moneyFYI
Financial Freedom Is Merely Organized Common Sense
Planning For Success
You will be able to achieve success more easily if you focus on what you are good at. Maybe just things you can do.
Stay within your competence.
Doing things you don’t know how to do, tends to create more problems than it solves. There will always be things that look important. Seek help with the ones you don’t understand or know how to address.
Evolve your problems
- Expand your competence. No one is good at everything, but most people can be better. If nothing else, learn to recognize the problems you need help with.
- Prioritize the important things. You may never get to everything, so do what matters most.
It is like a serious final exam. If you are going to run out of time, run out with a question undone that you don’t know how to do anyway. You don’t need to get 100.
Success follows
Addressing the right problems and the right opportunities is a strategic choice. Effectiveness is doing the right things.
As you progress, new skills and experience will help you prioritize the problem/opportunity inventory leading to better solutions. Always learn more and better technique and always notice changes in your personal context.
I help business owners, and professionals 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.
Please be in touch if I can help you. don@moneyfyi.com 705-927-4770
Changing Times Require Changing Approaches
The Toronto District Seperate School Board has decided their teachers should pay for parking. $10 per day is the proposal. The tactic is in response to budget cuts announced recently by the province. The expected revenue is in the $6 million range. $6 million is about 0.18% of the budget. Governments and their agencies are looking for “Revenue tools.”
I don’t have a horse in this race, but it seems wrong in many ways and right in a few others.
What is right.
The board should balance their budget. That is merely common sense. No one and no institution can overspend indefinitely.
The board has no control over provincial allocations and must deal with the shortfall in creative ways.
What is wrong
The board looks to revenue as the solution to their problem.
Teachers have traditionally had parking as a part of their employment space. It is not as if some employees in the school pay and others do not. I suppose in some downtown schools parking is a worthy perq, but for many in the suburbs and such, there is no great value to it.
Parking is an after tax expense. It comes out of net pay. In terms of income needed to pay the amount, given pension deductions, and income taxes a teacher earning more than $70,000 could reasonable expect the pre tax, pre deduction, value to be something like $3,200 of salary. For a teacher or support staff earning less than $50,000 it will be about the same. Despite the lower tax rate government pension and employment insurance make up the difference.
The board is using narrow arguments to support their position. Others pay for parking at work. Parking is a choice. You could walk, ride your bike or take public transportation instead. Teachers are an example for their students and carbon control, public transportation and all that is a virtue signallng value. All true but not complete.
The board seems to think teachers will not respond in some way. Maybe just in a general state of malaise resulting from the 5% reduction in their effective compensation.
The board seems to think the teachers, the staff, and their unions will go along with the change.
What could happen
- The teachers and staff decide to sue the board for arbitrarily changing their working conditions and effectively their compensation.
- Teachers adopt a tradeoff situation. Sure we will give you this, when you give us something of equal value.
- Nothing. Life goes on.
What should happen.
If the top line is fixed, then there should be adjustments to spending before new revenue is explored. Don’t start with necessary and popular offerings. Start with the price of cleaning supplies, classroom supplies, staffing, benefit programs, and delivery systems. Audit budgetary expenditures looking for people, “using up their budget,” prior to year end.
Some will be very small in the beginning, but paying serious attention to costs forces better strategic decisions. Most government expenditures are treated as sacred because they have always been there. Better strategic decisions would eliminate far more than people think.
The old ways do not gradually evolve to new ways. They become costly old ways defended by the people who benefit from them.
Change is happening very quickly in information technology. Teaching and education in general are part of that technology. Using old paradigms with costly new machinery is not valid. The technology forces a complete rethink of the strategic process. No one sane is using 1960s technolgy in the rest of the IT business, why would schools?
Same rules for you and I
Adapt to change. Cutting costs is as good or better than more income.
I help business owners, and professionals 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.
Please be in touch if I can help you. don@moneyfyi.com 705-927-4770
You will Be Wrong At Least Half The Time. Then What?
Jeff Bezos has a lot of money and he got it by being smart. Then acting on what his mind told him.
Jeff Bezos knows how to quit. Ideally quit things that don’t work. Read about it here. Jeff Bezos Says People With High Intelligence Do This One Thing Often.
They change their mind
Jeff Bezos comments:
- “People who are right a lot listen a lot, and they change their mind a lot..
- They wake up and reanalyze things and change their mind. If you don’t change your mind frequently, you’re going to be wrong a lot.”
- [T]he smartest people are constantly revising their understanding, reconsidering a problem they thought they’d already solved.
- They’re open to new points of view, new information, new ideas, contradictions, and challenges to their own way of thinking.”
Then they act on it
Amazon is beyond successful. Have they always been right? No. Have they tried to nurse weak projects to health? Maybe. But, they killed many too.
Amazon restaurants is the most recent. It follows Fire Phone, the Destinations travel site, and Amazon local.
Application
Not many of the things you do will work. Fewer than 50%. The key to success is stop wasting time and money on weak projects, and force feed the winners.
Bezos again, “It’s one thing to say ‘have the courage to change your mind.’ It’s another thing to actually do it.”
Good advice. Think. Then act. Repeat.
I help business owners, and professionals 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.
Please be in touch if I can help you. don@moneyfyi.com 705-927-4770
Tax Management For Everyone
There is no requirement for you to organize your affairs to pay extra income tax. Unfortunately, many people do. You could think of those taxes as being voluntary.
“Voluntary tax” is about as rational as “Leftover wine”
“Leftover Wine?? HELLO!” – Maxine
Some common voluntary taxes.
This applies in Canada, sometimes particularly Ontario, and maybe elsewhere.
- Saving for retirement, but not using deferred income plans like RRSP. Saving $5,000 per year after taxes is roughly $9,000 pretax. Both invested at 4% in bonds. After 30 years you can have:
- Tax paid in open account accumulates to $135,000 and has income of $3,200 per year after taxes. Estate of $135,000.
- Taxable in RRSP $525,000, with after tax income of $12,600. After tax amount of $250,000 or so in estate.
- Tax paid accumulation in a Tax Free Savings Account. $290,000 with after tax income of $11,600
Clear message. Use your TFSA and RRSP to the limits possible. Only then consider an open account.
2. Failure to split income when possible. This is not always easy, but still doable. Example. Spouse A has income of $130,000 annually and spouse B has $60,000. Investment income costs A 43% and spouse B 30%. Create taxable investments in B’s hands by having A pay all household expenses and B saves.
3. Improper allocation of RRSP contributions. Like 2. A saves 43%, B just 30%
4. Paying personal tax when a corporation could have paid instead. A pays 43% on the top $30,000 or so. Corporation could have paid 15%. The trick will to be to find some expenses you pay personally now, but corporation could pay instead. Even non-deductibles, like life insurance premiums, debt principle, and club fees if they provide a business advantage.
5. Taking money out of RRSP before retirement to pay personal expenses. You can borrow money from the mafia cheaper.
6. Failure to deduct allowable things. Get a list from an accountant or look at section 8 in the tax act if you are an employee.
7. Take investment losses before the year end, and sell with a profit in January. In both cases, only if you plan to sell anyway.
None of these are hard to accomplish.
Strategic advice
“Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.” – Judge Billings Learned Hand
Organize for the minimum.
If ever investigated, I suspect we would find there is more tax being paid voluntarily than there is being evaded by the miscreants.
I help business owners, and professionals 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.
Please be in touch if I can help you. don@moneyfyi.com 705-927-4770
Win Big, Lose Small
Venture Capital is a high risk game. The vast majority of investments lose. Does that mean no one should ever be involved?
No, because making money is not about getting each decision correct. It is about directional accuracy. Right things.
Since when are right and correct different?
Most people don’t see them as different and that leads to poor outcomes.
Suppose I offer you this investment. You pay $100 to play, and if you are correct, you receive $1,000. The odds of winning, being correct, are 1 in 10. Would you play? Probably not. You might get lucky and win early or you might play 20 times and never win. (A 12% probability) If you played a thousand times, you would end up pretty close to even.
So it is right not to play.
You should play only when you have an edge
In probability theory, the edge is called “Expected Value” In simple terms, what you win times the odds of winning minus the bet you must make. In the game above the expected value is zero. So, no one plays.
Suppose the game was bet $100, get $1,000, with the odds of winning one in eight.
Now the expected value is $25.00 per bet, and you should play. On average, If you bet many times you would expect to earn $25.00 times the number of bets. The “on average” part is a bit misleading because you could still lose.
The risk of loss depends on opening capital
You might have a run of bad luck and lose your money.
- If you have only $100, you will lose all your money 7 out of 8 times.
- If you have $500 you will lose all your money 51% of the time.
- If you have $1,000 you will lose it all 26% of the time.
- Even with $10,000, there is a chance of losing, but a very small one.
Casinos always win because they have many people playing at once and they have immense capital. They reduce the risk of catastrophic loss by limiting the size of your bets. If the bets could be $100,000,000 they could owe $1 billion on the first bet. They would owe $1 billion after you have bet $500 million about 49% of the time. Unaffordable losses must be prohibited by rules.
The key is affordability and risk management.
If you have an edge, say you know a lot about some investment, you must assess both your expected value, the number of times you could play a similar game, and the probability of losing all your capital before you can win. The expected value alone is not conclusive. It is an important but not sufficient condition.
If you cannot afford a string of losses, don’t play. It won’t matter how good the long run is if you can’t survive the short run.
You must assess the risk of loss and organize yourself accordingly.
Diversity is a good tool. What it essentially says is expose only a part of your capital to a particular risk. If you play 10 independent games, each with 10% of your capital and estimate you have an edge in each, it is beyond unlikely that you could lose all your money. One or two might do badly, 3 or 4 more might be just okay, 2 or 3 more might be good but not great. And one might be spectacular. You only need to be an early investor in Facebook, once.
That is how the VenCap game is played.
Step 1 – Establish the idea of a positive expected value. Skill, and experience. Connections and a network help find opportunities.
Step 2 – Say “No” a lot. Probably 99 out of 100 times for Venture Capitalists.
Step 3 – Nurture the winners and learn from the others. Likely 7 out of 10 will eventually lose money, but only a little because Venture Capital investors are disciplined.
Step 4 – Know how to get out when you eventually hit a winner. Selling too soon is a mistake. Use the idea of “Would I invest at this price if I didn’t own it?” If yes, keep it and maybe invest more. If no, sell. A decision to keep is identical to a decision to buy.
The key
It is correct to win each bet, but it is right to play a game when you can expect to win. Thus, it is right to be invested in the stock market if you have time and capital on your side, and a way to know the edge. If you have time and capital on your side, investing in guaranteed return investments will be correct, but not right. You will get your money back with a smaller yield than you deserve, given your input. Opportunity cost.
There are dozens of factors that make up yield. If you supply values that are interesting for the people using your money, they will pay you for them.
Know what your valuable contributions are and be sure you get paid for them.
I help business owners, and professionals 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.
Please be in touch if I can help you. don@moneyfyi.com 705-927-4770
Measurement and Comparison
“Comparison is the thief of joy.” Theodore Roosevelt.
If you compare your career, your life, your relationships, or your wealth to others, you will find it dissatisfying. Always!
There is always someone who does better at what you are thinking about. Bill Gates is the second wealthiest person in his zipcode, never mind in the world. Someone will always outperform you on a specific metric.
How can you measure your success?
Measurement is comparison. How then can being measurable make you happier?
It is simple really. Pick standards that are either objective, or internal. I cannot outperform any NBA basketball player on the court, but I can be better than I was last month. I cannot run a mile under four minutes, but I can be better than I was in March. I cannot have more money than Bill Gates, but I can have more than I had last year. I can weigh less than 200 pounds. I can get my blood pressure to 115 over 75.
Internal standards for measurement work. External do not because the external context is always different from yours. Objective standards work because they are not opinion.
When building plans
Measurement is important. Build in a way to measure and a time to measure. Too frequent measurement is debilitating too.Without it you will drift from you course without knowing it. Measurement is your GPS voice telling you the turn you wanted is now behind you.
Your measurment system should focus on what you want to achieve. It should not include what others may or may not do. You need not be the best at anything. You need only achieve the goals that get you what you need and want.
Building adequate skills on many metrics and getting help with the other areas should suffice.
Removing needless emotion
Emotions hurt many decisions. Like staying invested, or saving, or paying down debt. Behaviour matters more than plans.
“The big question about how people behave is whether they’ve got an inner scorecard or an outer scorecard. It helps if you can be satisfied with an inner scorecard.” Warren Buffett
You will find more at Farnam Street. The Danger of Comparing Yourself to Others.
Worth the few minutes it will take you to read it.
I help business owners, and professionals 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.
Please be in touch if I can help you. don@moneyfyi.com 705-927-4770
Choosing Tactics First
It is very easy to do the tactical thing before the strategic thing. Tactics look easy. For most people it is the only thing they can do because the strategic level is hidden from them by advertising and peer pressure.
When you adopt the tactics first approach you end up in this situation.
“I am hopelessly lost but I am making good time.”
The difference
Tactics are about the doing. The how.
Strategy is about purposes and targets.
People get confused because advertising is about tactics. Things to do. There is no money to be made without an action step. As the result you see ads talking about an “RRSP Strategy.” There is no such thing. An RRSP is a tax deferred, retirement income tool. It is a tactic. The strategy is to have retirement income. The RRSP is one of the ways to get it.
All tactics answer a “How” question. All Strategies ask about what, who, when, where, and why.
Why strategy matters more
Strategy provides direction and a time aspect. If you have a good strategic plan, you can measure your transition to the future and aim it towards targets that matter.
Strategy is a framework on which you hang tactical methods. Without the framework you cannot assess your approach. You will have voids, contradictions and conflicts. Resources will be applied imperfectly. To solve the wrong problem. To miss priorities. Duplicated effort. You will be unable to measure achievement
When you have a framework, you can seek tools to help. You can assess the alternatives and decide effectively. You can decide if you need help with finding and implementing the tactic.
Creating a dividing line
You will always be the winner or the loser of your planning effort. No advisor will lose much if the process fails. They are in a position where if they do their job badly, someone else fails. To minimize your risk, you must be the planner. The advisor must be your assistant.
The dividing line should be this:
- You are the planner and design the strategic framework. The advisor role here is only to help you identify voids and conflicts in your thinking. How answers are not allowed at this stage.
- The advisor is the tactical specialist. When you think about it, that is good for you. Tactics are complicated, governed by law, packaged, and ever changing. Who has the time to keep up? Insurance, for example, is simple in concept, but incredibly detailed and subtle when seen in depth. Investing doesn’t look too hard either. It is as easy as using your computer and an online broker. Portfolio building is a much more complex skill. Few individuals have any real insight.
When you have your framework, it is safe to use advisors to seek options, make recommendations, and explain those recommendations. The recommendations either fit your framework or they do not. They address priorities in the right order or not. They fit your resource inventory or not.
Affecting the future
When you have a framework you can decide and assess the results. Decisions are what makes the future happen. Assessing is what optimizes it.
Never abdicate your role as strategic planner. Too risky.
I help business owners, and professionals 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.
Please be in touch if I can help you. don@moneyfyi.com 705-927-4770
