(photo credit: REUTERS)
Do you have your favorite cheesecake recipe? Well if you don’t, just turn on the TV or listen to the radio, and you will surely be bombarded with recipes.
The holiday of Shavuot is upon us, and if you listen to the media, the most important part of the holiday is clearly cheesecake. Unfortunately, the holiday of the Jews receiving the Torah on Mount Sinai gets second billing.
Rabbi Doniel Cohen writes: “The name of the holiday, translated as ‘weeks’ does not describe the seminal event of the revelation of the Torah; it focuses on the buildup to the day. There is no holiness without preparation. We cannot simply celebrate the gift of the Torah without the daily dedication to be worthy recipients. An Olympian prepares years for one moment of glory. In the spiritual realm, if we truly want to grow and embrace the Torah as a living guide for life, we must develop habits of spiritual growth each and every day.”
When dealing with financial independence, the same holds true. It takes years of saving, no debt and goal-setting to be financially secure. In honor of the holiday, here are 10 commandments of financial independence.
1. Budget: Take control over your spending. Track income and expenses, and then you can start a realistic savings plan and start building wealth.
2. Get out of debt: Credit-card debt or overdraft is the No. 1 obstacle to getting ahead financially. It’s a lot better to take those interest payments and plow them into savings than to keep paying the credit-card company.
3. Emergency fund: Your fridge may brake, you may have a flat tire, or you may be out of work. By creating an emergency fund, you will be able to handle surprise expenses. Keep three to four months of income in a shortterm deposit or something similar to have it liquid and available at a moment’s notice in case you need to draw upon it.
4. Save: There is no shortcut to building wealth. You need to start investing. With discipline, the wonders of compound interest and the growth of the stock and/or real-estate market, you will create a comfortable nest egg over time.
5. Know your limitations: It’s well know that Warren Buffett often 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).
6. Tax-loss harvesting: A portfolio that is tax efficient can literally save you thousands of dollars a year. Multiply that by 20 to 30 years of investing, and you can keep tens or 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.
7. Invest globally: Most economic trends point to most of global growth coming from Asia and other emerging markets over the next few decades. Why not take advantage of this opportunity and invest globally? 8. 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 and Kupot Gemmel.
Keep the money invested, and you will be surprised at the long-term growth of those accounts.
9. Target date: As a guide for how much money you will need in the future, I like to tell clients that they need about 20 years worth of this year’s expenses to make it.
For example, if you spend $30,000 a year, you will need $600,000. Keep in mind that any pension, National Insurance Institute or Social Security income that you receive will lower the overall amount that you need. For example, if you receive $20,000 a year in retirement income, then you will need another $10,000 as supplemental income.
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.[email protected] Aaron Katsman is a licensed financial professional in Israel and the United States who helps people with US investment accounts. He is the author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing.