Passover cleaning: Your financial exodus

"Cleaning your house while your kids are still growing up is like shoveling the walk before it stops snowing" – Phyllis Diller

By AARON KATSMAN
Money - 311 (photo credit: REUTERS)
Money - 311
(photo credit: REUTERS)
With a home full of little kids we haven’t started Passover cleaning yet, but from what I see and hear from most other people – Passover cleaning is in full swing. While many are knee deep in cleaning solutions trying to get that little, elusive piece of hametz, sometimes we are often in for a pleasant surprise. In our home we usually end up finding loose change that adds up to tens of shekels, lots of pens and the elusive matching socks! Inevitable at this time of year I receive phone calls describing how they were cleaning for Passover and they were going through some drawers and they found some kind of investment account statement, detailing the value of an account that they had long since forgotten about. Usually the caller had moved to Israel over the last few years, were too busy getting acclimated to a new country and figured that their account was small, so they just put it aside and a few years later wake up to discover that nothing has happened to their money.
The Passover holiday celebrates our freedom from slavery.
Why not take advantage of this time of year and get yourself out from fiscal slavery and become financially independent?
Path to independence
There is a common perception that one needs to have a lot of money in order to start investing. People often tell me that they just assume that it only pays to start investing or working with a financial adviser when they have hundreds of thousands of dollars, and that their $35,000-$50,000 just isn’t enough to bother with. The potential loss of not taking care of your investments over the long term can be staggering.
You can literally be talking about leaving tens of thousands of dollars on the table because of inaction. Don’t think that just because you have $50,000 no one will talk to you. It’s simply not true. While there may be some advisers who specialize in high net worth clients, many advisers work with smaller accounts.
Make ‘Seder’
Everyone needs to start somewhere. Your $50,000 isn’t going to double or triple magically. You need to create a financial plan, and start understanding what your shortlong term needs and goals are. You can speak to a financial adviser to help you define those goals and needs. When creating the long-term plan, it’s important to also take into account future expenses. For example, the purchase of a car in five years, marrying off children in eight, 10 and 12 years, is all relevant information necessary for the adviser to give you an accurate picture of what you need to do in order for you to be able to meet these future expenses.
Target date
I am a firm believer that people need to set goals in order to achieve sought after milestones. If you want to effectively lose weight, you set a goal of how much you want to lose. If you say to yourself that you want to “just lose weight” without any goal of how much, good luck dropping any weight, it’s just not going to happen. It’s important to set a realistic date for when you’d like to be financially independent. 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 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, national insurance or social security income that 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, which means you would only need around $200,000 in savings in order to be independent.
Happy cleaning.
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.
aaron@lighthousecapital.co.il.