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Business and Estate
ADVISER
A Publication of Business & Estate Advisers, Inc.

VOL. 15, NO. 3 WAYZATA, MINNESOTA Fall 2000

Skip-A-Day XVI
Skip-A-Dy XVI was another GREAT DAY!

From time to time in our Newsletter we like to call our readers attention to exceptional service. The purpose of these articles is not to endorse a product but definitely to endorse a service!

SPECIAL THANK You To OUR Skip-A-Day 2000 SPONSORS

  • GENERAL AMERICAN 401(K)
  • GENERAL AMERICAN LIFE
  • ValMark SECURITIES
  • AIM FAMILY OF FUNDS
  • HERITAGE FAMILY OF FUNDS
  • FIDELITY ADVISOR FAMILY OF FUNDS

This past March, right at about the time our last newsletter came out, I met some clients and friends for a dinner/business meeting. They suggested we meet at a new place in Plymouth called Howie G's.

I'd never been there but I had heard that this was one of those places where you had to cook your own steak. I've never been much on cooking, but since that's where my friends wanted to go, I agreed.

My experience started the minute I arrived. The host and hostess had big smiles and friendly attitudes. I told them I was looking for two friends, but as we surveyed the restaurant, I was the first to arrive. They arranged for a booth with easy view of the entrance so we could connect when they arrived. After being seated the waitress, Lea, was my next good experience, a true pro at making one feel warm and welcome. She even let me know if I didn't want to cook, they did offer full chef services.

My friends arrived. The top?notch service continued. Our orders were placed and soon we were dining. When my steak arrived, part of it was "well done" and part ?medium" [I ordered medium rare]. In a few minutes Lea stopped by asking how the steaks were? My friends pointed out that mine appeared a bit beyond medium rare! Immediately Lea offered me a new steak ... let me digress to say I was now in my 9th day of a 14 day diet and that night was "steak night". No way did I want to wait for a new steak! I said, the one I had would be fine.

Five minutes later, after I've devoured 65% of my 24?ounce porterhouse, the owner shows up and tells me he has heard of my wrongly done steak and will have a new one for me in a moment. He tells us that Howie G was his dad and that naming their restaurant Howie G's was a tribute to him.

Well, from my perspective I would say that Howie G today, as he looks down from heaven, must be very proud of his sons David and Mitchell. To be able to observe sons who truly know how to provide customer service has got to have something to do with upbringing!

Howie G's has my vote...and they're not even running for political office!

It has been said many times that 85% of customers say nothing, 12% say bad and 3% say good. That's five to one against you. Let me strongly say that if you want a "3% experience" then dine at "Howie G's"...I understand they have both Plymouth and Savage locations.

Oh, before I finish, I had one little complaint. Their menu offered a free 44 ounce sirloin to anyone who could eat one in 30?minutes. I asked if my two 24 ounce Porterhouses counted ... they said no since I didn't get them both done in 30?minutes ... oh well ... It was worth the try. By the way Lea earned a 20% plus tip to boot!

E. Dennis Zahrbock, CFP

WHAT'S HAPPENING?

By E. Dennis Zahrbock, CFP

As you can see this is our first (and hopefully last) newsletter printed on yellow paper! If you haven't heard, I took an antibiotic called Augmentin last April and unlucky me came down with Toxic Hepatitis on May 10h I turned the color of this newsletter. Thanks to God, my wonderful wife Sue, my great staff associates at B & E, my doctors and pharmacist, and my many friends that called and wrote, I was able to return to work on July 10th. And now I'm fully recovered.


On August 8th Sue and I flew to Stavenger, Norway. I was the keynote speaker at the 2000 Sons of Norway Convention. We then spent two weeks in Norway visiting relatives and sites. We even went to an Island in Bulandet, which has been owned by my mother's family for over 300 years! Following Norway it was a week in Ireland to celebrate General American's convention.


September arrived with two trips to St. Louis to serve on General American committees. Sue and I went to Denver for the third September 10th in a row...that was to celebrate birthday #2 of Granddaughter #1 ? Addison. We also flew to Orlando, where I was honored to speak to the members of the National Association of Insurance and Financial Advisors.


Maxwell Darvin KaelbererBe sure to call Sarah and congratulate her for passing all five parts of her CFP. She sits for the cumulative, final exam in November and will be awarded her Certified Financial Planner designation thereafter. Sarah has been with B & E nearly five years and was elected a Vice President this past year. And, more congratulations for Sarah, she has become the mother to three new additions during her tenure with B & E. Her newest arrival, Maxwell Darvin Kaelberer, born September 19th, 2000.

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BULLETIN BOARD OF CURRENT EVENTS

October 2000

Dennis will be spending three long weekends hunting at the Decoy Inn on the Delta Marsh: once with his two favorite son?in?laws and future potential possible maybe son?in?law to be, once with a group of his cousins, and once with some great friends and business associates.

Thanks to friend Richard Sullenger (2002 to?be President of the Million Dollar Round Table), Dennis will be in Chicago the end of October as a member of the MDRT Finance Committee.

November 2000

Sarah takes her final CFP exam. Jules will be studying for the second exam in the CFP series.

Dennis, Sue and good friends Jim and Anne Eidsvold journey to Palm Springs for a week to upgrade the new townhome they've acquired at Rancho Mirage.

December 2000

As in the past, Business & Estate will be closed for business from December 25th to January 2nd.

January 2001

On January 14"' it's back to Palm Springs for Dennis and Sue. This time for Sue to enjoy the new townhorne for a few days and for Dennis to address the members of the International Forum who are meeting at LaQuinta.

February 2001

Sarah, Lisa, and Dennis are scheduled to attend the GenAmerica Financial Symposium in early February where Sarah and Dennis will be involved in presenting a new National Marketing Program to the top field associates of GenAmerica Financial.

Sue and Dennis return to Mission Jamaica in late February for "Mission #4" in this cause to help people. This year many of their friends will be going with. We thank God for this continued opportunity.

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Newest Advisory Board Members
Bob Hartman
Bob Hartman
Lindquist & Vennum, P.L.L.P.

Q. How did you first become acquainted with Business & Estate Advisers?
I met Denny Zahrbock about a dozen years ago at the recommendation of my partner, Dave Davenport, who knew Denny from Wayzata activities. Denny held an informal get?together at his office to meet members of my department and to learn about our practice. At the conclusion of that meeting, Denny noted that these sessions usually go nowhere unless the parties engage in some business activity early on. With that in mind, Denny invited me to visit a client of his in Mai?shall, MN to discuss ESOP's and other fiduciary considerations. We made that long drive together, had a successful session with his client, and got to know one another quite well. Following that session, Denny asked me to provide legal services to Business & Estate Advisers with respect to their employee benefits matters, and we have provided such legal services ever since. I have also maintained a close personal relationship with Denny, and have enjoyed our relationship during these past dozen years.

Q. During your association, what has Business & Estate Advisers done for you?
In addition to being a wonderful client of Lindquist & Vennum, Denny has provided helpful and constructive advice to me personally with respect to my own estate plan. I have three wonderful sons who have developed expensive educational tastes. Knowing that I have protection at this time provides a great level of comfort to me. With respect to my beautiful wife Nancy, I believe that I have enough coverage to get her through the six month mourning period, after which she will certainly find a rich new husband.

Q. What has your service on the Advisory Board meant to you?
I am new to the Advisory Board and look forward to the experience. I am well aware of the function of the Advisory Board in view of my past dealings with Denny, and I know how much he appreciates the efforts and input that the Board members provide to him and his company. I am honored to be the first attorney appointed to the Advisory Board.

Q. What, in your opinion, what makes Business & Estate Advisers different from other financial services firms?
I am in a relationship business ? my clients must have a high degree of confidence that I will provide them with practical legal advice in areas affecting their personal and business lives. My clients know that I have their best interests in mind when I advise them. I expect the same level of service and concern from those who provide important services to me. I have that high level of confidence in Denny Zahrbock and for that reason have remained a friend and customer of his for these many years.

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A New Service For Those That Desire
Ed Buntje
ED Buntje
Prime Mortgage Corporation

A long time friend, Ed Buntje, who has been one of Minnesota's (and now Wisconsin too) Top Mortgage Bankers is now available to our clients via our website. Just click on www.business-estate.com and go to the icon "Mortgages."

We have been referring business to Ed for over twenty?five years. We've never had a client that wasn't happy with Ed's helping them with their mortgage needs. We've never had a mortgage deal that Ed couldn't do.

The bottom line is we recommend Ed. Use him when you need his services.

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Business & Estate Adviser's
"Tips for Teens"

Volume 4 Issue 3

Edited and Revised by Business & Estate Advisers, Inc. as an insert to our newsletter

By: E. Dennis Zahrbock, CFP

In today's world many people have been convinced that debt is good as it either allows us to have now or because the interest may be tax deductible.

Let me point out as clearly as I can Debt Is Never Good. No Debt Is Always Better! Let me now break my argument into three categories:

  • Consumer Debt or credit card debt is always bad for two reasons: 1) You cannot tax deduct the interest expense and 2) You need to earn $1.67 to pay off $1.00 of debt because debt must be repaid with after tax income (assumes 40% tax bracket). This is not to say that one should never use Consumer Debt. I believe there are two times: 1) Paying your purchases with a credit card but fully paying your credit card bill each month certainly allows more convenience in our "plastic" society, and 2) When the purchase "pays for itself'. For example, if your weekly laundromat expense is $25.00 but paying for a new washer and dryer is $15.00. However, if you have money in a savings account, it would be even smarter to use it to pay for the washer and dryer and then repay your savings account the $25.00 per week you used to spend at the laundry.
  • Investment Debt on stock and bonds. Many will argue that this is good debt since interest, in this case, is tax deductible. In a stock market that always goes up I'd have to eat my words "debt is never good" as stock increasing in value at 20% while interest cost may be only 8% leaves a clear profit of 12% The reality however, is that the stock market does not always go up. Many an investor has been wiped out by securities brokerage houses being forced to sell an individual stock to pay off the debt. Worst case of all is that all the stock proceeds are used to pay off the debt by sale of the stock. In many cases this then causes a taxable gain on some Is DEBT A GOOD IDEA? or all of the stock creating taxes due with no money to pay them! Debt to the IRS is no fun....ever!
  • Home Mortgage Debt is always good... at least that's what the Banks and Lending Institutions would have us believe. I've heard many say "We need to get a bigger mortgage so we can get some tax deductions" ... what a fallacy! Let me explain. If you have $100,000 mortgage at 8% interest you pay $8,000 (8% of $100,000) to a lending institution each year. You then deduct $8,000 from your adjusted gross income on your tax return. This saves you $3,200 (if you're in the 40% bracket, 40% of $8,000 = $3,200) in income taxes. Most people are not in the 40% bracket, so they would save even less! A very simple question illustrates my point: If you could pay $8,000 in interest to a lending institution, leaving you with nothing left, or $3,200 to the government, leaving you with $4,800 left, which would you prefer? Home mortgage debt is not always good!

So, what does all of this mean? What is the bottom line? Debt is always bad but may be necessary at various points in life. Most people cannot pay cash for their home so a mortgage is necessary. It's the same logic as consumer debt for a washer and dryer ... you'd pay rent if you didn't pay a mortgage payment so you are, in effect, using rent payment to pay of your mortgage.

Debt that eliminates an expense is sometimes necessary but even this debt should be repaid as fast as one's budget allows. Remember if you have an 8% mortgage and pay more than your minimum payment you are earning (saving) a guaranteed 8% You cannot make more than 5.6% today without some risk ... a guaranteed 8% return is a super one!

Debt that should never be used and will only cause financial problems is debt for purchases that do not save you money (i.e. laundry expense, rent expense). Debt for vacations, debt for toys, debt for clothes, debt for dinner out is never good as you must pay tomorrow for something you enjoyed today. Again, all of these debts are ok if you fully pay your charge cards each month. Financial Independence and Security may be delayed for many years by misusing debt!

IF YOU MUST USE DEBT, WHICH FORMS ARE BEST?

Best: Investment Debt is best as there is normally no closing cost to get it. You simply pledge your Investment Account to your Brokerage Firm and they send you the cash. Interest is tax deductible and you can pay back at your convenience.

Second Best: Home Mortgages are great because you can obtain long term fixed interest rates and the interest is tax deductible. The problem is that closing costs are expenses that are gone forever. Home mortgages are not a good idea for less than 5?year debt needs.

Third Best: Home Equity Loans are great as interest is deductible and closing costs are normally negotiable to only an appraisal cost. If your property tax statement would allow you adequate debt, you may even be able to eliminate this cost entirely. Also, always work on negotiating your interest rate. If you have a good credit rating you should be able to receive a floating rate equal to "prime", "prime plus 1%" or "prime plus 2%". If your lending institution wants more than "prime plus 2%" .... do some shopping!

Not Good: Bank or Financial Institution Debt is usually not good. You'll pay over prime and will not get a tax deduction for the interest you pay. Also be aware that car loans offered at below?market rates really cost you more! Somewhere in the price of the car you are paying regular market rates. For example, you buy a car for $20,000 and pay market rates of 8% or $1,600. The dealer advertises 3% interest rate but now you find your "best deal" is $21,000. You now spend 3% of $21,000 or $630 plus an extra $1,000 in price for a total of $1,630!

The Worst: Credit Card Debt and Finance Company Debt is by far the worst! You now pay in many cases at least double the market (16% vs. 8%) and still don't get a tax deduction. Don't be lured into small monthly payments that last forever!

So what do you do for "necessary debt"? Buy a home and make mortgage payments instead of rent. When you have extra, pay your mortgage off early! When you need a car or washer and dryer, call your broker for Investment Debt or use a Home Equity Loan. Both have good rates and both are tax deductible.

Debt Free is best of all. Money you used to spend on debt can now be saved. The psychological benefit of owing nothing will make you feel better every day! You'll even be happy paying an extra $3,200 in taxes because you know you'll be saving $8,000 in interest.... you might be able to buy whatever you always wanted to buy with the left over $4,800!

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Today's Quiz:
True False

  1. The best form of debt is mortgage debt. T F
  2. Mortgage debt is always good because it saves taxes. T F
  3. Debt to acquire a new television is an example of necessary debt. T F
  4. "Necessary debt" is the exception to the rule that debt is never good. T F
  5. If you are in the 40% tax bracket and use Investment Debt at 8% for $10,000 to acquire stock which you sell in 364 days for $12,000 what is your net after tax gain or loss?

ALL CORRECT ANSWERS WILL RECEIVE A PRIZE! PLEASE MAIL OR FAX RESPONSES TO P.0. Box 679, WAYZATA, MN 55391 OR FAX (952) 475-0816

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Our first sponsored softball team!
Being the oddballs we are, Business & Estate Advisers sponsored their first softball team, The Oddballs. Associates, Jules Kingren and Lisa Margalli (in front row center), were part of the Championship Team that took Second Place in the league.

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Business and Estate
ADVISER
Business & Estate Adviser, published periodically, is composed on a personal computer utilizing Microsoft Word 97 and Times New Roman typeface. Camera-ready copy is generated on a Hewlett-Packard LaserJet III printer. Gray-shades and printing by Wallace Carlson Company, St. Louis Park, Minnesota. For additional copies or information, please contact Michele Mattson at (952) 475-0440. Copyright © 1990-1999 Business & Estate Advisers, Inc. All rights reserved.

BUSINESS & ESTATE ADVISERS, INC.
282 East Wayzata Boulevard
Wayzata, MN 55391
(952) 475-0440
(952) 475-0442
Fee Based planning offered through B&E Investment Advisers, Inc.
Securities offered through ValMark Securities, Inc., Member FINRA/SIPC
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Business & Estate Advisers, Inc and B&E Investment Advisers, Inc. are separate entities from ValMark Securities, Inc.

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