work. There are many definitions and you should understand the differences. Unable to work at what? A good question to know about. Disability income insurance is a complex document with many definitions that matter. There are many options you can add. Cost of living adjustment for example. You need help with this purchase.
Do not judge based on price. Price is a weak indicator of value, and value is what matters to you.
Critical illness insurance is the next general category. .
This insurance does not pay monthly, it pays a lump sum after diagnosis of one of the covered critical illnesses. The idea is it gives you options for treatment , to accommodate time off work by a spouse or parent, and to cover other expenses like travel and accommodation near a specialized hospital. Just travel and other costs can easily become an expensive proposition. Again the definitions matter. Again use a helper who knows what to do.
Office overhead insurance is available. It pays monthly and is a cost recovery kind of thing. You have certain fixed costs in your business like rent, equipment leases, employees that would be hard to replace and other things like telephone contracts. The idea here is that with this coverage you will have a business to return to when you recover and will have the staff you need to operate. No draining savings to pay a lease.
Disability buyout insurance provides the capital to buyout a partner who has become unable to work. New cash flow demands and less help is a combination most would prefer to avoid.
Objectively assess would happen to your cash flow if you could not earn your normal income. You have two choices. Insure the loss or use up your savings to get by. Living without your income is harder than living within it, and that is hard enough.
I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.
In previous careers, I have 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 705-927-4770
