Alon Gal, top business coach, shares 10 tips for saving & managing your money in Israel.
You are probably familiar with the very old joke
Q. How do you make a small fortune in Israel?
A. Take with a big one.
Money is probably the biggest worry of aliyah. Many new immigrants struggle to adapt to Israel's challenging economy. We hope to maintain our standard of living but our capital can often be drastically reduced by a bad exchange rate or unforeseen circumstances; perhaps you just started your own business or have not been able to find a job -maybe you were forced to take a much lower paying job. The various saving schemes, investment options and local banking practices have you pulling your hair out.
Alon Gal is the presenter of the very popular Israel Channel 2 television program - Mishpacha Horeget (Families in Progress). He is a highly regarded business coach and coaches families who are financially out of control. He is also the CEO of "TUT Tikshoret". He shares his 10 top tips for saving and managing your money.
When most families in Israel buy an apartment they take out a large mortgage. In many cases this is a wrong economic decision. We land up with very large monthly repayments resulting in huge debt. We are forced to deal with the cumulative debt that that this high mortgage may create and issues that may arise as a result. The quality of our life is affected. You have to put the emotional aspect of buying your dream home aside. A mortgage is a loan, a purely economic issue, and you have to think of it in those terms only. Carry on renting your smaller apartment for a few more years, manage with what you have, save more until you can purchase a more expensive apartment and afford a higher mortgage.
Solution: The total of all household loans, mortgages and other short- and long-term debts must not exceed 25% of your total net income.
2. Do you have a financial plan?
There are various expenses that we know we will have to face someday; our children's bnei mitzvot, furthering their education etc., yet most families act really surprised when these expenses come along. There is no surprise. It is just, simply, a lack of planning on your part. You might suddenly be forced to cash in on your savings plan or take a loan against it under unfavorable conditions.
Solution: Make an assessment of all those big expenses that are likely to come along in the near and distant future, plan for them and start to save for them every single month. (Save with a Keren Hishtalmut)
3. Are you communicating effectively?
Many families I meet are not communicating well. A husband may not know what his wife is spending and she has no idea about the household debt or loans her husband might have. Very often they are also not sharing the general responsibility of the children. They live in disconnected worlds. They find it difficult to develop responsibility within the marriage. The result – they don’t help each other and they do not plan ahead.
Solution: Hold a monthly family meeting with all family members and at least once or twice a week, the husband and wife must sit together, catch up and plan their lives.
4. Short term deposits - are they a good idea?
Since most people never learn or become experts in the field of their investments, this area is often neglected. During my career I have met hundreds of families that have several hundreds of thousands of shekels sitting on short term deposit. The interest rate on these schemes is almost zero. There are many, very solid, investment possibilities and one should be aware of them. Treasury bills, government bonds and other schemes, offered by banks, pay more interest. Most people do not know that if the bank fails, short term deposits are not guaranteed. With short term deposits you are, in fact, lending the bank money and for this, the bank pays you a low rate of interest. Treasury bills, government bonds etc., on the other hand, are not guaranteed by the bank - the bank only keeps them on your behalf. Should the bank collapses, your investment is secured and you don’t lose your money.
Solution: Refrain from short term deposits and take advantage of more secure investments. More about banking in Israel...
5. Pension Funds
Similarly, many people who don’t understand their investments, don’t understand their retirement and pension funds. Even if you have pension fund in the workplace, due to salary structures your employee may not be contributing to the pension fund. Suddenly, when you actually retire you only have around 50% or 60% of what you originally thought you’d have, and sometimes even less than that. The National Insurance (Bituach Leumi) old age pension is still ridiculously low. We all look forward to our retirement and pension, but often it can become a traumatic financial event. If you have not provided for it over the years, and certainly if you don’t have a work pension, it becomes a serious problem. We need to assess and manage our retirement on a yearly basis.
Solution: Determine your pension requirements start setting aside more money so that when you actually go on pension, you will have a reasonable income.
6. Unprotected Income & Disability
Most people do not understand the significance of this. G-d forbid, tomorrow you lose your ability or capacity to work. We think that we are completely covered by the National Insurance (Bituach Leumi). This is not completely accurate. First of all, the amounts paid by Bituach Leumi are very small and in order to get them, you have to go through a long and tedious process of proving your disability to the various authorities. It can be very difficult to accept that if you don’t have suitable coverage from your pension plan you could struggle to put food on the table.
Solution: Verify the exact coverage you have from your workplace and pension fund. Compensate by investing in a policy or other pension scheme so that you will still have a reasonable income.
7. Emotional & Rational Shopping
Most of us make emotionally based shopping decisions. For example we go abroad, overspend at the duty-free, buy a 50-inch plasma to watch the World Cup and indulge in impulsive sidewalk shopping. Often, if we have had a bad day we compensate by making purchases that are irrelevant, unimportant or not significant. These types of purchases cost us dearly. Suddenly we are in debt and overdrawn. We are forced to take short-term loans with very high interest rates in order to pay it all back. For the sake of a quick thrill and unnecessary spending, our financial resources can be destroyed. How do Israelis shop? See the results of our survey...
Solution: Plan your purchases, determine your needs and budget for them at the beginning of year. You can then allocate part of your budget for items that are not a necessity. Find out more about the Israeli shopper and local shopping experience...
8. Pocket Money
Surprisingly, studies show that, few families give their children regular pocket money. Instead children come to their parents for money all the time. This is a mistake. Children do not learn to budget their expenses and cannot prioritize them. From a parents point of view, it can get out of control. The 50 shekels here and 30 shekels there can accumulate to several hundred shekels a month. Most of the time we never intended to spend this amount of money.
Solution: Organize their pocket money. Together with them, help them to determine their needs and pocket money requirements.
9. Are special offers super value?
Financial organizations market their items, especially consumer goods, with attractive special offers: buy 4 get one free, two for the price of one and other similar incentives. The bottom line; families are stuck with goods that have no need for and may have to throw away. These are unnecessary purchases which eat into our budget. Every business owner knows that he should not buy excessive stock and risk getting stuck with unnecessary goods that deplete his budget. The same is true for the “family business” - manage your inventory and stock wisely.
Solution: Only buy what you need. Do not be tempted for the sake of a small discount, to spend more than you need or you should.
10. Plan your purchases
We have already talked about retirement, work capacity, medium and long-term debts, shopping and other issues. Still, most people do not know how much money they spend a month and cannot account for their spending. Once this happens you lose control of your life. You must first understand your budget. Your budget is your combined total net income . Plan your purchases.
Solution: Just as a business has to account for all its purchases, a family must do the same. Only when we take an actual stock of our spending will we know how to manage and control our budget.