It’s hard to be logical all the time about everything. The most financially successful tax clients we serve at least attempt to force themselves to be logical, for their own benefit. For instance, our parents, as well as a subset of the economy including some popular radio show based advisors like Dave Ramsey, say you should pay off your home and have a “free and clear” deed as a goal (they are wrong in most cases by the way). That kind of thinking is emotional thinking, mixed perhaps with some presumptive attitude about what the general populous is capable of. “Well, we know we can’t get people to do what would really be best for them based on pure math and logic because its complicated and would require that they educate themselves, so the next best thing we can get them to do is (insert substandard advice here).”
If advisors did not decide in advance what people are capable of, they would explain the math and the tax code and most people would be better off managing their home mortgage as an asset, and many people would also be better off never paying off a mortgage, but instead building an equal value or even more equity outside their home. With the current tax code altering mortgage and other deductions, everyone needs a refresher.
How does this relate to wasting time and money?
People will spend countless hours talking to many banks and other lenders trying to find the best rate, but no points because they feel they understand that part, so they can help themselves without outside advice. What they should do is spend that time learning how to manage their mortgage as part of their financial plan, and decide whether to build equity in a home, or the same equity outside a home. Then, when it’s time to shop the rate, simply go to a broker they can trust and say, “find me the best rate and prove it” and then spend their time on the bigger picture instead of spending all their time on what they do know, which can be delegated.
Business owners are very often guilty of this as well. “I know tires, that’s why I opened a tire store! I don’t want to learn everything the accountant knows. I hate taxes!” This is human nature, understandable and SUCH A SHAME! They will spend countless days and nights trying to grow revenue and work their fingers to the bone, and then pay little to no attention to what they pay all their business partners: the IRS, the state, workers comp, accounting, payroll, HR and others, because they aren’t comfortable with the subject matter. We understand, but we also BEG that you change your behavior. We can help home owners and business owners learn in small bites the things they should be paying attention to, instead of what they are currently wasting time on.