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Most Valuable Career Skills You Need

Money Magazine’s recent article on career skills shows that an entirely new breed of skills are needed to remain competitive in today’s markets.  The top four skills all deal with data – data mining, data modeling, search engine marketing and statistical analysis.  Just about every skill mentioned involves technology from computer aided design to IT to technical sales.  And there are a few staples that we all would expect to see – new business development, strategic planning, and financial analysis.

The full article can be found here

 

 

Your Roadmap to Becoming a Multi-Millionaire

Becoming a multi-millionaire is a realistic goal, especially for recent college graduates. In fact, they only need to do one thing – save. If 20-somethings save consistently, start saving early and invest it in the markets, there is a good chance that by the time they retire they will have over a million dollars.

Maybe you got a late start in saving for retirement. It can still be a realistic goal to achieve.

What you need is a roadmap and a savings plan.

The following article on the Motley Fool has that road map all set for you – using your age and a hypothetical rate of return, you can see how much you need to save and invest each month to retire with $2 million.

Class of 2016, Here’s How You Can Become a Multi-Millionaire

If you’re stuck, send us a note and we can help.

15 Mistakes People Make In Retirement

Mistakes in retirement can be costly and unfortunately very common. Money magazine’s recent article captures 15 examples.

While I have seen every one of these 15 mistakes actually happen, the most common issue I’ve seen this year is Number 7 on the list: Not knowing how much to withdraw.

This has become more pronounced as a result of the flat market. Investors who saw an 8-10% rate of return on their account could take out about 8-10% each year and end up with an account balance close to what it was at the start of the year. But with the markets flat to down slightly, investors who continue to take out 8-10% each year are seeing their account down by that amount.

The general rule of thumb is to take 4% per year. Take out more on a regular basis and you run the risk of depleting the account.

Forced Retirement Savings Coming to Connecticut

Connecticut is becoming the second state in the country to mandate retirement savings. The controversial bill will force most employers (not currently offering a retirement plan) to offer automatic enrollment for employees in a state sponsored plan. Details and specifics are still emerging. If you’re interested in reading more, here are three articles that cover the topic:

Hartford Courant
CT News Junkie
CT Mirror

Emergency Funds should be Replaced with an Emergency Strategy

Here is the old way of looking at Emergency Funds:

  • Keep 3 months of take home pay set aside if you are single, a renter and have a steady paycheck.
  • Keep 6 months of take home pay set aside if you are married, have kids, and have a mortgage
  • Keep 9-12 months of take home pay set aside if you are married, have kids, have a mortgage AND have variable compensations (such as anyone in sales).

The rules of thumb may work well for many investors, but in a lot of cases the Emergency Fund concept needs to be updated.

Let’s stop thinking about it as an Emergency Fund and start referring to as an Emergency Strategy.  Not all emergencies are the same so the tools and approaches must be crafted with more care. Below is a better, more holistic approach to consider. It breaks the Emergency Fund into 3 categories, each with a separate approach:

1)      Short Term Emergency Fund:

  • 1-2 months of discretionary expenses set aside in a bank account.  This is designed to cover smaller, unplanned expenses quickly and easily.

2)      Long Term Unplanned Expenses:

  • Insurance is the backbone for these expenses.  Funds and savings are used as a supplement.
  • Ensure that the HSA account is funded or could be funded up to the deductible limit in case of a health event that’s expensive to treat.
  • In case of layoff or disability, the investor should know how much they would receive from unemployment or disability insurance and their non-discretionary expenses.  That difference, if any, needs to be funded anywhere from 3-6 months depending on the investors situation.  Certain careers are harder to come by than others and may warrant more funding.
  • The amount determined should be invested in conservative investments to minimize the fluctuations associated with the volatility in the stock market.  Instead of sitting in cash earning nothing, it continues to grow and be productive.

3)      Long Term Planned Expenses:

  • Budgeting is the backbone for these expenses. The key to this will be taking stock of the investors current physical assets and determining how much and when each should be replaced.  An investor with an aging roof and old car should have more saved than someone with a new roof and new car.
  • The goal is to determine an ongoing amount that must be saved each month so that when something breaks down, the funds to replace it have already been saved.
  • The funds are invested in conservative investments to minimize the fluctuations associated with the volatility in the stock market.  Instead of sitting in cash earning nothing, it continues to grow and be productive.
  • In conjunction with the funds invested, it may be cheaper to establish a line of credit. And use the equity in the house to one’s advantage.

Too complicated?  Here is a simplified approach:

Follow the rules of thumb outlined above to find how much should be in the Emergency Fund.  Any amount over $50,000 could be invested in a specially designed conservative portfolio of low volatility stocks and/or target date maturity bond funds.  It remains readily available, but continues to grow and be a productive asset.

The “Emergency Fund” Rule of Thumb is Broken

I have a problem with how we view the “emergency fund” and I believe that there is a better way to think about emergency savings. Recently, Forbes ran an article discussing how much should be in your emergency fund – the money set aside to cover unexpected expenses (such as car repairs, home repairs, and healthcare costs) instead of putting it on a credit card.

The article basically restates the old rule of thumb:

Keep 3 months of take home pay set aside if you are single, a renter and have a steady paycheck.
Keep 6 months of take home pay set aside if you are married, have kids, and have a mortgage
Keep 9-12 months of take home pay set aside if you are married, have kids, have a mortgage AND have variable compensations (such as anyone in sales).

Below are my list of grievances:

  1. The calculation should not be based off of take home pay, rather it should be based off non-discretionary expenses (3, 6 or 9 months of non-discretionary expenses). These are the required expenses that someone must pay, such as food, electricity and the mortgage payment. If someone lost their job, chances are they would tighten their belt and do some penny pinching to stretch their savings.
  2. Keeping the entire emergency fund sitting in cash, earning nothing is a real problem. When you factor in inflation, the emergency fund actually loses value. It’s costing the investor to keep money sitting on the sidelines.
  3. Why does the money need to be sitting in a bank account at all? There are many tools and resources available to investors that could be better.
  4. Emergency Funds tend to become a hidden crutch for the investor. Instead of taking the time to plan for future and known expenses, many investors rely on their emergency fund to cover these sort of expenses. An investor shouldn’t be too surprised that their 25 year old roof will need to be replaced soon and that their 10 year old car will require more maintenance.

Here is a simple tweak that could make an investor’s Emergency Fund a little more productive:

Follow the rules of thumb outlined above to find how much should be in the Emergency Fund. Any amount over $50,000 could be invested in a specially designed conservative portfolio of low volatility stocks and/or target date maturity bond funds. It remains readily available, but continues to grow and be a productive asset.