Are you a “Puzzled Moishy”? I meet them all the time.
Moishy Simon was hit with brain freeze whenever he tried to sort out his financial life. Although he had a substantial income, it was no match for the insatiable demands of his family’s everyday expenses. Moishy suspected that taxes had significantly reduced his salary before it even reached his checking account, but he wasn’t sure.
To the busy salesman, everything financial was mysterious and intimidating due to the unknown, and he quickly threw any mail about taxes, insurance, credit cards, mortgages, or mutual funds onto a massive stack of “later” items. Later never came around, somehow.
Moishy wished he could sort out his financial life, but it was all a mishmash, and he didn’t know where to start.
Financial Table of Contents
It’s not Moishy’s fault. Money is more abundant than ever, but it is also far more complex. Navigating the interlocking puzzle pieces of money matters begins with identifying its big-picture categories.
Books of knowledge come with a table of contents to help readers navigate its most relevant parts. Here’s a “Table of Contents” for personal finance, outlining nine key financial issues that most people will need to deal with. Although there are many details in each category, seeing the big picture may help “Moishy” get a handle on improving his finances.
Income
Some of the most significant financial decisions people make are related to how they go about earning money. Income questions include which industry to join, how to get educated and trained, whether to accept or leave a job, and when to renegotiate salaries. For those who go into business, many general and niche-specific questions arise, which can significantly affect the levels of (reasonable hishtadlus) success. Income type questions are likely to also have significant ruchniyus and hashkafic ramifications which require guidance from personal morei derech.
Expenses
No matter how much income a family has, spending levels will have a tremendous impact on their financial futures. I have a friend who earns $150,000 and manages to save and invest, while another earns $500,000 and is burdened by credit card debt.
Expense questions, ranging from the super-significant (“How much to spend on a house?”) to the exquisitely nuanced (“Should I let my kid purchase that $23 but very delicious, deluxe hamburger?”), have no right or wrong answer. But if you consistently spend less than you earn, you’ll have savings to invest. If you always spend more than you make, you’ll have debt and or require tzedakah. It’s really that simple.
Giving
Having enough to share with family and charity is one of life’s great brachos, and is tightly connected to other parts of financial planning. You can only give if you have. But how do you define “have”? Balancing your family’s current and future needs with the nuanced obligations and abundant brachos of tzedakah requires serious consideration and guidance from rabbanim.
Investments
Over time, investments can compound remarkably: $100 a week invested at 10% grows to $89,000 in ten years, $331,000 in twenty years, and approximately $1 million in thirty years. Modest saving and investing can make the difference between chasing loans and peace of mind. Those who stash away more substantial sums will eventually find that their investments make them rich and financially independent. However, investing requires making risk decisions: taking bad risks will likely result in a loss of money, but without risk, investments grow too slowly to be effective. However, with a little bit of seichel and mazel, investing is very doable and can provide a significant boost to a family’s long-term finances.
Debt
Managing debt is one of the most critical responsibilities of adults today. Borrowing can be used appropriately to accelerate wealth and improve the quality of life. Loans enable people to buy real estate, expand businesses, and get educated, all of which can earn much higher rates of return than the interest charged. On the other hand, using credit cards to pay for an otherwise unaffordable lifestyle is a terrible idea. And nothing destroys wealth faster than real estate or business leverage gone south. The stakes of borrowing money are large, so debt-related questions should be considered with great thought and care.
Taxes
You should view the government as your dominant but highly negotiable financial partner. With the help of accountants, there are myriad ways to make sure your “partner” gets the smallest possible portion of your salary and profits. Proper tax planning makes a huge difference, and the right accountant is worth every penny. People in low tax brackets may think they don’t need tax advice. This perspective is wrong; tax refunds (and programs) can also be greatly enhanced with proper structuring. Everyone, regardless of income level, needs solid tax planning.
Insurance
Tax planning protects your money from the IRS; insurance protects your cash from emergencies. Even with a high income and large investment accounts, the underinsured can quickly be financially overwhelmed by surprise medical problems, disabilities, “premature” deaths, fires, floods, business disruptions, or lawsuits, all of which can quickly create many thousands, even millions, in losses. The minutiae of insurance policies are mind-numbing, but in case of a problem, you will be very relieved when your insurance agent tells you, “Don’t worry, it’s covered!”
Retirement
Whether chosen or forced, if people stop working, they need to somehow pay the bills for an undefined number of years using savings, retirement accounts, home equity, and Social Security. Deciding how much money you can spend safely during retirement is very difficult. The problem is guesstimating how well investments will perform, the timing and severity of health expenses, and how many years retirees will be around. Expert guidance from retirement specialists is needed to navigate these knotty issues.
Estate Planning
If you’re getting on in years and have assets, it’s essential to consult with estate planners to minimize the impact of long-term care and inheritance taxes. But, realistically, when it comes to leaving a yerusha, there may not be much left after a lengthy retirement and end-of-life care. Many children will have to suffice with having received the gifts of life, love, chinuch, and happy memories: not a bad legacy in the bigger scheme of things.
The Team
Once the mystery starts unraveling, we can better hone in on how to find the proper professional assistance for Money Matters. The categorization we put down here makes it easy to highlight why it is so difficult to find good financial advice.
A dermatologist can’t do much for your eyes, and a real estate attorney knows little about criminal defense or intellectual property. That is why it’s a bit silly when people assume that their CPA understands investing, or that someone who’s focused on mutual funds can give them advice on buying a home or which industry to open a business in. BH, we will do further articles on how to assemble the right professional team to help you navigate the complex and sometimes puzzling World of Money.
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