Your Investments: 10 financial commandments for wealth building

I have wondered at times what the Ten Commandments would have looked like if Moses had run them through the US Congress.

-Ronald Reagan

 

I mentioned a few weeks ago that I am a huge fan of bakery cheesecake, a lot less so of most homemade varieties. This week my synagogue had a lecture celebrating Jerusalem Day. Bagels and spreads were served. I was in charge of dessert and I bought multiple cheesecakes, including a blueberry, my favorite. By the time I made it over to take a piece it was finished. I was not amused! Thankfully I have Shavuot to make up for my loss of earlier in the week. While cheesecake and other dairy foods grab the headlines for the holiday, the real essence of the day is celebrating our receiving of the Torah.

 

Rabbi Asher Meir asks why nowhere in the Torah it says that Shavuot commemorates the receiving of the Torah. He answers, “It seems that the Torah intentionally de-emphasized the historical dimension of Shavuot. One profound explanation is that giving this day too much of a historical aspect would relegate the giving of the Torah to a distant, isolated event: one day, long ago, Hashem appeared to the Jewish people and transmitted the Torah. This happened in a specific time (Shavuot), at a specific place (Mount Sinai), and through a specific individual (Moshe Rabbeinu). Yet we are obligated to experience the giving of the Torah as an eternal, ongoing process. Every morning we say a bracha acknowledging that Hashem ‘gives the Torah’ – in an ongoing way.”

 

Building wealth is a similar ongoing process. It doesn’t happen with one action, rather it takes daily discipline and fortitude to stay the course over the long term. In honor of the holiday, I decided to aggregate tips I give regularly into my 10 commandments of wealth building.

 

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 number one obstacle to making it financially. It’s a lot better to take those interest payments and plow it into savings, than to keep paying the credit card company.

 

3. 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.

 

4. 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, over time you will create a comfortable nest egg.

 

5. 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).

 

6. Tax loss harvesting: A portfolio that is tax efficient can literally save you thousands of dollars a year. Multiply that by 20-30 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.

 

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. Now keep in mind that any pension, bituach leumi, 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.

 

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.