Illumination Wealth September 2013: What Does The Future Hold?

How’s it going?

When it comes to everyday life, most of us seem to acknowledge the fact that nothing is guaranteed and there is no certainty. Yet, when it comes to our financial lives, most everyone yearns for certainty, guarantees and knowing what tomorrow will bring.

As a financial advisor and planner, my business is built around uncertainty. We never tell our clients that we know what the future holds – because we don’t. We do however educate our clients and encourage them to become more comfortable with uncertainty. This is all about your money mindset.

Do you want to feel stressed, worried or anxious about your financial life? Or would you rather feel secure, happy, at ease and proud? The answer is up to you. If you want peace of mind, you can decide to be proactive with your finances. Face the uncertainty and take action on the areas of discomfort.

Because we have no idea how our life story will play out makes the process of financial planning even more important, not less.  You need to have a sound financial planning process that allows you to adjust to the inevitable surprises and changes. Change will happen; we just need to make sure we are doing the right thing in the right way at the right time. The right time is always NOW.

Here’s what we cover in this month’s issue:

· The Market Scoreboard for August 2013

· Illumination’s Insights: How To Be Secure with Financial Uncertainty

· Readings of Illumination: Curated Articles for Your Financial Enlightenment

· In Case You Missed It-August 2013 Webinar: Top 5 Mistakes Parents Make When Saving For College

Market Scoreboard

Here is the market scoreboard for August 2013:

Notes: S&P 500, MSCI World Index ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: www.stockcharts.com. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

Illumination’s Insights: How To Be Secure With Financial Uncertainty

“Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.” ~John Allen Paulos

A few weeks ago I was talking to a friend about his job. He was very concerned about his family’s financial situation because his income was going to be significantly lower this year than in years past (six figures lower).  As we spoke further, I asked him if he had a cushion or plan to withstand the uncertainty in his career or in his life for that matter. He told me that as far has he knew he had about three months of savings set aside for a rainy day and that was about it. That wasn’t security that he had envisioned for his family.

For many Americans, across all income levels, the situation is very similar to that of my friends.

According to a recent study done by Bankrate.com: “Roughly three-quarters of Americans are living paycheck-to-paycheck, with little to no emergency savings…Fewer than one in four Americans have enough money in their savings account to cover at least six months of expenses according to the survey of 1,000 adults. Meanwhile, 50% of those surveyed have less than a three-month cushion and 27% had no savings at all.”

The reasons for having an “Uncertainty Fund” are many – and here are a few reasons:

1. Volatile Income – your savings and spending needs to account for the inevitable ups and downs of your income (for some careers, this is extremely important).

2. Career Transition / Job Loss – did you know that it takes about four months to find a job in today’s job market (and it may not be at the pay level you would like)?

3. Starting / Owning a business – you need to ensure your family can function during your businesses start up phase or any cash flow challenge.

4. Approaching Retirement – you don’t want to have to sell investments in a bad market to meet cash flow shortages that you can be prepared for ahead of time.

5. Medical reasons -The Social Security Administration has estimated that over 25% of today’s 20 years are expected to become disabled at some point before they retire.

6. All the other unexpected things in life – your car breaks down, your roof needs to be repaired, you need to care for your aging parents…

As an advisor, one of the first questions I get asked is “how much money in reserves is enough?”

There are many rules of thumb out there as it relates to emergency funds. The most common says that you need to save between three and six months of your monthly expenses. Considering half of the population doesn’t meet the three month market, this can be a good starting point. In our experience, three to six months may provide some relief yet it may be woefully inadequate. You need to determine the level of uncertainty in your life, your career and all of the other financial uncertainties you may have to deal. If your job is pretty stable, you may not need as much the person who takes a lot of risk in his personal or professional life. However, in this economic environment we all need to question the idea of stability. Law was once considered an extremely stable profession and now we find the industry in the midst of a downsizing and a glut of law school graduates with too few jobs.

Don’t rest on your laurels and plan your life based on rules of thumb. Rules are thumb are for average, not for extraordinary results. We know this very topic can be overwhelming, but taking action, even if modest can help you create the positive reinforcement your finances and your mind needs.

If you don’t have your own uncertainty fund, it’s a great idea to start creating one now. Open a dedicated savings account and establish an automatic savings plan to start building it up today, even if it is $50/month.  Building up your reserves is a great starting point but there are a number of other steps you can take to supplement your reserves as they are being built and complement them in the future.  Here are a few things that you should explore to help you become secure your uncertainty:

1. Do you own your own home? Do you have equity? Explore getting a home equity line of credit.

2. Do you have disability insurance? Your earnings power is likely your biggest asset and the source of funding your day-to-day living. Disability insurance can protect the income that your family needs.

3. Do you have a 401(k) that could you could take a loan from in the event you needed to? You may not want to do so but it is a source of funds in a dire-need situation.

4. Does your spouse work? If not, any supplemental income from your family could help.

5. Do you have any junk that you don’t need which you could sell to raise some cash?

If you could take 5 minutes per day over the next 30 days that can help you with your financial security, you will be well on your way to developing the right habits that will lead to your financial independence.

Radiant Readings

Here’s our monthly compilation of interesting articles and video’s designed to keep you informed and engaged in the areas of personal finance, the markets, and life. We hope you enjoy this month’s edition. Please send us your thoughts on this month’s articles and any suggestions for future posts.

Time: The New Money Math- Start Saving at Birth

Simon Sinek-How Great Leaders Inspire Action

Darren Hardy-Get Even

Carl Richards- The Beauty of Limits

No matter the size of our income or balance in our savings accounts we all want peace of mind and financial security in an uncertain world.  Instead of searching for financial security, do something this month that you haven’t done in month’s past to help build your financial foundation and create the extraordinary. As Jim Rohn said “It’s not the amount that counts, it’s plan that counts”. Please keep me posted on your plans and progress.

All the Best,

Matt & The Illumination Wealth Team

Feel free to forward this newsletter to any of your family, friends or colleagues; if this was forwarded to you, you may subscribe here.
The opinions and forecasts expressed are those of Matt Rinkey, President of Illumination Wealth Management (IWM) and may not actually come to pass. Mr. Rinkey’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Illumination Wealth services. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of IWM’s services. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Rinkey or Illumination Wealth nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Entities including, but not limited to IWM, its officers, directors, employees, customers and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. The analysis contained is based on both technical and fundamental research. Although the information contain is derived from sources which are believed to be reliable, they cannot be guaranteed. Past performance is never a guarantee of future results.