Last month, in part one of this article about the fundamentals of personal finance, I covered the importance of gathering a team of financial advisors, teaching children how to handle money, preparing for a parnassa and marriage, student loans, avoiding credit card debt, the importance of insurance, and what to look for in a job. Here I will cover more topics of interest.
I want to reiterate the basic attitude we Orthodox Jews should have towards money. It is that parnassa is truly a gift from Hashem, for which we daven every day. No matter what our financial position – barely holding on or blessed with largesse – we must always recognize that it is Hashem’s money with which we have been entrusted; our job is to manage it properly. Our job is to be same’ach bechelko, happy with our lot, and do our hishtadlus, our best efforts, to support ourselves and our family.
And let me restate my disclaimer: I am a businessman, not a certified investment counselor. Whatever expertise I have is based on my years of experience in business and investments, as well as the common sense I learned on the way. I learned much from my parents and grandparents, as well as from college, where I earned my undergraduate degree in business administration. As a company CEO who employed many in our community, I also learned a great deal in the workplace. I am happy to counsel and share this advice to those who seek it.
Unlike places like New York, which has good public transportation, most people in Baltimore find a car a necessity. Although leasing is in vogue, it is generally more economical to purchase than to lease a vehicle. Both options should be considered, with the decision based on what works best in the family budget. If you find a reliable used car or van, make sure you have it inspected and checked out by a reliable independent mechanic.
The condition of the home has a huge impact on all its inhabitants. Your home should be neat, clean, and bright, with sunshine by day and plenty of lighting at night. Too often I visit homes that are poorly lit. Cluttered dining room tables and messy kitchens are common as well – to the extent that the children may have no place to do their homework. Take pride in your home and do whatever you can to create a healthy and pleasant environment for the family. The front lawn, bushes, trees, and grounds should be well groomed, too. And it is important to dress children neatly; clean and pressed clothing has a major impact on one’s self respect. The children should be given regular chores to contribute toward the upkeep of the home, and expectations must be made known to all family members.
Regarding major household purchases, I would say that it not a good idea to purchase cheap furniture, even if money is tight. Rather, buy fewer pieces but ones that are well-constructed; such furniture will last many years and will definitely be cheaper in the long run.
Tzedaka and ma’aser are fundamentals of Torah observance throughout one’s life. Interestingly, the Hebrew word nassan, give, is a palindrome; it spells the same word both backward and forward. This hints at the idea that giving tzedaka usually brings us good fortune in return. Many baalei tzedaka have told me that the more they give, the more financial success they receive in return. Maybe this is how Hashem lets us know we are doing a good job with managing His wealth.
Decide how to distribute your tzedaka dollars. Local chesed organizations, shuls, mikvahs, schools, and yeshivas are a priority. Tzedaka institutions in Eretz Yisrael are important, too, as well as yeshivas or seminaries that you or your children attended. You may also want to give to important out-of-town causes. Before giving to meshulachim, make sure they have a properly dated authorization letter allowing them to collect locally. There are halachas of how much tzedaka to give and to whom, so be careful to consult your rav regarding any questions.
Children should be taught about the concept of ma’aser, tithing, at the earliest possible age, as soon as they have the ability to understand the concept of sharing. As mentioned last month, one of the goals of giving children an allowance is to teach them this. Placing a tzedaka box in a prominent place in the home and involving the children with counting the change and delivering it to the right place are exciting activities and very important for the welfare and chinuch of children.
Jewish Education: Chinuch
One of the most challenging financial issues facing most families in our community is the tuition costs for a Jewish education, which is a priority in our lives. For many, the situation intensifies as our children go to yeshivas and seminaries in Eretz Yisrael or in America. Following that, iy”H, come the weddings, so financial demands only increase. If you think it is expensive putting your children through day schools, just wait for ages 16 and above. But, here again, planning, saving, and proper budgeting can mitigate the pain.
A chasana is a wonderful simcha; at the same time, it presents a financial challenge. As they say, making a wedding is tough, but not making one is even tougher! Baruch Hashem for such problems as the proper shidduch and the happy start of a new home in klal Yisrael. While it is tempting to go “all out” when a beloved child gets married, it is a foolish decision for the mishpacha to go deep into debt. Fortunately, the affordable wedding trend that started in Brooklyn and Lakewood has come to Baltimore. In addition, there are wedding consultants in town, whose planning expertise can ease the financial burden of this wonderful simcha. It is not what you spend on a simcha but its warmth that counts. One can create a beautiful and bekovodik event, with a truly leibidik (lively) atmosphere, within a reasonable budget, especially when both sides contribute to the expenses. Maintaining “shalom bayis” among the parents of the bride and groom throughout the run up to the wedding and beyond will do much to start the young couple off to a good marriage.
Let’s say you and your wife have worked hard and been able to save a few dollars. Or perhaps you’ve inherited some money and want to invest it. A slow and consistent, conservative saving and investment approach – not the get-rich-quick schemes – will usually produce the best overall positive results over time. Investing is a gamble, but ultimately, it is the Ribono Shel Olam Who determines the success or failure of any financial transaction. Our job is to educate ourselves, obtain the best expertise, and do the necessary research to make prudent financial decisions.
It is important for anyone who is investing to diversify, allocating the portfolio into as many as seven areas.
1) Liquid funds: You should have cash in the bank or in a good money market fund that you can access quickly. You could be between jobs or have an unexpected car repair or major house repair. I recommend a four- to six-month reserve, according to your total earnings. So if you earn $ 60,000 a year, a reserve of $20,000 to $30,000 should always be available without a penalty for withdrawal.
2) Your home: Your place of residence may be the best investment and the biggest asset you will acquire in your lifetime. Securing a reasonable, low-rate mortgage, and refinancing when you are able to is extremely helpful in lowering your monthly mortgage bill.
One caution: Don’t buy a home you cannot afford. Too many people take out second mortgages or unrealistic home equity loans. This often comes back to haunt you and ratchet up your monthly home expenses. Never allow such expense to be greater than 25 percent of your total gross income.
3) Stocks and bonds: Although some people are willing to do a great deal of research and prefer to manage their own investments, in general, it is preferable to consult a professional investment advisor. A well-respected stock broker or an experienced and proven financial wealth advisor can lead you to make the right investment decisions.
Another popular strategy is to buy index funds with low expense ratios. To keep up with inflation, buy a well-respected mutual fund with a no-load feature (meaning that you do not pay up front to buy it), keeping expenses as low as possible.
When investing, you should always allow a five-year minimum investment window. Usually, stocks do better over time, but markets are volatile and will go up and down. The key to investment success is to never panic and sell when markets tumble. Only invest and use money that you will not need to access for years to come. CDs and bonds are steady but yield smaller returns.
You need to come up with a plan and investment allotment that fits your overall financial position and risk tolerance. A young adult earning a good living can elect an aggressive portfolio of 70 percent equities (stocks) and 30 percent bonds or fixed asset instruments. For someone in their 40s and 50s, an allocation of 60 percent equities to 40 percent bond or fixed asset may be more comfortable and appropriate for a conservative position. But as you enter retirement, allocations must be readjusted to an even more conservative position. Make sure you have the tolerance for a down market. Investing never goes in a straight upward direction; there will be downturns. By the way, be extremely careful with annuities. Although they may invest in stocks, their high expenses often cause the annuity to under-perform other market investments. Have an independent expert check it out and read the tiny writing for all kind of surprises.
4) Insurance: Various insurance products, such as life, health, disability, long term nursing care, as well as other important coverage need to be an important component of your financial plan. This was discussed in Part 1 of this article.
5) Your business: Try to separate your private life and family expenses from the operation and financial details of your business. Work closely with your accountant to monitor business profitability and proper management. If you control your business or venture, be wary of partners. If you do decide