MAKING IT ON AN ISRAELI SALARY
With hotels about to be taken over with tourists for Pesach, I am prepared to hear a very common question asked by friends and family visiting Israel: “We are thinking of making Aliyah in two to three years and we want to know how we can make ends meet, let alone save for retirement, on an Israeli salary?” What’s at the heart of the question is whether people can maintain the same standard of living they are currently enjoying once they make Aliyah. I always start my answer with the famous line, “The way become a millionaire in Israel is to come here with two million!”
All joking aside, while it is difficult to live on a smaller salary, it’s not impossible. Keep in mind that to be an affiliated Jewish family in New York, just schooling and synagogue memberships can cost around $75,000. The average tuition in the U.S. is $15,000 per child, and for New York High Schools the cost can reach more than $20,000 a year. Synagogue membership typically costs around $1,000 a year, that’s not including the building fund. In Israel, it’s a fraction of the cost. Even private high school tuition won’t be more than $5,000 a year and synagogue memberships come to a few hundred dollars.
Live Within Your Financial Means
Actually, you should live below your means. For example, if you make NIS 10,000 a month, live like you make NIS 9,000 and save, pay down debt, or invest the remaining NIS 1,000. I know many people who live in the US and pull in more than $150,000 a year, spend everything they make, and have almost nothing to show for their efforts. You will read this and think, “I’d love to spend less money but I can’t. I need new clothes or a new car, plus I am already in overdraft.” Most of these expenses could be avoided or deferred (like a vacation, a car purchase, or buying clothes). Overdraft could likely have been avoided if you had lived within your means when you created the expense.
Unfortunately, Israeli banks are almost always willing to give an immediate extension of credit to their customers. As of 2007, over 42% of Israelis had overdrafts. While these overdrafts can help clients deal with a short-term financial shortfall, all too often they are mismanaged and used like additional salary. In fact the average Israeli carries an overdraft of NIS 16,000, which is almost double the average salary. Keep in mind that interest rates paid on this is over 10% per annum. Over 35% of mortgage holders actually pay their mortgage with their overdraft facility. In fact, many people are just borrowing money to pay off existing debts, and doing it at much higher rates.
Stay Out of Overdraft
By making a purchase with money that you don’t have, you are in effect borrowing from the future to pay for the present. It’s the exact opposite of saving or investing. Instead of earning money you are paying interest. Interest rates on overdrafts are much higher than savings rates, and even higher than many securities investments (like stocks, bonds or bank deposits).
But what if you are already in overdraft? How do you get out of it? Start out by paying off a small amount each month. It may seem like it will take forever to be debt free, but it will happen if you stay disciplined. Additionally, leave your credit/debit card at home and start using cash. You can budget much more effectively if you carry around a specific amount of money to meet your weekly needs. You know that this is the amount you can spend for the week, so you must budget accordingly. You’ll think twice about buying that expensive cup of coffee, and realize that the free coffee at work really doesn’t taste so bad after all.
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
