moneyFYI
Financial Freedom Is Merely Organized Common Sense
The Generalist Way To Solve Problems
“If your only tool is a hammer, every problem will look like a nail” Abraham Maslow
Hammers are wonderful if the problem really is a nail. Other times other tools are better. From that we gain an insight.
Everyone must learn defining problems and solving problems are very different tasks. Of the two, defining problems is often overlooked and solving with a fancy gadget takes precedence. That will eventually cost you.
An amazing invention
In 1891, Carl Elsener, a master cutler in the Swiss village of Ibach, invented the “SWISS ARMY KNIFE”.
You would be hard pressed to find someone who does not know about these. The New York Museum of Modern Art and the State Museum for Applied Art in Munich have both selected it for their collection of design excellence.
What’s it for?
Looking at it in the problem/solution paradigm, it is a tool , therefore a solution. It is useful because it provides 33 particular tools for as yet undefined problems. It offers no help whatever to defining the problem. That is the nature of tools.
It is the duty of a planner to find and understand problems and opportunities before they apply any tool. The Swiss Army Knife is a tool presented in anticipation of problems that may arise in a particular setting. It is of no value beforehand
It is a general solution rather than a specific solution.
The costly flaw
Despite its excellence, the SWISS ARMY KNIFE has an obvious flaw. It is good at doing 33 things but it is not the best at doing any of them. A Swiss Army Knife is most valuable when you do not know what problem you will face.
Single purpose tools solve problems better, but are only useful when the problem or opportunity has been well defined. When its limits and interactions with other situations are understood. If you want the best solution you must spend time on defining the situation before you decide how to solve it.
In cases where you do know what problem to solve, single purpose tools will always solve the problem better. A green Robertson screwdriver is an extremely poor pair of scissors but it is peerless at driving #6 Robertson screws.
In financial planning
People need to address this specialized versus multipurpose situation when looking at achieving financial goals.
You will know some problems in advance. The clear ones include the need for income in the event of illness or injury, the need for capital in the event of a premature death, the need for liquidity to resolve debt or tax obligations on death. The need for retirement income. When these are well defined, you should use special purpose tools to resolve them. If you need income, buy an income tool. If you need capital, buy a capital tool. You will always get better value.
If you know the problem, then “Swiss-Army-Knife-Like” financial tools provide weaker answers. No investment fund can guarantee retirement income as well as an annuity. Similarly, no annuity can provide accessible capital at some future undetermined time as well as an investment fund. Nothing is cheaper than using life insurance to pay the inevitable estate costs and income taxes.
Special purpose tools solve specific problems efficiently.
When you need help
If you have a water leak or a drain that doesn’t, you call a plumber. Most people see that as a solution, but it is really more. The plumber can help in problem identification and in providing a solution. The obvious problem sometimes is not what seems obvious. All plumbers operate the same way. Examine the obvious symptoms, eliminate some possible causes, and select the most likely. Draw on previous experience and knowledge and decide what to do about it.
Then you see another example of a general solution. The plumbers truck. No plumber decides on the tool and material before the problem is understood. Of all the things in that truck, no particular job is likely to use more than a tiny fraction of the available choices. You don’t pick the tool before you know the problem.
It will be smart to build up an awareness of the various tools available in addressing your general financial situation. Understand a little about investing and debt management. Understand control systems like a cash flow budget. Understand insurance in terms of what it will do and what it allows you to do because you have it. Understand the need for instructions like shareholder agreements, powers of attorney, and wills. You don’t need to be expert at any, but aware. Scott Adams calls it a “skill stack”
Financial advisors are like plumbers
They come with a briefcase full of solutions to as yet uncertain problems. They help you manage the problem/opportunity definitions and select specific and specialized tools to address what you find.
They must not begin with a tool and work backwards to define a problem that needs it.
You must participate and define the problem and the resources to be used. You are the planner, the advisor merely an assistant.
In the beginning
When the problem or opportunity has not yet become clear or may change in the future, a multipurpose tool can be advantageous. Watch for changes that will render it less efficient. Those changes include the ability to define the situation better. As you move through life, your tools should tend to become more specialized.
Specialized solution are always more efficient. Know what they are before you need them and revisit your problem definition every few years. If you can clearly define the problem or opportunity, there will be a specific financial tool to resolve it.
Everyone has poorly defined problems and inefficient solutions. A financial advisor can help you sort it out. Don’t overlook that opportunity.
I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.
Please be in touch if I can help you. don@moneyfyi.com 705-927-4770
moneyFYI 
A well-thought-out and easily grasped analogy.