Wow, the New Year is upon us - Happy New Year! - But where the heck did 2009 go? With the New Year comes the annual ritual of the New Year’s Resolution. New Year’s is the oldest celebrated holiday we have, dating back some 4,000 years to ancient Babylon, and that celebration originally coincided around the beginning spring, a time of renewal.
The Birth of the New Year's Resolution. That the celebration got moved to January seems to have arbitrary and dates back to 153 BC when Julius Caesar's named the first month of the year after Janus, the god of new beginnings. Janus was depicted as having two faces, one looking back and one looking forward. So at midnight on New Year’s Eve, Janus was imagined by the Romans to be looking back at the old year and forward at the new year, a very natural time for reflection and for resolution and the tradition of the New Year's Resolution was born and has evloved and stayed with us all these millennia.
Look Behind, Then Look Ahead. So each New Year we pause to look behind and then ahead at the new year and what we might want to improve and change. Actually a pretty useful process and one I recommend for businesses and individuals alike at this time of the year. But, Janus was thought to look in two directions and it is very important we don't get stuck looking back and never get around to the looking forward to the new.
I happened to catch Andy Rooney’s 60 Minutes segment last week and as always it was entertaining and thought provoking. His topic was New Year’s resolutions and Andy was resolving not to get ahead with anything. Andy begins with:
“The idea of 2010 doesn’t do much for me. It seems like a nice, even round number. But those of us who hate New Year’s Eve and the necessity it brings to have fun are looking forward to New Year’s Day, when New Year’s Eve will finally be over. . . I always go to a very nice party but I don’t even like nice parties on New Year’s Eve. I just want to be alone that night feeling miserable about all the things I didn’t get done in the past year and all the hard jobs I have ahead of me in the next year.”
Should We Even Try? While Mr. Rooney is certainly making a humorous point, how many of us actually feel like that especially after the last two years? Some recent research suggests that only 12% of us that make New Year’s resolutions actually keep those resolutions and achieve our goals? That is a pretty low percentage over the years can become pretty disillusioning. If each year we make resolutions that we seldom keep, how can we feel anything but disappointment and a sense of failure at the end of the year? It’s easy to see how someone might on New Year’s Eve “want to be alone feeling miserable about all the things I didn’t get done in the past year” and to dread the upcoming year as filled with “all the hard jobs I have ahead of me”.
There's Hope. But there has got to be something else at work here or this tradition would not have survived some 2,000 years. Perhaps it’s the indomitable human spirit to succeed, to improve and to make the world and our lives better. Perhaps it is that desire to look forward to the coming year and the hope that it might bring. Whatever it is, we can take heart that achieving our New Year’s resolutions is possible; after all 12% do succeed.
How You Can Change It All. If you want to change and make this year different, you can do it! The best place to begin is at the beginning or in this case with the resolution itself. In Five Steps to Successful New Year’s Resolutions, Kit Yarrow set’s out the following basic steps:
· Have a specific actionable plan.
· Do, do, do.
· Shake it up.
· Tangible, visible cues, barriers and rewards
· Avoid mental sabotage.
A Specific Actionable Plan
Start by not setting yourself up for failure. Most resolutions I have heard sound pretty vague: “improve health, lose weight, exercise more, drink less, improve finances, get out of debt, get a better job, improve self, become more organized, reduce stress. . .” Achieving such vague goals is very unlikely; it is not even clear what reaching the goal might look like and if you don’t know where you are going, it is not very likely you will know when you get there.
Start out by setting a clear and measurable goal with a timeline and an action plan about how you are going to get there. Instead of “I want to lose weight,” set out a goal of something like I want to lose 24 pounds at the rate of 2 pounds a month and to do that I will go to the gym 3 times a week, control the portions of what I eat and completely avoid eating junk food. The goal is clear. There are milestones to help measure the progress and success along the way. There are specific actions to be taken to help achieve the result.
Do, Do, Do.
The second part centers on the fact that most resolutions are about not doing something. It is pretty hard to stay motivated about not doing something. So replace the not doing something with doing something to keep you from turning to the old habit. In other words replace the time spent doing whatever it is you want to stop, with something else. It can be as simple as writing in a journal or going running when you get that urge to eat, watch TV, or impulsively by that new camera.
There should be another part in this step as well. Most of us are pretty good about sitting around and coming up with a plan or we can learn to do that, but the plan doesn’t mean a thing unless you take action. You have got to do and keep on doing until you are done. Don’t be an armchair quarterback for your own life. Get in the game. As the Nike commercial says “just do it” and start today.
Shake It Up.
Things we want to change in our lives are often part of habits we have built up over years. Habbits are very useful. They not only enable is to cope, but they provide us with a system to get things we need to do done. But they often keep is doing something we want to stop and they can be very hard to break. Yarrow says that habits are usually triggered by cues. For example if you have a habit of smoking which you often associate with coffee or bars, the coffee or bar may be the cue to smoke. Shake it up and change those cues that trigger that urge to smoke. Find other outlets than the coffee shop or bar. Don’t do the same things in the same way you always have. You can't expect to solve a problem by doing the same things that created the problem in the first place. Shake it up.
Tangible, Visual Cues, Barriers and Rewards.
It is easy to have our resolutions dim in the daily swirl of our lives, so it really helps to have some tangible reminders of what you want to achieve. If you are trying to lose weight, maybe you hang a small size dress in the kitchen, if you are trying to balance your budget, maybe you tape a note with your credit card balances in your wallet. Be creative and give your action plan a boost by creating cues to your new approach to life.
Don't forget to break your action plan into smaller steps. You need visible evidence that you are succeeding. Crossing the finish line is just one moment in time; it is preceded by thousands of moments of time along the way. Each moment along your journey is important too. Reward yourself as you achieve milestones. Success is more about a better journey than crossing the finish line.
Master Mental Sabotage.
Probably the greatest challenge and the greatest obstacle to achieving anything new is our own minds. Our mind is very good at making up new games, coming up with excuses and just plain blaming failure on someone or something else. Watch out for these common mind games:
Perfectionism. It has to be perfect. Unrealistic goals are sure to derail us. Don’t try to eat that elephant in one bite. Set more realistic goals and make sure you have smaller attainable milestones to mark your progress.
All or Nothing. Almost everything we do is about the steps we take along the way and we are going to have failures and missteps. If we take an all or nothing attitude, that first failure is going to be an easy reason to latch onto for not continuing. If we can’t have it all why go on? Don’t fall prey to the all or nothing game our mind will try to play.
Blame. When it comes to resolutions, as in most things we accomplish in life, it’s about personal accountability, says Ms. Yarrow. “There are always others and circumstances to blame. Success depends on accountability.” Don’t look outside and whatever you do, don’t blame.
So if you have a New Year’s resolution or any goal and you really want to achieve it this time around, try the 5 steps set out above and Good Luck. You may be really surprised at the difference this time next year and if you would like to know how learning to achieve a New Year’s Resolution can help you improve your business and your family’s security, visit our blog next week for the sequel.
 Andy Rooney, id, emphasis added.
Ever notice how break through ideas seem to come at the oddest times and usually while we are not consciously hard at work thinking. We can seemingly turn our analytical mind on and off (well maybe not off so well) and that is what we most often turn to when we have a problem to solve. But cranial activity and insight may well be “more like a cranial relay race than a light bulb switching on” according to an interesting article by Dyan Machan, Finding Your Next ‘Eureka’ Moment.
Apparently a lot of our thought process in so far as problem solving goes, occurs in our subconscious out of the purview of our current awareness. Brain scans have revealed considerable brain activity when someone is not consciously thinking, which has led scientists to conclude that there is a lot of subconscious mental activity. Machan’s article indicates that when we want to “think” we activate the brain’s prefrontal lateral areas, which govern analytical thought. However, studies have revealed that “more insightful, nuanced answers often come when the baton is passed to the medial area of the brain, which is associated with creativity”. This area seems to work more in the subconscious realm and cannot be called up whenever we want.
In fact, if we press and try to access those deeper subconscious mechanisms, there are some neuroscientists that believe we actually shut down parts of our subconscious and close off access to those very unique mechanisms. If both networks are needed to come up with those insightful, creative, out-of-the-box answers, it may well depend on our ability to relax or “chill out”. By turning of the analytical burners and doing more mundane activities, we may actually allow our subconscious to come through with new and creative ideas.
In business we usually are quite focused on the immediate and most pressing tasks and we apply more and more analytical power to trying to solve those urgent and important problems. The approach we take often reminds me of the Doors song “Break On Through To The Other Side”. We keep pushing harder trying break through the problem. As we push harder we become more focused and directed and our perspective narrows. In that mode, perspective is lost and our business progress can come to a standstill.
As in problem solving is it possible that this approach of trying to concentrate harder and focus more resources on a problem actually shuts down our ability to see what really needs to be done and prevents us from coming up with a more creative and out of the box solution?
Working with businesses that take the time to create a long term vision and strategic plan, is that they seem to have more depth perception and a better perspective. They can step out of the immediate problem more easily and take the broader or 35,000 foot level view. They can ask the question of what will get them closer to their end goals. From that vantage point, everything looks different and new solutions often arise. By withdrawing from the battle to “observe” the battle and where it might take them, they often can gain an entirely new solution, a kind of Eureka Moment.
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you ever have too much of a good thing? Absolutely!
Today businesses are facing too many job candidates looking to fill too
few job openings. It can be overwhelming
and companies are finding it very hard to just sort through the large numbers
of applicants, but this is a great time for companies to hire some exceptional people
and some companies are meeting the challenge head on with fresh ideas.
Love Rewards, Inc. is a good example. Recently they received 1,200 job applications
in response to job postings. Problem or opportunity? For I Love Rewards, it was an
opportunity. The company sent out emails
to each applicant thanking them for the application and inviting them to an
open house. Only 400 responded. That email
then self-selected 2/3s of the applicants out of the running. They then turned their open house into a kind of
speed dating event where 31 of their employees met with the 400
candidates in short five minute meetings.
That allowed them to further narrow down the group to 68 candidates that
they invited back for group and individual interviews. See To Find the Best Hires, Firms Become Creative.
than get bogged down by the large number of applications, I Love Rewards came
up with an innovative approach that allowed them to sort through and filter out
the less qualified candidates. They could then take advantage of all the talent
and pick the very best applicants for their interviews.
the right employees on the bus and in the right seats has long been argued to
be a critical task of businesses
(Jim Collins, Good to Great). The current economic situation has put a
large number of really qualified candidates in the job market. This is the off season, and this unfortunate
situation presents a great opportunity for companies to improve their teams and
draft up to better talent where they have weaknesses.
is a team activity. Every company should be assessing their team on a regular basis and
grading their players from A to C. A-players are your top performers and keys to
your current success. B-players are those members of your organization that
show promise and that you believe can become A-players with training and
guidance. They are your bench and tomorrow’s strength and competitive advantage. C-players are those members of your
organization who are not performing to your needs and who you do not believe will
grow into B or A-Players. A
team is only as strong as it’s weakest player. Businesses underestimate the substantial cost
and distraction of keeping C-players on the team. That is one of the hidden dangers facing
business owners. With surviving
businesses cutting costs in every way they can, now is the time to take action
and become a stronger company by replacing C players and bringing in new
is the first key step. It is not always
easy to discover how a job candidate will fit into your organization, but it is
critical to do it right. Hiring
the wrong employees can be a very costly mistake and is very disruptive
to moral and efficiency. More and more
companies are turning to personality tests to try and get to know the
candidates and how they will fit in better. Some companies are even setting up 4 day
interviews for their best candidates.
Excessive? Not really when you
consider the true cost to a company of hiring the wrong person. A winning effort starts with your team
In a surprising turn of events (surprising for how quickly it happened), the House of Representatives has passed H.R. 4154 which would repeal the new carryover basis rules, make permanent the $3.5M exemption equivalent and establish 45 percent as the maximum estate and gift tax rate. H.R. 4154, just introduced in November passed the House by a vote of 225 to 200. It is just one of 20 bills introduced into Congress this year dealing with the Estate Tax. The bill now moves to the Senate. Stay tuned for developments.
We almost always learn more when something breaks or fails than in all the years when it is working. The world economy is a case in point. While everything was going along smoothly, it was hard to get anyone’s attention about the dangers that were building up and lying just ahead. If it ain’t broke don’t fix it was a commonly heard mantra. Yet the causes of failure are planted long before it becomes visible and just because everything is working now doesn’t mean that there isn’t a failure looming. So adhering blindly to the “not broke, don’t fix it” school of thought may have moved us deeper into harm’s way. By failing to take stock, analyze and evaluate before crisis, we gave up all chance of averting the crisis. Long-term planning is an essential element of business success.
Now that the economy has “broken” there is no choice but to try and find out why and plan so that it “never” happens again. But the real lesson is that long-term planning and identifying and avoiding risk has got to become an ongoing process, even when everything is going well. As we enter a new year, now is the time for businesses to take stock of where they are and whether there are any looming problems. That is how crisis is averted.
If we look at the response to this world-wide recession, we can observe that there is a whole lot of triage taking place right now. Triage generally means responding to a life or death situation with all means available. Triage is hugely expensive as we are seeing as the debt extends into the Trillions through stimulus and bailout. It is also uncertain of result. We don’t know if it will work. A business certainly would not want to find itself in a triage situation and yet that is exactly what has happened to countless businesses, often as a result of ignoring simple planning opportunities.
Long-term survival and growth requires avoiding and minimizing triage situations. The lesson from the current recession and triage approach for businesses should be obvious. Planning and laying out a course of action with contingency plans is much less costly than doing nothing.
Common risk areas are:
· Choosing and operating in the wrong form of business entity
· Not hiring the right employees
· Not protecting trade secrets and intellectual property
· Not having a plan to retain and reward your most valuable employees
· Not having a partner plan
· Not having business continuity and exit plan
· Not having a strategy for transferring your wealth out of the business
· Not having an estate plan to protect your family
We have designed a legal audit process to help businesses assess their current situation and areas of risk. Every business should conduct such an audit every year. Be sure and contact us if you would like to learn more.
my last Blog Post, I began a discussion of the possible changes to the Federal
Estate Tax Laws; I outlined four of the most likely alternatives and passed on
the seeming consensus that new legislation would likely have to wait until next
year. Since then I have learned that
Congressman Charles Rangel, the Chairman of the House Ways and Means Committee
that controls tax legislation coming out of the House of Representatives ,has
stated there are three things that he wants done in 2009: (i) jobs, (ii) extenders of temporary tax
provisions, and (iii) estate tax reform.
That raises the visibility of estate tax reform and puts in front and
center; something we haven't seen this year.
on October 22, 2009 a brand new bill (HR 3905) called the Estate Tax Relief Act
of 2009 was introduced and sent to the House Ways and Means Committee. While we
can never predict whether it will even make it out of committee, it certainly
looks like there will be an attempt to get Estate Tax legislation this year and
HR 3905 takes a couple of interesting turns from what has been discussed so
new legislation would
Repeal the sunset
of the Estate Tax laws in 2010
$3,650,000 exemption equivalent in 2010
the exemption equivalent to $5,000,000 by 2019, adjusted for inflation
Reduce the estate
tax rate to 44 percent in 2010 (from 45 percent), and
the estate tax rate from 45 percent to 35 percent by the 2019.
enough it is silent on portability of the federal estate tax exemption between
So the new bill presents an interesting new
possibility, but we have to place this in the context of a continuing fight to
get health care reform passed and we need to keep in mind that the new
legislation is only one of many proposals being championed.
Many are speculating that with the government so strapped for revenues, that it is hard to see the estate tax going away, but the estate tax has never really produced a lot of revenue and has been more of a political football. Some even think our politicians can't afford to let it disappear, because as a rallying cry it is too valuable and it is usually certain to bring in campaign contributions and charge up the electorate. Fact or fiction? Hard to say, but an interesting speculation. Stay tuned. This should be an interesting
dead, but it’s more uncertain what will happen to the estate tax now than ever, but in a time when government is desperate for revenues it is unlikely that the estate tax will be allowed to disappear for even one year. So where does that leave us? Well to be honest, with time probably running
out on some planning opportunities.
How we got here.
there as support for some significant changes to the estate tax law, but the
Republicans could not muster 60 votes in the Senate, so the law that was passed
could not be made permanent. The 2000
estate tax changes will “sunset” at the end of 10 years and 2010 is the last
year. When a law sunsets we return to the law that was in effect before the
temporary law was passed, unless new legislation is passed.
passed in 2000 (“2000”) provided for a top estate tax rate of 45 percent and
gradually increased the exemption equivalent (basically the size of the estate
that someone can have before paying estate taxes). It is $3.5M in 2009, which means that a
married couple can basically transfer a $7M estate to their heirs, free of tax. That is a pretty good size estate and has
removed most families’ estates from the estate tax system.
The 2000 ET provided
that in 2010 the estate tax will disappear entirely, but just for that one
year. In 2011, if no new legislation is
passed, the estate tax comes back at a top tax rate of 55 percent with a $1M
exemption equivalent, meaning that a couple’s estate above $2M will be subject
to the estate tax. An estate of $2M vs. $7M is a very big difference.
Health Care Reform Front and Center. With health care reform seeming to
have captured the legislature’s and the administration’s attention and time, it
is unlikely that we will see estate tax legislation prior to the end of this
year. But legislation passed in 2010 can be made retroactive to the beginning
of the year, so just because we start out 2010 without an estate tax, does not
mean that no estate tax will apply during 2010. In other words, don’t plan on
dying in 2010 just to avoid estate taxes. What are the most likely
Four Leading Alternatives:
Estate tax will disappear in 2010
for one year and
then return in 2011
at 55 percent rate and $1M
exemption equivalent. Result: 55% and $1M
This is probably pretty unlikely.
Make 2009 rate and exemption
equivalent permanent. Result: 45% and $3.5M
Thought for a longtime to be the
most likely, but not
so clear now.
Extend 1 year, then return to 2000.
Extend 2009 rate and exemption for
one year. Result: 45% and $3.5M.
Then allow tax to return to pre
2000 Result: 55% and $1M
Extend 2009 rate and exemption for
one year. Result: 45% and $3.5M
Determine go forward rate and
exemption in 2010 Result: uncertain
Finance Chairman Max Baucus has been and continues to be very influential in
the area of estate taxes and estate tax legislation so it’s good to pay
attention when he sponsors a Bill. He has proposed “several measures that are
more generous than current law and [which] would simplify planning . . .” Laura
Saunders, Wall Street Journal. His bill would continue the 45 percent rate and
the $3.5M exemption equivalent. They would also provide for portability, which
means a surviving spouse could use the credit of both spouses to shelter the
estate from tax, even without any special trusts as commonly used today.
influence of Senator Baucus, financing the deficit and the huge debt is going
to be an overriding concern (well at least it should be) come next year. There
is a balanced budget mechanism in place that requires tracking the budget
effect of all new legislation. Generally if you take away revenue, you have to
have an offsetting decrease in expenditures. In 2010 the estate tax is
scheduled to expire. Passing legislation to extend current tax through 2010
actually raises additional revenue and would be a very positive and easy step
to take. It doesn’t look like a tax increase, but it raises more revenue.
with the tax set to return to 55 percent and a $1M exemption equivalent in
2011, if the current 2009 estate tax rules are extended to 2011 that would
actually reduce taxes. It is not revenue neutral or positive in other
words. Such an act would require that the
lost revenue be made up somewhere else. That is a tough order of business in
What No One Is Talking About. The
fun does not stop there. The 2000 legislation also included some significant
income tax rule changes (like stepped up basis) which are companion to the 2000
estate tax rules. They actually may well
have a larger impact on taxpayers than the estate tax rules. That will be the
focus of my next blog post.
It seems to be a fact of life that most of us put off important planning as long as we can and sometimes until it is too late. My observation perception; not a study of any kind. What is it about planning that folks just don’t like? You can find so many references to why planning is a critical first step; take the “Why You Need a Business Plan” article from today’s Wall Street Journal. Author Coleen Debaise does a nice job of summarizing and outlining the benefits of having a written business plan. Ms. Debaise asserts that the plan “outlines your goals and serves as a road map for future activities…” That certainly seems worthwhile. But then she goes on to point out that even though “a strong business plan is essentially the cornerstone of your business. . .many entrepreneurs drag their feet when it comes to writing one.”
Well over 2,000 years ago, military strategist Sun Tzu placed planning as the first chapter in his 13 chapters on the Art of War. With such a storied history and with so many planning advocates, why is planning avoided by so many? It really got me thinking and then it occurred to me. Planning is a lot like stopping and asking for directions or reading the directions before we start to put something together. A plan is after all a “map for future activities”. Now I can’t speak for women, but most guys seem to hate to do that. Let’s get busy; let’s get started. We don’t want to waste the time to read directions or set down and draw out a plan and path to follow. We don’t need no “stinkin” map.
Now don’t tell anyone I said this, but getting directions or having a good map to follow does seem to make life a lot easier and it seems you can actually get to where you want to go more directly and faster. Certainly nothing wrong with that. The five key points that Debaise makes about a good business plan are:
1. It forces you to identify your strengths and weaknesses;
2. It helps you figure out how much money you’ll need;
3. It give you clear direction;
4. It can serve as a resume when you seek financing or capital; and
5. It makes you size up your market and competition before you start.
A good plan is essential to any busines. It helps you handle “unforeseen complications” and avoid danger and risk. It provides a much more direct route to identified goals.
How to fund a child's college education is not easy matter these days, but there is plenty of help. In my last blog post entitled College Funding Part I - Do We Need a Crisis to Act? Lots of Options, But Start Planning and Implementing
Now! [Estate Planning Series] I described how college costs are growing faster than inflation and what that burden might look like in 18 years from now. In this post I wanted to turn to the positive and talk about what can help. Planning is the first step and can make a huge difference in what is available for your child, but you need not go it alone. There is quite a bit of help available and a combination of programs may make life for the family a lot easier.
There are four basic approaches taken to pay for college:
Save now to help defray costs - anything saved now helps offset costs later and increases family options.
Find someone to help pay - tax subsidy, scholarships and grants (accounts for 27%); grandparents, GI Bill, Employers (grad school).
Pay later - borrow and pay for college later with higher college earnings
Pay as you go - wait until you get there and then pay out of family cash flow.
Save. Saving is the biggest activity you can do ahead of time, and the Federal and some State governments are willing to help through tax subsidies. For example, a very popular vehicle is the 529 plan. This is a college savings or qualified tuition program plan. While the contributions to the plans are not tax deductible, the earnings in the plan are not taxed and the distributions to pay for qualified educational expenses are not taxed. This is a huge benefit and can allow for the accumulation of a very sizable fund for college. There are quite a few other options in this category like Uniform Gift or Transfer to Minor Accounts, IRAs, US Savings Bonds, Cloverdale Plans, tax free educational assistance, Minor's Trusts, Life Insurance and the like.
Someone Else to Pay. Getting someone else to help you pay is a great way to go. There are scholarships and grants, based on merit and need. So an exceptional student who needs help can get some very significant assistance. A good solid student who needs help has quite a bit available as well. Serving in the armed forces and then going to school is another way to get significant government help, but families with incomes below roughly $150,000 to $200,000 can also qualify for tuition and learning credits as well. While we can never be certain what laws will apply in the future, the trend is to help defray some of these costs through government benefits.
Loans - Perhaps the lions share of college costs are paid through loans. Need based, non-need based, private, life insurance policy loans, work study are only some of the available options. The real leverage is to use funds now and then repay them when the graduate is earning much higher income in the future.
Pay as You Go. Certainly pay as you go is there to help with the shortfall and if excess income is high in college years, could be used to pay entire amount of costs, but not generally a good planning strategy. One never can tell when the next "perfect economic storm" will hit or when a family might face a financial reversal.
There are really quite a few options. In fact if you would like to see a chart that lays out compares many of those that are available, just send me an email and I will send you a PDF of the chart. The earlier a family starts it's planning process the more options they are likely to have, but it's never to late to plan and in fact as a child starts college, planning is critical and the emphasis there needs to be a balance with retirement planning needs. So the important message is to start now and make sure your college planning is right there with your retirement and estate planning. There are lots of options available the earlier you start. Don't wait any longer! Talk to your advisors now.