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Dollars and Sense

 

There are many myths concerning money, with many of them transcending generations of people in the same family. The truth is that many of these myths — including the one about how money will make you happy and solve all your problems — are false. Worse, these myths tend to limit one’s thinking and limit their financial success.

By Charlie Epstein

 

Most people do not realize they have myths about their money.

And even more people don’t take the time to analyze where these myths come from and why people hold them to be true.

I have worked with thousands of people over the past 41 years as a financial advisor. In the process, I have identified 15 myths people have about their money, which limit their financial and personal success.

A myth is defined as “an unproved or false collective belief that is used to justify something.” The biggest myth we have about money is that “it will make me happy and solve all my problems.”

Do you think money makes you happy?

Are you sure? Want to bet?

Did you know that 90% of all lottery winners go bankrupt within three to five years of winning the lottery? I’m talking millionaires. And the majority have stated they wish they never won the money. They’re miserable, depressed, and suicidal. How can this be?

“I am convinced that your money myths limit your thinking and impact how you approach your life and your finances.”

This happens because the most important thing in their life has been to get money, and now that they have it, they have no idea what to do with it. They often go on a massive shopping spree and buy all sorts of material items that don’t bring any lasting joy or fulfillment. And, more importantly, they stop working or doing anything productive to give their life purpose, meaning, and real value. What they fail to do is stop and ask themselves, “beyond money, what makes me happy?”

I am convinced that your money myths limit your thinking and impact how you approach your life and your finances. The three biggest financial myths most people have are:

1. My home mortgage needs to be paid off when I retire so I don’t have a payment;

2. I’ll be in a lower tax bracket when I retire; and

3. My home is an investment.

My father believed all three of these myths. When he retired, he and my mother moved to Florida to build the house of their dreams, on the golf course of his dreams. He was going to pay cash for that house — $500,000. He was 68 at the time. I said, “Dad, I want you to take out a mortgage instead.”

My dad was shocked. “A mortgage! For how long?”

I said, “for 30 years.”

“Thirty years!” my Dad bellowed. “I’ll be dead before it’s paid off!”

“So what do you care?” I smiled. “You’ll be dead!”

To which my father asked, “what will your mother do?”

I said, “she doesn’t play golf, and she doesn’t play mahjong, so if you die before her, I will sell that house and move her back north!”

I convinced my Dad to put $100,000 down and finance the other $400,000 with a 30-year mortgage at 5%. This was 1992. Bill Clinton had come into the White House and raised the marginal tax rate from 36% to 39.6%. There went money myth #2 — the belief he would be in a lower tax bracket when he retired (a belief I am sure many of you reading this article share).

That didn’t happen. The good news was, he could write off and deduct 40% of his mortgage payments in the first 15 years because it was all mostly interest. My dad was now ‘leveraging’ other people’s money (OPM) by using the bank’s money to take out a mortgage, and Uncle Sam’s money (USM) by deducting 40% of his mortgage payments.

The net cost for my dad to borrow the bank’s money was 3% (5% x 40% = 2%, which he could deduct, so his net cost to borrow that money was 3%). I said to my parents, “If I can’t make you net more than 3% on your $400,000, fire me as your financial advisor.” We averaged 7% to 8% on their money for the next 13 years of his life.

When my dad passed away, I sold my mother’s home in Florida, at a $100,000 loss. This was 2005, and the real-estate market in Florida was overbuilt, and no one wanted to be on a golf course. So much for the third money myth about your home being an investment. I than moved my mother back north and built her a home in an over-55 community. She was 79 at the time, and she said to me, with a twinkle in her eye, “son, do I get to take out a mortgage?” My mother is now 94, and she still has a mortgage — at 2.5%.

What does my mother care about? She only cares that she has enough money to pay for everything she desires to do. What do I care about? That I’m not tying up her money in a ‘dead asset’ — her home. She can’t eat it or drink it, and it doesn’t generate any income for her. And it is not an investment. I know I can make more than 2.5% on her money by using OPM to generate her even more income.

The key to being financially successful with your money is to understand how to maximize OPM and USM to make money on ‘the spread.’ The spread is the difference between what it costs to use other people’s money and what you can make investing your money somewhere else.

Let me add one big caveat to this discussion. If, psychologically, you must have your mortgage paid off so you can sleep at night … then pay it off. I always say psychology trumps economics. Just remember, you may feel good having it paid off, but economically, you won’t make as much of a return on your money and your assets.

 

Charlie Epstein is an author, entertainer, advisor, entrepreneur, and principal with Epstein Financial. He also presents a podcast, Yield of Dreams; yieldofdreams.live; (413) 478-8580.

Modern Office

Flexible Thinking, Nimble Action

By Susan Robertson

To survive the pandemic, companies were forced to adapt very quickly to radically new circumstances. Even large organizations — where it’s typically difficult to shift directions quickly — managed to accomplish it. Leaders discovered that, when required, their organization could act much more quickly and nimbly than they normally do.

So, the obvious questions are: what was different? And how can you ‘hardwire’ this flexibility into your organization so it continues to be stronger in the future?

 

What Was Different?

All humans have a set of cognitive biases, which are mental shortcuts used for problem solving and decision making.

To be clear, cognitive biases are not individual or personal biases. They are a neuroscience phenomenon that all humans share. It’s also important to understand that they operate subconsciously; they affect your thinking in ways that you don’t realize.

You have two different thinking systems, commonly known as system 1 and system 2, sometimes referred to as thinking fast and thinking slow.

System 1 is the intuitive, quick, and easy thinking that we do most of the time. In fact, it accounts for about 98% of our thinking. It doesn’t require a lot of mental effort; we do it easily, quickly, and without having to think about the fact that we’re thinking.

System 2 thinking is deeper thinking, the kind that’s required for complex problem solving and decision making. This deeper thinking requires more effort and energy; it literally uses more calories. Since it’s less energy-efficient, our brain automatically and subconsciously defaults to the easier system-1 thinking whenever it can to save effort.

Cognitive biases result when our brain tries to stay in system-1 thinking, when perhaps it should be in system 2. The outcome is often sub-optimal solutions and/or poor decision making. But we don’t realize we have sub-optimized because all of this has happened subconsciously.

In typical circumstances, several of these cognitive biases conspire to make us perceive that continuing as we are — with only slower, incremental changes — seems like the best decision. It feels familiar, it feels lower risk … it just feels smarter. Choosing to do nothing different is, very often, simply the default. It frequently doesn’t even feel like we made a decision; instead, it feels like we were really smart for not making a potentially risky decision.

But during the pandemic, changing nothing, or changing very slowly, were simply not options. This particular situation was so unique that our brains didn’t have the choice to stay in short-cut system-1 thinking. System-2 thinking was required. Since we consciously realized we must change — quickly — our brains literally started working harder, in system 2, and the normal cognitive biases weren’t a factor.

 

How Can We Be More Nimble in the Future?

The key to maintaining flexible thinking and nimble behavior is to not allow our brains to fall into the trap of cognitive biases. Obviously, since these are intuitive and subconscious responses, this is not an easy task. But there are proven ways in which we can better manage our brains. Here are a few ways to start.

• Knock Out the Negativity Bias. This is the phenomenon in which negative experiences have a greater impact on your thoughts, feelings, and behaviors than positive experiences. So you are much more highly motivated to avoid the negative than you are to seek out positive. The way this manifests in your daily work is that you are much more prone to reject new ideas than to accept them, because rejecting ideas feels like you’re avoiding a potential negative.

Respond to “yes, but…” with “what if…?” This requires a dedicated and conscious mental effort, by everyone on the team, to monitor their own and the team’s response to new ideas. Every time “yes, but…” is uttered, the response needs to be, “what if we could solve for that?” This reframing of the problem into a question will trigger our brains to look for solutions, instead of instantly rejecting the idea.

• Short-circuit the Status-quo Bias. The status-quo bias is a subconscious preference for the current state of affairs. We use ‘current’ as a mental reference point, and any change from that is perceived as a loss. As a result, we frequently overestimate the risk of a change, and dramatically underestimate the risk of business as usual.

When weighing a choice of possible actions, be sure to overtly list “do nothing” as one of the choices, so you are forced to acknowledge it is a choice. Also include “risk” as one of the evaluation criteria, and force the team to list all the possible risks. Then comes the difficult part: remind the team that their subconscious brain is making them perceive the risks of doing nothing to be lower than the reality, so they should multiply the possibility of each of those risks.

• Curtail the Curse of Knowledge. In any subject where we have some expertise, we also have many subconscious assumptions about that subject. Under normal circumstances, this ‘curse of knowledge’ (these latent assumptions) limits our thinking and suppresses our ability to come up with radically new ideas.

Rely on advisors who don’t have the same curse of knowledge. In other words, seek out advice from people outside of your industry. When evaluating ideas or actions, these outsiders won’t have the same blinders that you have, so they will likely have a more clear-eyed view of the benefits and risks.

The bad news is that cognitive biases are always going to be a factor in our problem solving and decision making; they’re hardwired into us. The good news is that, with some dedicated and continuous mental effort, we can mitigate them and become nimbler in the face of change.

 

Susan Robertson empowers individuals, teams, and organizations to more nimbly adapt to change, by transforming thinking from “why we can’t” to “how might we?” She is a creative thinking expert with more than 20 years of experience coaching Fortune 500 companies. As an instructor on applied creativity at Harvard, she brings a scientific foundation to enhancing human creativity; www.susanrobertson.com

Senior Planning

Eight Tips for Medication Management for Seniors

By Kara James

In general, as we age, our need for a variety of medications increases. This includes everything from prescriptions to over-the-counter medications, as well as vitamins and supplements.

Unfortunately, as the number of remedies we take increases, so too does the difficulty in managing them, which can lead to problems such as potential interactions and missed doses. Here are eight tips to help properly manage medications.

1. Check for interactions. Talk to your pharmacist and let them know about all the medications you are taking, including natural remedies and over-the-counter products. Your pharmacist can let you know in advance about any potential for interactions that could have serious health consequences.

“As the number of remedies we take increases, so too does the difficulty in managing them, which can lead to problems such as potential interactions and missed doses.”

2. Make a written schedule. It’s important to take medications as prescribed so they work effectively. Write down which medications you need to take, and at what time of day (morning, noon, evening, or bedtime). Be sure to include any important reminders, such as if you are supposed to take a medication with food or on an empty stomach. Keep this schedule in a visible place. Use an alarm to set reminders, if necessary, to stay on schedule.

3. Pre-sort medications weekly. A pill organizer makes it easy for you to see what medications you need to take and when, and also lets you easily see if you already took a dose so you don’t accidentally take it twice. Our MediBubble medication-management system does this for you with monthly pill-pack organizers.

4. Create a comprehensive list. Make a list of all your medications and supplements and keep it on your phone or in your wallet for easy reference. Include the medication name, dosage, frequency, and purpose.

5. Store medications appropriately. Many people store their medications in the bathroom; heat and humidity can cause medications to degrade. They should be kept in a cool, dark place, out of the reach of children.

6. Ensure accessibility. Some seniors struggle with opening child-proof bottles, so make sure you can actually access the medications you need to take. If you must put them in another container, make sure the container is labeled with the medication name, dosage, and other instructions.

7. Understand side effects. Make sure you understand the potential side effects of medications you take, and be sure to let your provider know if you experience any that are serious. They can often provide advice or change the medication or dosage to minimize issues. You can also talk to your pharmacist with questions and concerns about side effects.

8. Plan ahead for refills. Make sure you order refills well in advance to avoid missed doses. Some pharmacies now offer medication-management programs allowing for routine refilling of your prescriptions, and will notify you when your refill is ready. n

Kara James, Ph.D. is pharmacy manager and co-owner of Louis & Clark Pharmacy in Springfield.

Local Business Advice

The Wealth Technology Group

By: Gary F. Thomas, JD, LLM, CLU, ChFC, AIF, CDFA

A couple of weeks ago I spoke with a potential client on the phone who had recently purchased some trusts through an online service, and had questions about them. To create the trusts he spoke with an individual on the phone and filled out a short questionnaire listing his wishes, assets and beneficiaries. A short time later received the documents. He was told that the trusts would accomplish his three primary objectives:

Probate Avoidance

Estate Tax Reduction

Asset Protection

I responded that without reading the trusts carefully as well as knowing more about his current financial situation, it would be impossible for me to answer his concerns. We agreed to meet.

Bill arrived carrying a handsome, two-inch thick leatherette folio with his family name embossed in gold lettering on the cover. The binder included two trusts: a Revocable Living Trust and an Irrevocable Asset Protection Trust. Neither trust was funded. In addition, there was a “pour-over” will, designed to fund the Living Trust with probate assets at the time of Bill’s passing.

After chatting with Bill, I learned that he was seventy-three years old, and had two adult sons who were comfortable financially. Up until the creation of his trusts, he had a simple Will leaving all his assets to Martha, his wife of 40 years. She had recently passed after a lengthy illness, motivating Bill to reconsider his estate planning options.

Bill’s major assets included a sizable conservatively invested 401k which listed his children as beneficiaries. Bill’s other assets consisted of a couple of CDs, a modest checking account and a three-bedroom ranch built in the 1960s. Although Bill would be considered to be financially comfortable, his combined assets were only slightly above the one million dollar threshold for Massachusetts estate taxes, with no likelihood of approaching the Federal limits.

The trusts would not serve to avoid probate or to protect Bill’s assets. His major asset, the 401k, was already set up to avoid probate as it had named beneficiaries. As a retirement account it is protected from creditors under both Massachusetts and Federal law. Transferring his 401k to the Irrevocable Trust would necessitate cashing it out, resulting in an income tax disaster.

Bill asked what course he should take regarding the CDs and his home. He could, if he chose, transfer his CDs into either trust but as they were only a modest portion of his assets, the net effect of doing so would be marginal. And although he could transfer his home to the Irrevocable Trust in the hopes of protecting it from the high cost of long-term care, he would still be required to spend down his other assets to qualify for care.

Properly structured, drafted and funded, trusts are valuable tools for probate avoidance, asset protection and estate tax avoidance, but they are not needed by everyone. Basic estate planning documents such as a Will and a Durable Power of Attorney, with careful selection of beneficiaries plus proper insurance planning often produces the desired outcome.

Please consult a qualified professional who can assess your situation and guide you properly through your estate planning journey.

Social Security Informational Workshop: June 11, 13, 18, & 20th • 6:30 pm

Wealth Technology Conference Center – 130 Southampton Rd, Westfield, MA

 


Gary F. Thomas

JD, LLM, CLU, ChFC, AIF, CDFA

“Because it’s not what you make … it’s what you keep!”

Gary is the President of The Wealth Technology Group, with offices in Pittsfield and Westfield. His company serves over a thousand individuals and businesses in Massachusetts, Connecticut, and across the country, helping them reduce taxes, diversify their portfolios, and keep more of what they have.

Gary is a native of Pittsfield and is a graduate of the Massachusetts College of Liberal Arts and Western New England University Law School. He is a member of the Massachusetts Bar and holds the prestigious Master of Laws in Taxation degree from Boston University Law School. Gary is a Chartered Life Underwriter and a Chartered Financial Consultant. He is also certified as an Accredited Investment Fiduciary, having met the ethical and education standards of a prestigious network of forward-looking investment professionals dedicated to advancing fiduciary responsibility.

Gary has conducted courses on retirement planning, financial management, and estate planning at General Dynamics Corporation, Tubed Products, the Massachusetts Nurse’s Association, Plumbers and Pipefitters Locals 4 and 104, Westfield State University, Berkshire Community College and the Massachusetts College of Liberal Arts, and has lectured financial planning and insurance professionals throughout the U.S. and internationally on best practices and customer service. He specializes in education about safe money management and the maximization of pension and Social Security benefits, so that his clients enjoy a stress-free retirement.

Gary is a member of the Massachusetts Bar Association, the Financial Planning Association, the National Association of Insurance and Financial Advisors, and the International Association of Financial Planners; he sits on the Board of Directors of the MCLA Foundation. Last year, Gary was honored to be appointed a member of the Board of Trustees for Western New England University. He also underwrites programming for WHMP, Channel 57, and is a member of the Westfield Chamber of Commerce and the Better Business Bureau. He was chosen Outstanding Philanthropist of the Year for 2013 by the Western Mass Association of Fundraising Professionals.

Gary is a presence on local media and is sometimes called upon to comment on financial news. Every few weeks Gary also has some fun talking about financial topics with Bax & O’Brien on Rock102. His programs are available on the station websites, and are podcast on iTunes and at www.wealthtechnology.com. He has appeared nationally on Fox Business News, and has been quoted on the Forbes and CNN Money websites.

(800) 266-6793

[email protected]

www.wealthtechnology.com

Employment

(And Also Be at Least Reasonably Happy Doing It)

By John Graham

Most everyone has figured out that performance expectations keep going up. To put it bluntly, we face the challenge of doing more in less time. And it’s not about to change anytime soon.

In the past, those with lots of experience fared well. But not today. Experience can hold us back, like running against a strong wind. Experience is about what we’ve done in the past, and it has value in an ever-changing environment. On the other hand, expertise prepares us for what we must do next so we can face the future with confidence.

The question, then, is how to transition from experience to expertise, from looking backward for answers to looking forward with solutions. Here are 17 ways to do it.

1. Have the right mindset. Experience short-circuits the thinking process. We go from zero to 60 in a split second. We tear into tasks because we’ve been there before and know what to do. It takes an analytical mindset when entering uncharted territory.

2. Figure out what you need to know. More often than not, problems, misunderstandings, and confusion occur because we didn’t ask enough questions — or, more likely, any questions. We get off on the wrong foot by not knowing what we need to know.

3. Give yourself time. Some say they do their best work in a crisis or at the last minute. It’s also easy to deceive ourselves. Where does that leave us when we run out of time? The answer: in trouble and making excuses. And feeling overwhelmed.

4. Work on it and let it sit. The best solutions rarely, if ever, occur on the first attempt, whether it’s writing a report or working on a project. The human mind needs ‘noodling’ time to work in the background without pressure. Remember, everything can be improved.

5. Avoid confrontations. It isn’t easy, particularly since we seem to possess an urge to be right, a gyroscope of the mind. When coming into contact with an opposing view, the mind pushes back to regain its balance. It helps to view it as a signal to take a closer look before having a confrontation.

6. Never assume things will go smoothly. Why do we never get over being surprised when things go wrong? It’s as if someone is playing cruel jokes on us or deliberately throwing us curveballs to cause us grief. It’s best to be prepared by anticipating what might go wrong.

7. Second-guess yourself. To avoid getting blindsided, ask yourself ‘what if’ questions to foresee possible outcomes. Then, when asked about alternatives, you can say you considered various options and why you chose this one.

8. Learn something new. If you can do your job without thinking about it, you’re probably bored and underproductive. The human mind gets moving and stays active by coming up with new ideas, making improvements, and solving problems.

9. Go beyond what’s expected of you. It’s easy to put up a ‘I’ve reached my limit’ or a ‘I’m not paid to do that’ sign. Everyone feels that way at times. If we do, we can count on dismal days ahead.

10. Be present. It’s easy to be at work and not be present. The average employee spends just under eight hours a week on personal stuff, most of it on e-mail and social media. For those ages 18 to 34, add two hours a week, according to a staffing firm Office Team survey. That’s a day each week of not being present.

11. Ask questions. Have you started on a task and get into it only to discover you’re on the wrong track? Most of us have — too many times. It occurs when we’re too sure of ourselves or reluctant (or embarrassed) to ask questions. Asking the right questions is a sign that you’re thinking about what you’re doing.

12. Look for possibilities. Instead of just doing your work each day, take it to another level and interact with it so you get feedback from what you’re doing. Ask yourself: is it clear? Is it complete? Will the recipient understand it? Is it necessary? Will it make the right impression? What have I missed? Should I start over? Is it time for another set of eyes?

13.Take a chance. It’s invigorating to try something new. You may have been thinking about it for a long time, and it doesn’t really make any difference what it is. By taking your mind off all the annoying daily irritations, it can help invigorate your outlook and improve your productivity.

14. Have clear goals. Tedium sets in on any job. One day you realize that what was interesting and challenging is now tiring and unpleasant — perhaps even intolerable. If so, it’s ‘goal think’ time. Start by asking what you want to accomplish today, then add another goal for the coming month, and so on. When you know where you’re going, the tedium fades away.

15. Eliminate confusion. We may not be in a position to control the confusion around us, but we can avoid adding to it. We can make sure our messages are accurate and complete so there’s no misunderstanding, our address book and other files are current so we don’t need to bother others, we meet deadlines so we don’t leave others waiting, and so on.

16. Raise your standards. Others respond to us based on how they view us. How do they see you? Someone who get things done, who takes quality seriously, and who demands a lot from yourself? Make a conscious decision as to how you want to be perceived.

17. Take on a challenge. Nose around to see what you can find, drop a few hints, and even raise your hand. But be sure it’s something you want to sink your teeth into. If it is, you’ll have a great time doing it.

Follow this advice, and not only will you get your work done, but it will be more than you thought possible, and you’ll be happier at the same time. Better yet, your employer and your customers will be happier, too.
As it turns out, happiness doesn’t depend on what others do for us, but what we do for ourselves.

John Graham of GrahamComm is a marketing and sales strategy consultant and business writer. He is the creator of “Magnet Marketing,” and publishes a free monthly e-bulletin, “No Nonsense Marketing & Sales Ideas”; [email protected]

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