Living in Israel on an Israeli Salary

Baruch Labinsky- Financial Planner, Israel Resource Network

Tonight we are looking at one small part of financial planning – the home budget. We could also focus on specific expenses and how to cut, but that is for a longer lecture.

Tonight’s lecture is called SMART finances. This is a good mnemonic to remember the principles. The financial system here is completely different, for many different reasons, from the US, Canada, or the UK. You need a “paradigm shift” in order to manage finances differently.

The average family here spends approx 10,500-11,000 NIS a month – that’s total net salary, not one person’s salary. It’s two salaries, plus Bituach Leumi, plus any other payments that come in. Two cars and a large house is NOT the norm here. You have to start thinking differently about how you spend your money, more “Israeli.” The average Israeli family spends about 2,000 NIS a month on food. The average Anglo family, when they come, spends 3,000-6,000 NIS a month.

S = Setting goals. How do you define, for yourself, as success? What do you want to accomplish in your life that has a financial component? Is it balancing your budget, getting through the month without going into overdraft, or saving for short term (paying for camp, buying new car) or long term goals (retirement, marrying off kids)? You can’t run a family budget without a plan. Create your plan based on what you’ve determined are your personal priorities. Then you can start looking at your budget and figure out where the money should go. If you’re always just muddling through you’ll never really accomplish your goals.

You should sit down and write out your goals so they are clear. It’s like writing a business plan. You have more of chance of hitting your goals when you know what they are. Need to differentiate between needs and wants.

M = Money and Marriage, which is really “family.” People fight about money issues almost more than any other issue. It causes a lot of stress in the family and it has to be something you work on together. You need to teach your kids about money management. Teach them how to deal with a budget and stick to it. Couples should have lists of assets and liabilities, account numbers, bank names, etc. People lose track of assets and then they’re lost.

A = Annual statement of worth. This summarizes all net assets and net liabilities. This gives you a snapshot of where you are right now, and where you are in relation to where you want to be. Gives you feedback so you can adjust what you are doing, or perhaps modify your goals. A house should be listed (conservatively) at the purchase price in the assets column (not current market value), and your mortgage goes in the liabilities column. It’s important to accumulate assets in each category so you have different forms of assets available when you need it.

You should incorporate a reward system for saving. If you’ve saved up a certain amount, reward yourself with something and make sure the whole family knows you’ve hit your goals.

R = Recording your expenses. This is the meat and potatoes of creating the budget. Budgeting is not a process of writing down what you spent just to have a record of it. You write down so you know what you spent and make better educated decisions about what you want to spend the next month. This is the only way to know what you are really spending. People underestimate what they spend by 20% - 50%. You need to know where the money is really going.

Make a list of fixed expenses, and variable expenses. Fixed isn’t fixed to the dollar, but you know it has to come out and you know approx what it will be.

You can visit the Lemaan Achai website to hear a recorded lecture with more information on reducing monthly expenses.

A self employed person has no idea what their monthly income will be. You can look at previous years to get an idea of what your income may be in the coming year. Take the total net income at the end of the year and average it out over the 12 months. This way you know to put away during the good months to save for the bad months. You can track your expenses monthly and know where it’s coming from, and whether it’s seasonal. If you know your high points and low points, plan vacations during the low points. Plan your marketing during the low points, plan essential business activities during the low as opposed to the high.

What to do about unexpected expenses? You should set aside in your budget 8%-10% monthly towards these expenses. It won’t necessarily go into savings, you may find this money will be spent each month on things you hadn’t planned – wedding gifts, unplanned emergency trips, fixing car, etc. If it’s built into your budget you won’t be surprised when these bills come.

T = Training - getting a financial education. Learn how to use your money as efficiently as possible. There are many resources out there to learn how to better manage your finances.

Pick one thing at a time, set specific goals and work on them and then move on to the next goal. But without knowing what the goal is, you’ll definitely never get there.

Download budgeting worksheets.