Interested in achieving wealth? Psychology may be a better starting place…

Financial Planning Dentist

This blog post explores the intriguing relationship between mental well-being and economic prosperity. We delve into the world of economics and psychology to investigate whether therapy, aspirational videos, and antidepressants can pave the way to financial success.

In our quest for prosperity, we often focus on tangible solutions such as infrastructure development and economic policies. However, an intriguing and emerging field of economic research is shedding light on the profound impact of psychological interventions on wealth accumulation. In this blog post, we delve into the fascinating intersection of economics and mental well-being, exploring the question: Can therapy, aspirational videos, and even antidepressants pave the way to financial success?

In impoverished nations grappling with the aftermath of war, violence, food scarcity, or natural disasters, trauma is pervasive. Psychological interventions hold promise as modest tools for economic self-improvement. For instance, a study in Ethiopia examined the psychological effects of elevating aspirations. Researchers conducted a randomized control trial, screening short films depicting business and entrepreneurial success within the community to one group. Six months later, those who had watched the films had exhibited more work, savings, and investments in education compared to the control group. Even five years down the line, households exposed to the films had accumulated more wealth, and their children had received an additional 0.43 years of education, which is considered quite remarkable.

A similar impact was observed in Mexico, where an aspirational video shown to female microenterprise owners resulted in improved business performance through a randomized control trial.

Intensive versions of such treatments are likely to be effective. Certain cultures, like the overseas Chinese and Lebanese communities, have traditionally displayed strong entrepreneurial tendencies, benefiting from a steady diet of cultural influences, including parental guidance, peer pressure, aspirational media, music, and television. The question is not whether cultural conditioning works—it does—but rather how effective a smaller, more targeted dose can be.

However, some psychological interventions yield only temporary effects. For example, a study in India taught self-efficacy lessons to women, leading to a 32% short-term increase in employment likelihood, but the effects faded within a year.

When it comes to psychotherapy, prominent in much of the Western world, evaluating its impact is challenging due to cost and regulatory constraints that hinder randomized control trials. Nevertheless, there are encouraging findings. A survey across lower- and middle-income countries identified 39 studies demonstrating that psychotherapeutic treatments could enhance work-related outcomes, including employment, through randomized control trials. Treating schizophrenia seems to have a particularly significant effect. In Pakistan, mental health treatments for perinatally depressed mothers yielded substantial benefits for their children. In Niger, both psychosocial treatments and cash transfers improved outcomes for recipients, although in Kenya, cash transfers proved cheaper and more effective, though psychotherapeutic treatments did yield some gains.

As for antidepressants, economists are only beginning to gather evidence. One study in India found that combining antidepressants with therapy and livelihood assistance had significant positive effects for treated women. Lower depression rates resulted in increased investment in their children and reduced negative life events.

While none of these findings conclusively establish a “psychology of poverty” to be addressed through external interventions, they do suggest that less affluent economies can make incremental gains by investing in what we might call psychological and psychotherapeutic infrastructure. These research designs can be applied to hundreds or thousands of people, though implementing them on a nationwide scale remains challenging. Nevertheless, countries can strive to make therapeutic help more accessible and affordable while fostering a culture where seeking help is encouraged.

Culture plays a crucial role in economic development, and these small-scale cultural interventions can have a marginal impact. What about the United States, with its abundance of psychotherapeutic ideas, aspirational videos, and antidepressants? It’s hard to say. While the research is in its early stages, it may not be too soon to suggest that, from an economic perspective at least, embracing psychological and pharmaceutical interventions more openly could be better than the alternative.

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Kevin Taylor

The Rules of Self-Directed IRAs

At InSight, our clients know that when you understand the rules you make better decisions. Our InSight-Full® plan is about marrying the goals that you have with the right Rules of Self-Directed IRAs and the right strategy. We cannot stress enough the importance of knowing the rules and how to avoid problems both now and in the future. By Kevin T. Taylor AIF® and Peter Locke CFP® The first rule is when you open a self-directed IRA you’re not the owner. The tax code requires the assets in a Self-Directed IRA (SDIRA) and its owner remain separate and not used in a way that one indirectly enriches the other (beyond permitted rules). When you think about investing into something using your IRA think of it as solely an investment and not for personal use.  The IRA owner and anyone else responsible for the account is prohibited from commingling their vested interests of the SDIRA with its owner or any “disqualified persons” which includes: The fiduciary of the account including the SDIRA owner Family member (ancestor, spouse, lineal descendant, or spouse of a lineal descendant Corporation, partnership, trust, or estate where 50% or more of the shares/profits/beneficial interests are owned by any of the above Officer, director, or 10% or more shareholder or partner of an entity above If someone is a disqualified person, they’re prohibited from directly or indirectly transacting between the SDIRA and the disqualified person in the following manners: Transfer, use, or benefit of the assets Lending or extending credit (both ways) Sale, lease, or exchange of property Furnishing of goods, services, or facilities Dealing assets for your own benefit as the fiduciary Personally receiving consideration as a fiduciary from a third party that engaged in a transaction with the IRA This means that if any of these transactions listed above with any disqualified person occur even if done at fair market value, will be subject to severe consequences. The standard penalty is 15% of the amount involved in the transaction which is imposed on any disqualified person engaged in the transaction. Furthermore, if it’s not resolved by the end of the year in which the violation occurred, the penalty is increased to 100% of the transaction amount. And to top it off, the entire account loses its tax-deferred status and is treated as if the entire account was liquidated and distributed as of the current year. The majority of clients for asset protection purposes and clean book keeping manage their self-directed IRA inside of an LLC. Don’t have your IRA own the property, have your IRA own an LLC that has a bank account that you’re the manager of.  Then the LLC is the owner on the contract. This like any other rental property gives you the ability to have limited liability in the event someone comes after your assets. These are investment assets not personal assets, this is definitely a breach of rules of self-directed IRAs. You cannot live there, your parents, kids, or grandparents cannot live there. You cannot sell your own property or buy a piece of property from yourself using the IRA. Don’t take a salary or commission (prohibitive transaction).  Any repairs or maintenance must be done by a third party. The reason is if you were to work on it on your own then you’re self serving and this could be viewed as a contribution to the IRA which is prohibited. Also, if you own a property management company and are a 50%+ owner, your company cannot do work on the property. The easiest thing you can do is separate yourself completely from the investment and let third parties do the work. If you follow through with the purchase, keep all accounting separate. You don’t want to accidentally make a mistake and disqualify yourself by accidentally mixing personal use assets with your Self-Directed IRA. For example, if you think you can use a credit card to pay for the repair of something you cannot. All expenses come out of the IRA not your bank account. Another prohibited transaction in this type of account is transacting with prohibited parties or disqualified persons such as kids, parents, spouse, grandparents, spouses of your kids and yourself. Although, siblings are allowed.  The rule specifies disqualified persons as ancestors. Keep your Self-Directed IRA separate from your business where you’re a 50% or more owner. In this case, your IRA is a prohibited party and therefore you cannot loan to an LLC that is associated with your business. If you’re not putting down the full amount to buy in this case a rental property, you’ll need to get a non-recourse loan. This means the bank will charge a higher interest rate but if you default then they will only take the property. Having a non-recourse loan in an IRA means you will be subject to unrelated debt taxable income (UDTI). UDTI is generated when you finance the purchase of property in an SDIRA. Unrelated Debt Financed Income (UDFI) and Unrelated Business Taxable Income both trigger UBIT (Unrelated Business Income Tax). To even the playing field for everyone (because using leverage in an IRA and collecting income is way to get huge contributions into your IRA which isn’t fair to non-exempt persons) the IRS made it so tax-exempt entities you must pay income tax on the income they realize from the UDFI that year at the Estate Tax level which is much higher than ordinary income levels. Lastly, invest in what you know. Don’t take unnecessary risk by breaking one of the Rules of Self-Directed IRAs, and don’t invest in your friend’s start-up that you know nothing about. If you know rentals buy rentals, if you know commercial real estate buy commercial real estate. Just like anything we do here at InSight, have the right people, process, and policies set up to hold yourself accountable so you make more informed investments.

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Kevin Taylor

Mastering Risk Management: Rental Properties – A Comprehensive Guide

Owning rental properties can be a lucrative investment, but it also comes with its own set of risks. To effectively manage these risks, it is important to implement proper risk management strategies. In this blog post, we will explore the value of putting your rental property in an LLC, how to best insure your property, the importance of an umbrella policy for property owners, and ways landlords can manage their risk exposures. By mastering risk management in rental properties, you can protect your investment and ensure a smooth and profitable experience. Putting Your Rental Property in an LLC: Asset Protection: Placing your rental property in a limited liability company (LLC) can provide asset protection by separating personal and business liabilities. In the event of legal claims or debt issues, your personal assets may be shielded from potential losses. Consult with Legal Professionals: Seek advice from a qualified attorney experienced in real estate and business law. They can guide you through the process of setting up an LLC and provide insights into the specific legal and tax implications in your jurisdiction. Best Practices for Property Insurance: Adequate Coverage: Ensure you have appropriate property insurance coverage for your rental property. This coverage should include protection against common risks, such as fire, theft, natural disasters, and liability claims. Property Valuation: Regularly assess the value of your property to ensure your insurance coverage accurately reflects its current market value. Adjusting coverage limits as necessary helps mitigate the risk of being underinsured. Liability Protection: Opt for liability coverage within your property insurance policy. This coverage protects you in case of accidents or injuries that occur on your rental property, reducing the risk of costly legal expenses. The Importance of Umbrella Insurance for Property Owners: Extra Liability Protection: Consider obtaining an umbrella insurance policy that provides additional liability coverage beyond what your property insurance offers. This coverage can protect you from significant financial losses in the event of a major liability claim or lawsuit. Higher Coverage Limits: Umbrella insurance typically offers higher coverage limits, which can be particularly valuable for property owners who face increased exposure to potential liability risks. Consult with an Insurance Professional: Work with an experienced insurance agent or broker to understand the specific requirements and options for umbrella insurance. They can help you determine appropriate coverage limits and ensure your policies align with your risk tolerance. Managing Risk Exposures for Landlords: Thorough Tenant Screening: Conduct comprehensive background and credit checks on prospective tenants to mitigate the risk of problematic tenants. This includes verifying rental history, and employment, and conducting thorough reference checks. Clear Lease Agreements: Develop detailed lease agreements that clearly outline tenant responsibilities, rental terms, and potential consequences for lease violations. This helps manage expectations and reduces the risk of disputes or legal issues. Regular Property Maintenance: Implement a proactive maintenance plan to address potential safety hazards and mitigate the risk of accidents or injuries on your rental property. Promptly address maintenance issues reported by tenants to maintain a safe living environment.   Mastering risk management in rental properties is crucial for protecting your investment and minimizing potential financial losses. Consider the value of placing your rental property in an LLC for asset protection, ensure adequate property insurance coverage, and explore the benefits of umbrella insurance for added liability protection. Implement best practices such as thorough tenant screening, clear lease agreements, and regular property maintenance to manage risk exposures effectively. By adopting these risk management strategies, you can enhance the profitability and long-term success of your rental property ventures. Remember to consult with legal and insurance professionals to tailor your approach to your specific circumstances and jurisdiction.  

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Kevin Taylor

Navigating the Documents in Estate Planning

Estate planning is a crucial process that involves organizing your affairs and specifying your wishes for the management and distribution of your assets in the event of your disability or death. To begin estate planning, you’ll need several important documents and considerations. Here’s a list of essential documents and steps to get you started: 1. Last Will and Testament: – A will outlines your instructions for distributing your assets, appoint an executor to manage your estate, and may name guardians for minor children. – It allows you to specify how you want your property and possessions distributed among beneficiaries. 2. Revocable Living Trust (optional but recommended): – A living trust can help avoid probate, provide for the management of assets in the event of your incapacity, and ensure a smoother transition of your assets to beneficiaries after your death. – You’ll need a trust document, a list of trust assets, and a trustee to manage the trust. 3. Financial Power of Attorney: – This document designates an agent or attorney-in-fact to make financial decisions and manage your finances on your behalf if you become incapacitated. – It can be broad or limited in scope, depending on your preferences. 4. Healthcare Power of Attorney (or Medical Power of Attorney): – Similar to the financial power of attorney, this document designates an agent to make medical decisions for you if you cannot make them yourself. – It may also include your healthcare preferences and end-of-life care instructions. 5. Advance Healthcare Directive (Living Will): – This document specifies your medical treatment preferences, including decisions about life support and organ donation. – It can be combined with the healthcare power of attorney or kept separate. 6. Beneficiary Designations: – Ensure that your retirement accounts (e.g., 401(k), IRA), life insurance policies, and any other accounts with designated beneficiaries are up to date. – The beneficiaries you designate on these accounts generally supersede the instructions in your will or trust. 7. Guardianship Designations: – If you have minor children, you can use your will to designate guardians who will care for them in the event of your death. – Discuss this decision with the chosen guardians beforehand. 8. Letter of Intent: – This non-legal document provides guidance to your executor, trustee, or family members about your wishes, including the location of important documents, digital assets, and other relevant information. 9. List of Assets and Liabilities: – Compile a detailed list of all your assets, including bank accounts, investments, real estate, vehicles, and personal property. – Include information about your debts, mortgages, loans, and other financial obligations. 10. Digital Asset Inventory: – Create a list of your online accounts, usernames, passwords, and instructions for accessing digital assets such as emails, social media, and financial accounts. 11. Funeral and Burial Instructions: – Specify your preferences for your funeral, burial, or cremation arrangements. – Include any specific wishes you have regarding memorial services. 12. Estate Planning Attorney: – Consult with an experienced estate planning attorney to ensure that your documents comply with local laws and address your unique circumstances. Keep in mind that estate planning is not a one-time task; it requires periodic review and updates as your life circumstances change. Regularly revisiting and adjusting your estate plan ensures that it remains current and aligned with your wishes and financial situation.

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