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.  866-285-7772

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: