Financial Tools Are In Aisle 17

A tool is a device or method that assists us in achieving some goal.  In older times, it was always physical.  Not so much now.  The internet is a tool.  So is the phone directory and a computer program. 

A tool is how we efficiently  implement a particular tactic. Tools expand out strength, like a lever or pulley or they increase our ability to solve problems.  Like a calculator or the internet.

I have begun to think of my cellphone as my exo-brain.  It contains more information and methods and pictures and ideas that I could ever have on my own.  Yet the tool allows me to behave as if it was all internalized.  It expands my ability.

Tools help us.  But tools have shortcomings that we cannot overlook.  We need protection.  Like the blade cover on a circular saw.

We introduce the shortcomings because we believe things that are not true or are limiting.

  • We overvalue and overuse tools with which we are most familiar.  If our only tool is a hammer all problems will look like nails.
  • We acquire tools because we believe we are supposed to have them.  Tools are for a purpose not for themselves.  No one wants a drill; they want holes.
  • Tools follow substantive issues, they are not usually fashion statements.  A Cadillac pick-up truck seems just wrong.  Armani hairdryers cannot be far off.
  • Multipurpose tools look attractive but are generally a weak solution.  A Swiss Army Knife is a brilliant device.  It will do many things, but if you have a Robertson screw to drive, a Robertson screwdriver will outperform it every time.  General purpose tools work best when the problem is unidentifiable beforehand.  Special purpose tools are for when you know the problem.
  • We tend to overbuy good solutions.  If you are buying a Honda for durability you might want to rethink the question if you drive 5,000 miles a year.  You will pay for the entire 300,000 miles the vehicle will likely go and only use a part of it.
  • Fit the tool to the task.  I don’t need a $200 electric drill to make holes for drapery track anchors once every 5 years.  If I were a cabinet maker, the $200 drill might not be good enough.

There are a vast number of financial tools.  Insurance of all kinds.  Investments.  Tax sensitive structures.  Software to manage assets or do budgets.  No one needs every tool and most people need only a few. It is easy to overbuy.

Just like power tools, you will do a better job with them if you know how they work, when they should be used and how to select any one of them for the task at hand.

When you acquire financial tools, be sure you are acquiring what they will do, not what they are.  Not everyone needs an RRSP or life insurance or even a bank account.

Learn enough about what the tools do and how they do it so that you can create effective and efficient financial plans.

Tools do not solve problems.  Thoughtful application of them is what works.


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Contact:  |  Follow Twitter   @DonShaughnessy

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

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