When our kids were younger, one of my fondest memories was helping them with homework. I would get the “Yeh, yeh, I understand,” fully knowing that they didn’t have a clue. I would then start losing patience as it became clear they weren’t really listening to my explanation or just didn’t get it. Then all of the sudden, after doing the exercise again, it clicked and they really understood it. It made all the frustration worth it!
This Shabbat, we have the privilege of reading the Ten Commandments. At the beginning of the Torah portion, we read about Yitro, the father-in-law of Moses. The first verse says, “And Priest of Midian, father-in-law of Moshe, HEARD all that Elo-kim did for Moshe and for Israel His nation, for Hashem took Israel out of Egypt.”
The famous commentator Rashi asks, What was it that Yitro heard? He cites the Talmud and says he heard about the splitting of the sea and the war with Amalek. That begs the question: Why did only Yitro decide to come and visit the Israelites, and we have no record of anyone else coming? Surely they also heard the great miracles that had just happened.
I think the difference is that Yitro “heard” about the great miracles. To really hear something is to understand what you hear. It’s not going in one ear and out the other. He was able to understand that something “big” was happening. That these were not just isolated events; rather, they were part of a process. Some big plan was in the works, and he wanted to see it for himself.
When it comes to building wealth, too often we forget the process. I realize that I sound like a broken record about “the process,” but after a terrible year for investors, it’s now, more than ever, important to reinforce these principals. If you can’t see that each step leads into the next and into the one after that, then you are not understanding what financial independence means.
In honor of this week’s Torah portion, here are eight commandments of wealth-building. Feel free to add two of your own to get up to 10!
Budget: Take control over your spending. Track income and expenses, and then you can start a realistic savings plan and begin building wealth.
Get out of debt: Credit-card debt, or overdraft, is the No. 1 obstacle to making it financially. It’s a lot better to take those interest payments and plow them into savings than to keep paying the credit-card company.Emergency fund: You may be fired, or your food processor may die. By creating an emergency fund, you will be able to handle surprise expenses. Keep three to four months of income in a short-term deposit, or something similar, to have it liquid and available at a moment’s notice in case you need to draw upon it.
Save: 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 and/or real-estate market, you will create a comfortable nest egg over time.
Know your limitations: It’s well-known 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).
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, 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.
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.
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 will 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.
There are no shortcuts to building wealth
For 99.9% of the population, there are no shortcuts to building wealth. Yes, I am aware that there is always winning the lottery, but if that’s your plan for financial success, good luck. For everyone else, trust the process. It works.
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 a licensed financial professional both in the US and Israel.