Thinking About Financial Literacy – Logistics


We have talked about using your values and resources to create a strategic vision of what you want and when. With those in hand it is possible to both find and assess ways to get those wishes. Tools, techniques and the people who can help you find and assess methods.

Now we are at the do it part.

You and I and everyone else has a circle of competence. We should learn to stay within it.

For example, if I strategically decide I need a new light fixture on the front porch, I assess my resources and need and decide on a maximum price I will pay.  A trip to the hardware store offers me choices that are too cheap, too expensive or just right for my goal. The fixture is the tool I want and the sales associate is my help in the decision. I exchange my money for the fixture and go home.

But I still have no light on the porch come nightfall. It is not yet installed. Logistics is the process of installing the chosen tool to achieve the goal.

This is a simple task and I would do it myself and expect no problems.

Do it yourself is not always my choice. I would choose to have an expert wire the house. I might be able to do it, but the price saved would not be worth the risk. Again the circle of competence idea. If you do things yourself inside the circle you will have no issues. If you go far outside, the unknown-unknown often bites you.

People like to save the price of an expert, but seldom assess the potential cost. Would you buy real estate without a title search or guarantee? It is easy to do, but would you take the chance that you might miss something? Would you do your own root canal? Again not particularly difficult, but there are unforeseeables you would know nothing about or how to address them until it was too late. 

Ultimately it comes down to this.

If the goal matters and you have selected a tool or technique that will work, why would you risk the whole thing because you overlooked some trivial detail that is outside your expertise?

Implementing often looks like the easiest part of the puzzle, but it is not. Details usually matter and most are invisible. In complex strategic and tactical environments like war, poor logistics guarantee failure. 

Plans that are supposed to make your life easier are not worth risking for want of some money to someone who makes it much more likely to happen.

Do-it-yourself is a trap. Think cost-benefit.

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

Posted in Personal Finance | Tagged , , , | Leave a comment

Thinking About Tactical Financial Literacy


In the last few days, I have talked about establishing your values, your skills, your attitudes and how money works.  Within that framework, work out your strategic goals.  The “W” questions.

Strategy only matters if you do something to implement it.  That something is Tactical. The answers to the “How” questions. Choosing a way to get what you want.

Tactics are complicated and they change. It is generally not worth your time and trouble to become an expert. You can get help cheaper than learn.

Once you start on how, you will find there are two distinct boxes:

  1. One box contains processes.  Preparing a budget, a savings plan, an education fund, or a debt reduction plan, are common ones. They are the template of expectation. Comparing results against expectations allows gradually evolving excellence. All sound tactical plans include processes.
  2. The second box contains tools. Most of life’s problems and opportunities have arisen before. Others have solved them and businesses have created tools to replicate the success. Life insurance is a tool that provides money if the insured dies. That money replaces money that was part of the resource “what with” in their strategic plan. Tools are the distillation of humanity’s previous experience.

Current financial literacy education deals with tools. Knowing how tools work is one part of the quest. Knowing which to apply and when matters more.

People sometimes think they should fully understand tools. That is mostly a waste of time and trouble. You need only know how to interface with the tool. Input and expected output.  Buy tools for what they do and not for what they are. Think electric drill.  No one wants a drill; they want holes on demand.

There are families of tools:

  1. Risk management tools and techniques.  Insurance is common. So is the idea of an emergency fund or investment diversity.
  2. Cash management tools. A budget, and an accounting package to keep track of actual expenditures permits comparison. Comparison controls learning and improvement.
  3. Time shifting tools. Debt shifts money you will earn in the future to the present so you can spend it now. There is an interest charge for that.   Investing shifts money from now to the future.
  4. Cost management tools. Tax reduction or reducing the cost of debt, or insurance, or management fees. Many people equate price and cost and in price cutting often lose other values. Price is one part of cost. Think factory second brakes.
  5. Advisors are tools. They offer things you cannot see,  never mind access. They keep up to date with complex, material. If you retain strategic control, they can be extremely valuable for you. This is why you must have strategy. When you cannot know how, know who.

Tactics are not strategies. In Canada a Registered Retirement Savings Plan. (RRSP) permits tax deductible contribution for retirement up to an annual limit. Income grows without current tax. When I see an ad relating to an RRSP strategy, I immediately distrust the producer. An RRSP is merely a tool that addresses the strategic goal of having income after retirement.

Strategy sounds sophisticated so advisors and institutions who are not working in your best interest tend to use the word instead of tactic. Learn the difference.

People who begin with “How” miss things. Starting in the wrong place causes a person to overlook other tools or to not consider other strategic goals that should be addressed first. Always start with what you are trying to do and which goals have priority.

“Finding the right answer is not as important as finding the right question.”

Peter Drucker

If someone offers a “How” without knowing your what, treat it as a red flag. Tools must fit a purpose. If the purveyor does not know your purpose, they are selling theirs.

Absent your strategic purpose and resource limits, you could not make a reasoned judgement between two tools that address a particular “W” question or even decide you don’t need that tool at all.

Priorities and resources change over time. So know tools. Plans are never “DONE.” You get better at it if you do it for a while and compare your result to your expectation. You can reduce some of the error by using other people’s experience and expertise. Advisors can help with both technique and appropriate tools because you are not the first to have the problem.

Their recommendations should be in the form, “Given what you are trying to accomplish and given your priorities and budgetary restraints, either of these tools will work. Which feels more comfortable for you?”

Tactics and strategy co-exist. Values limit strategy and strategy defines where to apply tactics. Strategy is about effective, tactics are about efficient.

Tomorrow – Logistics; the “Just Do It” part.

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

Posted in Personal Finance, Planning | Tagged , , | Leave a comment

On the Difference Between Getting and Earning Money


You will recall that money is a way to preserve the value of your service or product. By doing that, the value of money has the ability to move in time. Money you save today may be spent next year. Your valuable service that earned the money moved to the future. That is all saving and investment is about.  Moving your value today to some day in the future where you will spend it.

Similarly, you can borrow to get money to spend before you earn it.  But remember everything is a trade. You trade a promise of future earnings for the money you borrow. Money moves from the future to the present. Debt is a way to get money now. Getting money and earning money are very different, but the money does not know. It can’t tell where it came from so you must because all time shifting money decisions affect you.

Borrowing has a price. Twofold really. Interest is the one you know about and it may be easy to cope with or not. The other is that interest and principle must be returned to the lender out of money you earn in the future. Each debt repayment dollar diminishes your flexibility and potential in the future.

Debt can be a problem if it is easier to borrow than pay it back. Or debt can be a blessing when the asset acquired has great value. Getting money is easy, but it has uneven consequences so you must be very careful with borrowing. Getting money without thought leads to weak decisions.

Other than credit cards, car loans and mortgages, there are ways to get money.

You can get it from the government, but only if they are willing to take it from someone else who has earned it.  Nothing is free. If someone gets something for nothing, someone else got nothing for something. Be sure you understand getting and earning. It matters to everyone, even those who don’t need the government.

You might win a lottery which is you getting money someone else has earned with the government skimming off half before it is distributed. You might inherit money or receive a gift, but that usually does not happen until much later in your life. Again someone earned it.

For most people, earning money is the only immediate and useful option.

Once you know that any money you get, you must earn. That’s why you want to make your earning as efficient as possible. Think about your best career and work to establish it. 

Tomorrow we will see about tactics. People, techniques and tools and how they add value.

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

Posted in Personal Finance | Tagged , , , | Leave a comment

Values and Connecting to Strategy


Yesterday we noticed that money is valueless by itself.  It is potential. Its value is its value in use. What will it get for you? Lifestyle. Security. Choices. 

You must know how to use it to your best advantage.

Start with what you value. Values are unique to each person. They are in two forms. What you believe and want together with your attitudes and the knowledge you can apply.

Do you demand independence? Do you want to share with family and others? Are you time competent? (You can defer results or maybe past fears dominate) Are you patient? Disciplined? Organized? Always learning? Do you seek to understand your economic and governmental surroundings?

Looking at money and its use as part of your much larger “Life Plan” will tie it together.

Use your unique personal and family values to determine what you want money to do for you. Spend the time on this because the rest of money management and control is just common sense and will be confused if you have not defined your overall purpose.

You probably noticed yesterday how much you should earn related to how much you want money to do for you. All of how money works is connected to what it is for – your definition. What others value is unimportant.

When you have a clear idea of your values, you can begin to make them more specific both in terms of the goal and the timing of that goal. The strategic part of the plan.

The strategic layer in your plan answers questions. All of them begin with “W”

  1. What do I want?
  2. When do I need it?
  3. Who else is involved?
  4. Where will we be when I need it?
  5. What do I have to get it with?
  6. What if?

Think about a retirement plan in these terms. Lifestyle sometime in the future. Security, or margin for error. Definition of resources that can apply to the plan. Where matters because of taxation and cost of living. What if I don’t live that long or get sick and lose my income or tax rates change or inflation is high?

With those sorted out, or at least a direction established, there are two more “W” questions.

Why and Why not.

Why will provide motivation to carry through on what you choose. Carrying through might include revision of resources used and the goal itself. It could require modified methods or a longer time. Life is uncertain, but if you know and believe in why,  you will persevere.

Establishing why not is for clarity. If you cannot point to the specific why not answer, you will second guess yourself about why and will tend to wander. Focus and clarity and motivation are powerful allies in your quest.

Few people get this layer fully correct first try. An advisor can add considerable value here so long as they rely on you as the planner and they as the assistant. At this level, they should help you find contradictions in your plan. Sometimes voids appear. 

It is easy enough to overlook things that are obvious to someone else with experience. It is especially easy to spend the same resource more than once. Implicitly spending the same dollar twice is a very common error. You cannot save what you spend. Beware debt commitments that require resources from the future to liquidate. Debt, especially credit cards, seem to create money.  They do not.They steal from the future.

Tomorrow we will do a little piece about the difference between getting money and earning money. The distinction is important in planning.

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

Posted in Personal Finance | Tagged , , , , | Leave a comment

How To Earn More Money


Yesterday we talked about money and its existence as a medium of exchange and store of value.  Today we will talk about how to have more of it. Owning more is two fold. I can have more by earning more or I can have more by spending less of what I have earned.

The key variable in earning is what do you have to trade in exchange for money? If you want to earn more, you must trade away more things, or trade things each of greater value.

Each transaction has a value to the person receiving it. Things they can’t do are more valuable to them. Your education, skill, personal attributes and experience will add value. People are willing to trade more money when the skill they want is in short supply, hard to deliver, or they value highly what the service does.

Once you understand that money is a way to barter effectively and money is what you receive in exchange for your goods and services, it comes clear that people who earn more money provide more value than those who earn less. It has nothing to do with the value of a person, just barter. 

You earn money only in exchange for something else. So, it is a smart idea to increase your value.

Provide a more valuable service is the usual way. Skill, enthusiasm, time, experience all factor in. That is where to start, but you cannot get huge money bringing just those things. They are linear. An hour for some money. Want twice as much, work two hours. It is true for both a clerk in a variety store and a heart surgeon.  The hourly rates are different, but the fact remains.

Huge, non-linear money arises from repetition. A popular entertainer or athlete may seem to make unreasonable sums for their services. People just see the number and think that is the entire dimension. They don’t really get the barter idea. Money has little to do with the value of a particular skill or presentation. It has to do with scarcity and audience size.

Consider Oprah Winfrey makes $150,000,000 per year. $5,000,000 a week. Is she worth it? Yes, because she can get it.

In one on one situations she might be worth the price of a good lawyer.  Maybe $1,000 per hour.  But she never works in one on one situations. If 5,000,000 people watch her for an hour five times a week she will be paid the $5,000,000 for the week so long as advertisers believe that an hour of attention from one person (15 minutes of commercials) is worth $0.20. Twenty cents per person per hour doesn’t seem so much.

Actually far cheaper than one to one would be. 

From Oprah’s side, the cost is about the same for 5,000,000 people as it is for one, yet her return is much higher. When many people want something that is not consumed or destroyed in delivery to one, it provides great wealth to the purveyors.

Same idea for music, or computer chips, or car parts. The first one is enormously expensive. The second and every one following cost nearly nothing.

When picking a career, look for the ability to replicate your delivered value for a low cost. Sometimes you can do it by creating a business and training employees to deliver the service.

Money, especially a lot of it, has mystical values that confuse us.  It is simple. Wealth is just the result of barter that has not completed yet. The people earned the money, and so far have not consumed or given it away. For each of us building wealth is that simple. Earn more than you spend.

Tomorrow we will talk about how to use the ideas of money and other resources to organize the financial part of your life plan.  The first step in getting what you want and need, with what you have to get it with.

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

Posted in Personal Finance | Tagged , , | Leave a comment

Thinking About Financial Literacy and Money


Financial literacy is an interesting subject. Few people get it and I think there is a reason for that.

I spent a little time checking what passes for education on this subject and to the extent there is any, it falls into a single category. Not useless, but by itself dangerously incomplete. Methods of doing financial things.

How valuable are methods if you don’t know what you are working with or trying to accomplish?

How credit cards work?  What’s a mortgage? How do car loans/ leases work?  What about income taxes? How to get a student loan? (70% of students who get student loans don’t understand what they mean.) Scary!

Methods are tools or techniques that make something happen. They are not more useful than a precision tool in a factory that comes with an operating manual, but no one knows what it is for. Knowing how to run it is not enough.

If you know everything there is to know about borrowing money, investing money, shopping for bargains and paying income taxes, you are ahead of most. Let us further suppose you know how you get paid and will get paid in the future and that you know what a pension plan and employee benefits are worth.

You are not done. There is another and more important part.  Strategic financial literacy. The “What is money for?” question.

Money is for trading. All transaction between people are a trade. Money is not anything by itself. Once you realize money represents value in a barter transaction, it gets easier. You trade time and skill for a paycheck. You trade the money that provides for food, clothing, a car or whatever. Money just makes it easier.

Every transaction is barter. Trading money instead of things is easier.

Having money lets you trade in a way that is independent of the resources you want and have. If you go to a clothing store to buy a suit and all you have to pay with is salmon fillets, you may leave empty handed. The store may not want your fish now, and worse the fish may go bad before they do want them.

Money lets it happen. You trade your fillets for money to someone who wants them now and then trade your money for the suit you need. Money is a “Medium of exchange.” It lubricates barter.

Money has three purposes:

  1. Money is a medium of exchange. Something that fits between the trade you make to get it and the trade you make to get what you want.
  2. Money stores the value of what you have to exchange. It won’t spoil. Far better than fish fillets.
  3. Money is a unit of value and that helps in accounting and in pricing. It would be very hard to price a car tire in terms of what you might have to exchange. Fish fillets, carrots, bushels of wheat, tulips or liters of gasoline.  No one could keep up or be sure the relative prices were fair.

The key parts of this are,

  • Money is valueless by itself. Only the belief in its value makes it work
  • Barter involves giving up something of value, usually money, for something else of value that you want.
  • Until you see the idea of trading of your values for money and the trading of your money for other things, money will be hard to understand in a way that can benefit you.

We know how you get money.  You trade something of value for it.  If someone has a lot of money it could mean two things. They have traded valuable skills many times or they have spent only a little of what they earned.

Tomorrow we will talk about what will bring more money your 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

Posted in Decision Making, Personal Finance, Planning | Tagged , , | Leave a comment

Making Decisions Can Be Straightforward


Why are decisions difficult? Some should be fairly easy, like whether to keep or sell a security. Others like starting a business, choosing who to marry, and what job to seek are harder, but still rely on a single idea.

“It’s not hard to make decisions when you know what your values are.”

Roy Disney

This obviously applies to investments on either the buy or sell side. The security meets your known parameters for income, growth opportunity and safety. It has continuing sound management.  There is not a hint of accounting or regulatory problems.

There can be factors involved that relate to more than the security itself.  Sometimes income taxes will complicate a sell decision. Suppose, a holding is marginal at $30,000, but after taxes it will be only $25,000 and at $25,000 committed it meets my requirements. Keep but review again soon.

Capital allocation is always a challenge.

When there is a loss, it is easier. Knowing what you know now, would you buy more at the current price. If no, you should sell. If yes, you should buy more. A decision to keep is analytically identical to a decision to buy. How it came to be that you have a loss does not matter except for instruction about similar situations in the future. You will live the entirety of the rest of your life in the future. Factors there should influence decisions. The past is gone.

Life decisions follow the same idea but with different standards. Again if you have values you know and understand, the decisions will be easier. Learn who you are and who you want to be.

A second issue arises. Make fewer decisions.

Not many people make good decisions every time. If you are right half the time, a stretch goal for most of us, then the chances of making 10 good decisions in a row is less than 1 in 1000. Fewer decisions means better odds.

Or does it?

If we concede the decision to do nothing is a real decision, then we all make many decisions every day.  Most don’t matter and we get in the habit of not paying attention to them. How much money to put in the postage meter, what color coffee mugs to order, how many business cards to order now, what business hours, pay scales, advertising budget, right up to what business should we be in. Not paying attention is weak and making all the decisions is habit forming. Delegate trivia. 

The key to good long term results is two part. Delegate and stop weak decisions. That requires a certain humility that many do not have. They nurse weak decisions until they are forced to do otherwise. It is like poker.  Notice you cannot win every hand.  The next best choice is to win big and lose small. Difficult but not quite impossible. The lose small part is always available and people should not undervalue it. To fold when you are unsure is, at worst, a small mistake.

Risk is an issue and few people understand it. Start with easy decisions.  Ones where risk doesn’t matter. If you can afford the loss, there is little risk except ego and that is priced low. If the decision is easy to reverse, it is riskless. Your attitude may be the key variable.

Relationship decisions are difficult to reverse at low cost and affect far more than money. Be very sure they match your values.

Some life decisions have variable impact. The decision to have your first child is important. You cannot reverse it, it has high cost, and profoundly affects lifestyle for a long time. The decision to have a second child is near riskless except for cost. Your lifestyle is already changed and pretty much the same with two children as with one.

Spend some time on the must do, would like to do, will not do value set. Make decisions that have meaning for you.  Having a value template makes them simpler. You will know the reasoning for both why you did or did not do something. 

Knowing why motivates you to continue through the ones that don’t work out exactly as you thought they would. Knowing why not helps focus. 

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

Posted in Decision Making, Planning | Tagged , , | Leave a comment