TEN COMMANDMENTS FOR FINANCIAL SECURITY
As we celebrate Shavuot, the holiday of the Jews’ receiving the Torah on Mt. Sinai, outside of eating cheesecake with blueberry topping, one of the high points of the day is the reading of the Ten Commandments. While far less spiritual, what better time is there to discuss the Ten Commandments to help achieve financial security than now?
1. Keep a budget
I can’t stress enough the importance of taking control over your spending. Only by tracking income and expenses can you start a realistic savings plan and start building wealth.
2. Start saving
One is not going to build wealth by simply investing a small sum and hoping to keep hitting home runs. You’re not going to keep finding the right stocks and double your money. There is no shortcut to building wealth. You need to start investing, and with discipline, the wonders of compound interest and the growth of the stock market, over time you will create a comfortable nest egg.
3. Know your limitations
Warren Buffett, widely regarded as one of the greatest investors of all time, tells investors that the best advice he can give them is to know their limitations. He means that investors should be aware that their chances of performing better than the major averages are statistically small if they pick individual stocks. As such, most investors should stick to index and exchange-traded funds (ETFs).
4. Have an emergency fund
The fact is that sometimes bad things happen. You may need to change a muffler on your car, fix a chipped tooth, or you may be out of work. By creating an emergency fund, you will be able to handle surprise expenses. Keep two to three months in a short-term deposit or something similar. The goal is not to try and get rich on this money; rather, it is to have it liquid and available at a moment’s notice in case you need to draw upon it.
5. Consider tax-loss selling
I can’t stress enough how important it is to have a portfolio that is tax efficient. It can literally save you thousands of dollars a year. Multiply that by 15 to 20 years of investing, and you can keep tens if not hundreds of thousands of dollars in your account instead of giving it to the government. You want to offset capital gains with losses. Speak with your accountant before moving ahead with the selling, so that you understand all the rules and restrictions that apply to tax loss sales.
6. Invest globally
As I write in my book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing: “The OECD reports that over the next 20 years the middle-class in North America is set to drop by both numbers of people and as a percent of the global middle class. The situation in Europe is much worse; its share of global middle class is expected to drop from 36% in 2009 to just 14% in 2030. Contrast that to Asia and the rest of the world where you see explosive growth in the middle class, and you can clearly see that most of us will be living part of our retirement years during a major economic leadership change.” Why not take advantage of this opportunity and invest globally? 7. Maximize your retirement-account contributions There is no better investment than a tax-deferred investment.
If living in Israel, make sure you are maximizing contributions to your Keren Hishtalmut (advanced study fund) and Kupot Gemmel (retirement fund). Keep the money invested, and you will be shocked at how much money you can accumulate over the long term.
8. Keep in mind a target date
As a guide for how much money you will need in the future, I like to tell clients they need about 20 years’ worth of this year’s expense to make it. For example, if you spend $30,000 a year, you will need $600,000. Now keep in mind that any pension, Bituach Leumi (National Insurance Institute) or Social Security income you will receive will lower the overall amount that you need. If you receive $20,000 a year in retirement income, then you will need another $10,000 as supplemental income.
9. Get out of debt
Credit-card debt or overdraft is the No. 1 obstacle to getting ahead financially. The interest paid on debt is astronomical and would be much better used being plowed back into savings. Increased debt levels can be the kiss of financial death, as it’s very hard to pay it off. If there wasn’t enough money to pay for something in the first place, how are you ever going to pay off the debt?
10. Use a professional
Unless you are well-versed in the fields of financial planning and investment management, using an experienced and qualified financial adviser will be necessary. Choosing the one who is right for you will be one of the most important decisions you make.
Chag Sameach!
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc., or its affiliates.
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, SIFMA. For more information, visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il
