Motivate To Action


Problem solving rule

No one solves a problem or exploits an opportunity they don’t know they have.

What to do about it

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.

Stories communicate

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?”

People connect to a story

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

Decision Making Under Uncertainty


Decision making under uncertainty is redundant

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.

Decisions that don’t 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.

Decisions that do matter.

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.

Addressing consequential decisions

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.

The advantages of proto decisions.

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

The World Is Simple Enough. If


The key simplicity variable

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.

The next part

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.

The second O – Orient

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.

The D – Decide

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.

The A – Act

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.

How it applies to you

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.

  • Observe. What’s happening and why?
  • Orient. What does it mean to you?
  • Decide.
  • Act.

Difficult but possible if you work at it.

Recall it is the “OODA Loop”

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

Observations On Debt


Debt is everywhere

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.

Kinds of loans

  1. Credit cards. Point of sale debt is hard to control because it is hard to analyze at the time. Credit cards are a great benefit or a great burden. How you use them makes the effect. Interest rates on debt so incurred are very high because they can be. It is a little like illegal drugs. The dealers have little reason to reduce prices because the buyers are motivated. In the case of credit cards at least not demotivated. From the issuer’s standpoint, the cards and the accounts are hard to maintain so there must be a reward. You don’t need to add to their profit by paying interest. Let them be happy with the transaction fees. If you can’t pay cash because you don’t have the money, you should not put the purchase on a card either.
  2. Lines of credit. Easier to analyze because the only variables are visible. How much security. How much interest? How much limit. Be very cautious with the limit. The other two are easy to analyze. Never borrow as much as someone is willing to lend you. Lines of credit look safe because you are not borrowing the money now. What adjustments would you have to make to day to day living it it was at the limit? How would that work for you?
  3. Term loans. Could be for a car, or an education, or a house. Term in this case is the duration of the payments. These loans tend to be easy enough to get so people often do it without much thought. One of my cynical litigation lawyer friends has pointed out that if a divorce cost $50 and a marriage cost $1,000,000 there would be fewer divorces. The order matters. Apply the idea to borrowing. If you had to wait 3 years to get a loan for your new truck, but could pay it off in a day, there would be fewer truck loans. Convenience makes borrowing too easy and people often end up owing too much. The payments last longer than the joy of the purchase.

The fundamentals

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.

Overview

  1. Borrowing reduces your future.
  2. Lenders will want you to take all the risk. Thus the security margin.
  3. Interest is certain, future income to pay with is not.
  4. Never borrow as much as a lender will give you. It lets you spend money you need not spend.
  5. Effective debt management is about the borrowing side not the repayment side.
  6. Pay cash for consumables like vacations, clothing, and entertainment.
  7. Tax deduct interest when possible.

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

Numbers Mean Nothing Without Context


Objectively accurate measurements may not tell you much

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.

Measurement is not always contextual

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.

In the stock market

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.

In life

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.

Always know the context.

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.

Overview

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

Half A Plan


Plans are interactive

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”

Synergy

Plans involve many elements and ideally the pieces attached to each aspect interact and support each other.

  1. Life insurance can be a way to provide certainty for a family or business partner if a death occurs too soon. That is uncommon, so it becomes part of the liquidity and equalization plan in an estate. Choosing versatile product is important.
  2. A cash management and spending budget is important to balance current lifestyle with future lifestyle. Overspending in the present necessitates underspending in the future. The budget, or short term plan if you like that better, connects the allocation of money to the past, the present and the future. The regular review does two things. It improves the budget as new expenses and income sources become better understood and it is the scoreboard. You can motivate yourself to improve or congratulate yourself for achieving it. Motivation requires a way to keep score.
  3. Saving is insufficient. It is required, but it is just part of the acvumulation plan. Investing is the other part. Money working replaces you working. If you have worked hard to get your retirement money together, you do not want your money to be lazy. It must work hard too. It won’t unless you help it and show it how. Learn about investments and investing. Particularly learn about how markets work. Markets fluctuate with the emotional feelings of the people who buy and sell securities. Sometimes real things happen and decimate a stock price. Learn what matters.
  4. Debt management is twofold. Paying down is the easier part. Start with the most expensive and pay it off first. The second part is understanding what debt to incur. There is good debt and bad debt. Bad debt is an obligation incurred that doesn’t pay its own way. A mortgage on a home replaces rent and builds equity over a long time. You have to live somewhere so a rent versus own decision is required. Overspending on a house is to be avoided if debt is used to buy. Same point with a car or an education. Be sure the asset financed pays for itself in use or added income. Borrowing to invest can be problematic. Lenders don’t lose if they finance half the purchase and the stock drops 40%. You get back very little of your money though. Best left alone. Borrow little and borrow cheap.
  5. Tax management enhances the cash available to live, to pay down debt, and to invest. The gains are seldom huge, but they work for a long time and that matters. If your tax rate is 40%, 50 years of growth at 6% is three times as much as 50 years of growth at 3.6%.
  6. Understand time and compound growth. A plan that covers the rest of life, for a 40-year-old probably 50 years, is not a series of 50 one year plans. Long term plans have a different life than does a series of short term plans. That’s why you have a long plan separate from your annual budget. The budget keeps you on track and help motivate. Long term plans don’t have quite the same markers to tell you how you are doing. UNLESS you understand compound growth and time.
  7. Can you tell others how it works. If not, there is an issue. If you don’t understand well enough to explain to someone else, you probably won’t follow through.

Learn to ask, What’s it for?

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

H O P E


Masters of the universe

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.

People benefit from a planner if

  1. They need emotional support
  2. They need help with the arithmetic
  3. They need help choosing a product
  4. They need help keeping up to change
  5. They need help communicating with other professionals.
  6. They need help summarizing details for reporting and review
  7. The need to be reminded why they are doing what they are.
  8. They need a cheerleader
  9. They need an external voice of reason

What is H O P E?

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

The Fabric of Financial Planning


Complex, yet taken as a whole, simple

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.

Financial planning and financial independence are like that

There are many aspects to the plan. The list includes:

  1. Income producing asset acquisition and exploitation (education, business, job)
  2. Personal asset acquisition. (house and car)
  3. Cash management,
  4. Cost control,
  5. Debt management,
  6. Risk management (premature death, disability, asset protection, health)
  7. Emergency fund,
  8. Accumulation for longer term purposes (education or retirement)
  9. Portfolio management,
  10. Tax management,
  11. Agreements and instructions, (wills, powers of attorney, shareholder agreements, trusts)

All of the pieces must be present or the entire plan is at risk.

The goal is financial independence

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

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

When You Get Bumped


Something to think about

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.

Why do you spill 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.

So it is for your life and your plans

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.

You can adjust the contents

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.

Preparation is the key.

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

Planning and Implementation


People and businesses are alike

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.

Strategic ideas

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.

How so for people?

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.

Study context and find key variables

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

What If You Live Too Long?


Getting what you want

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.

The question is multipart:

  1. What will my cost of living be?
  2. What spontaneous income will exist?
  3. How much will my inflation rate be?
  4. How much will my investment earnings be?
  5. What will tax rates be?
  6. When will I start drawing on my money?
  7. How long will we need it?
  8. What happens when one of us dies?
  9. How long will the remaining one of us need it?
  10. What adverse possibilities exist?
  11. Given all that, how much should I set aside this month?
  12. How should I invest it?

A formidable problem.

Some insights

  1. What will my cost of living be? It will be different in substance. Children costs will be much lower. Work related gone. Recreation likely higher. Maybe some travel. Watch for currency exchange issues with travel. Understand the makeup in terms of necessity, convenience, luxury and temporary.
  2. What spontaneous income will exist? Many people have income form other sources at retirement. Government plans and employer pension being common. When you assess your future needs, note that these will cover some or much of the cost of living you require. You must replace the rest, not the whole amount.
  3. How much will my inflation rate be? No one knows, but recognize two things. 1) Retired people have a basket of spending that does not inflate the same way as the consumer price index. Child clothing, mortgage rates, even food and clothing are different. 2) some expenditures decrease as you age. Inflating cost and deflating ability to spend tend to make inflation less important after 80 or 85.
  4. How much will my investment earnings be? Again not an easy question, but it is likely better to think in terms of spread over inflation. Most retired folks will have a significant part of their holdings in bonds. Bonds tend to yield a point or two more than inflation. Picking a firmn number is risky.
  5. What will tax rates be? Taxes matter and we don’t know how the government will behave in future. They have limits and I tend to use the idea that the future will look at least a little, like the past. People will be left with enough to live.
  6. When will I start drawing on my money? Important for two reasons. 1) near term retirement shrinks the time to save and invest, and 2) lengthens the time to use the money. For people who retire in their early sixties with an inflation adjusted pension, most will receive more from the pension than they received as pay for working. Early retirement needs a lot of money.
  7. How long will we need it? People live longer than they used to. When I was young, few people were 90. Now they are more common, or maybe my social circle has changed. We should plan as if lifetimes will be longer.
  8. What happens when one of us dies? It is reasonable to believe that one spouse will pass on before the other. Watch for loss of pension benefits. It is not uncommon for the pension to diminish to 60% for the survivor. Sure, expenses go down, but not as much as you might think. The condo fees are the same with one person or two. Be careful with management needs. Some investments need more attention. Be sure the possible survivor can manage them. When I first started my career in accounting I had a n elderly, just widowed, woman come in my office, and asked to be shown how to write a check. Lots of support needed there.
  9. How long will the remaining one of us need it? That varies all over the place, and depends a lot on when the first passes. Plan as if both live a long time and if one passes early, it will still work.
  10. What adverse possibilities exist? Medical is most common. Have a sense of what you would do if someone needed expensive care for a while. Some should consider long term care insurance. I have a client who is presently sending $12,000 a month for 24-hour home care. I had another who said that if he ever needed home care he wouldn’t have a home to have it in for long.
  11. Given all that, how much should I set aside this month? By combining all the factors, you get an accumulation target. From that and using the time available to save and the expected yield, you can determine this months sinking fund deposit. It will turn out wrong because things change, but the answer to what should I do next, is the most key variable. Doing something has a better success prospect than doing nothing.
  12. How should I invest it? That is everyone’s concern. ideally something you understand and can manage. Success relies on positive feedback. Predictability is crucial, so high flying stocks probably should be outside your spectrum. Hire an advisor who understands you and your ideas. They can help you with the analysis and help you stay attached to your long term goals.

Overview

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

Living Benefits


What are living insurance benefits?

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.

Your ability to earn is a perishable asset

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.

Living benefits

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.

Overview.

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

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