3 Things They Didn’t Teach Me at Business School

I did a lot of schooling.  Non-business Bachelor’s degree.  Three years’ worth of additional undergrad courses.  Thirty months of modular distance learning while articling.  It was a long road and I learned a lot.  What has really surprised me is all of the important stuff that I’ve learned since that no one ever taught me.

You’re going to have to sell.

Whether you’re applying for a job, presenting an expansion plan to a bank, or recruiting clients for your practice selling is an integral part of being a professional.  This applies equally to those who run other businesses as well.  You are going to have to take your ideas and present them professionally in front of those that you want to buy into what you’re selling.  This doesn’t mean that you are going to end up the stereo-typical used car salesman, but you are going to have to advocate for yourself and your business if it (and you) are going to survive and flourish.

It’s all about customer service.

You will have customers, and you will have to deal with them.  You’ve done the job of selling – they’ve bought your pitch.  Now you have to perform to meet the expectations you set during the selling phase – or exceed them.  You have to pay attention to those who will be paying your fees/salary, respond to (or anticipate) their needs.

You’re going to be a boss, and would do well to become a leader.

There will come a time when you will require the assistance of others to achieve the goals that you have set out for yourself.  Whether you get promoted at work and now have a staff to manage or that little practice of yours has grown to the place where you can no longer run the business, source new work and actually do the work you signed up for.  You’re going to need to hire, mentor, correct, encourage, motivate and maybe even fire people.  A quick check of the syllabus shows that this wasn’t taught in Advanced Financial Accounting – or likely in any of your technical courses either.

So how do you develop these skills?  Read.  A lot.  Try, make mistakes, and learn from them.  Talk with other people who are in business, share your experiences, learn from theirs.  Find a mentor.  These skills are going to be every bit as important as the technical skills you went to school for – do everything you can to acquire them, and master them.

Mortgage or RRSP?

One of the personal tax questions I get asked most frequently is whether to put money into RRSP’s or pay down a mortgage. 

Great question – and one that has meaning for almost every Canadian.

I hear from lots of people that they used to ‘do’ RRSP’s but the market has been so bad in the last 5 years or so that they don’t even bother any more.  They just don’t see the point.  Some have even told me that they keep putting money in there every month and the balance just keeps going down!

There are a couple of things to consider when thinking about investing in RRSP’s.  Obviously the first thing that presents itself is the tax advantage.  If you are in the 30% tax bracket  and you invest $10,000 you will obviously get a refund of $3,000.  Money that you can use to take a trip, buy that new 80” TV, invest or whatever you like.  When you withdraw the money when in retirement you will have to pay tax on it.  One of the basic ideas of RRSP’s is that there will be a deferral of tax, but hopefully when you retire you will be in a lower tax bracket.  This would result in a permanent tax reduction.  For instance if you are in a 20% tax bracket when you retire you will pay $2,000 in tax on that same $10,000 resulting in a permanent $1,000, or 10%, tax savings.

This is all great, but the reason for investing at all is to make a return on your invested funds – or at least to not compromise the principal.  All too often these investment goals are not being realized.  This may not be due to the RRSP vehicle itself, but due to the investments chosen inside the RRSP. 

When most people think about RRSP’s they think about Mutual Funds and GIC’s, but can own almost any kind of investment in an RRSP.  Mutual funds may or may not be the right vehicle for you.   It’s not unusual these days to see a Canadian mutual report a 10 year return of between 4 and 5%, subtract the MER’s (expenses) you’re left with 2 or 2.5% – not great given that the 10 year inflation rate average in Canada is 1.8% (so you’re left with less than 1% real growth!).  With a little bit of work you can find a 5-Year GIC at 2.35% – presumably with little or no risk to your original investment – that can be a little disheartening.

Now, some mutual funds are much better than others, but they can be harder to find.  You are not limited to mutual funds.  Equity stocks, bonds and ETF’s (Exchange Traded Funds) are tools that also work very well, but may not be suitable for an amateur investor.  You need help – a professional advisor who can sell more than just mutual funds and GIC’s and certainly more than just the mutual funds that their company runs.

So my two pieces of investment advice are: don’t settle for mediocre returns and get a good, professional, trusted investment advisor. 

Alright – if you can get a tax refund and a decent return in your RRSP (say 8-10%) and it’s meeting your tax and investment goals what’s the point of talking about paying down the mortgage?  It depends on where you are in your life and what your goals are.  Most people have a strong aversion to being retired and having a mortgage.  So if you find yourself, for whatever reason, being 45 and having 25 years left on your mortgage, then perhaps putting $10,000 on your mortgage is more in line with your goals.  This will reduce your amortization period by more than 13 months and reduce your interest costs by over $16,000 at today’s prevailing rates.

So there is a time and place where each answer could be correct depending on where you are in your life and what your goals are.  Part of the holistic approach to financial management is having the experts on your team to help you define your goals – and get there.

My favourite answer to this question is – both!  Put the $10,000 in your RRSP and then use the refund to pay down your mortgage – that’s leveraging the tools that are available to you!