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2014 Israeli Tax Calculator

I recently updated my tax calculator.  The latest version includes the new tax brackets and credits according to 2014.

You can download the latest calculator here or go to the following site:

https://www.box.com/s/460zksl3t4335018j5hp

The Israeli Tax Calculator allows you to check your paycheck and see that the correct taxes were deducted correctly.  If too much money is being taken out for taxes or insurance, then you should demand back your money through a tax alignment (תאום מס) or an insurance alignment (תאום ביטוח לאומי).  If you need to get money back through an alignment see this post for more details.

Note:  While the amount for insurance should match your paycheck perfectly, the amount you pay for taxes may not.  There are other factors besides the ones mentioned in this spreadsheet that can affect the amount of taxes you pay (how much you got paid over the past 6 years, how often you get paid.)

Use the guide as follows:

If you are paying less in taxes than what is calculated on the sheet:  Find out what kind of benefits you are receiving and how to continue receiving them.

If you are paying more in taxes than what is calculated on the sheet:  Odds are you need to do a tax alignment.  Speak to your HR person and fix up your tax record and then file the appropriate paperwork at מס הכנסה.

As always, if you find any flaws in these excel sheets or have any ideas for improving them, please feel free to contact me.

Are there any financial tools you would like to see?  Please feel free to either leave some ideas in the comments below or e-mail me at jonnydegani@gmail.com

Freelancing in Israel: Oved Atzmai vs Billing Company

Congrats, you’re considering starting your own full time business.  Or maybe you’re just looking for a little money on the side.  Sooner or later, someone is going to want a cheshbonit mas (tax receipt) and its time to stop working under the table; it’s time to register as a freelancer.

In Israel, you register as a freelancer or Over Atzmai (hereinafter OA) as either an osek patur or osek murshe.  An osek patur earns less than NIS 76,884 and does not charge VAT for his services.  If an OA makes more than NIS 76,884, he or she registers as an osek murshe.  An osek murshe does charge VAT, but can reclaim VAT on business expenses.  You can change from an osek patur to an osek murshe mid-year (when you come close to the 76,884 line you have to change your status) and once you are an osek murshe, you cannot be an osek patur again for at least two years.  Finally, some professions such as accountants, lawyers and doctors may only register as an osek murshe.  Regardless of what you choose, the process is the same: register at the tax authority, then mas hachnasah, and then bituach leumi   Once you are registered, you have to file regular reports, prepay VAT every so often (for an osek murshe) and file an annual report.

Sounds difficult.  Is there an easier way?

I know, the reason you became a freelancer was so you wouldn’t have to leave the couch and put on pants; going to so many government offices seems out of the question.  Fear not, there is an alternative; you can register with a billing company.  A billing company is a company that hires you as a worker.  You work as a freelancer, the company does your billing and the company takes a small cut of your revenue and pays you as a worker.  Since you are working under the guise of another company, you pay both the employer and employee side of all taxes and investments.  Billing company freelancers (hereinafter BF) do not issue personal receipts, but send the money to the billing company and then ask their billing company to issue a receipt.   All that the billing companies ask for in return is a small percentage of your revenue.

So which is right for your?

This is a very complicated question that gets to the heart of a very important matter – tax planning, or more honestly, tax avoidance.  With tax rates as high as they are in Israel, saving money on your taxes can mean a world (or at least a paycheck) of difference.

1) Tax deductible expenses:  Expenses are deductible for both OAs and BFs.  The only difference is that OAs can also deduct some living expenses (a portion of arnona, electricity, water and va’ad bayit).  In addition, OAs who are registered as an osek murshe and BFs can also receive back VAT on most expenses (for some such as a car and cell phone, you only get back 2/3 VAT.  Car rental expenses receive no VAT at all).  Click here for a full list of deductible expenses for an OA including VAT reimbursement rates.

2) Charging VAT:  Despite popular belief, VAT is more of a tax on the seller than on the buyer.  Like all taxes, it leaves a tax incidence, but in a world of many suppliers, VAT is really less of a 16% sales tax on the consumer and more of a ~14% tax on the supplier.  An OA is allowed to not pay this tax as long as he is an osek patur.  One he is an osek murshe, then he is in the same boat as the BF, who always charges VAT.

3) Bituach Leumi.  OAs pay 9.82% on all salary below 60% of the average wage (meaning on the first 5,000 of revenue) and 16.23% on all revenue after that.  BFs pay 3.95 on the first portion of revenue and 17.9% afterwards.  This means that until ~ NIS 14,200 revenue BF’s pay less, but after 14,200 revenue, OAs pay less.  All in all, the difference is not that significant until an OA starts making a lot of money.  Another difference is that OAs pay a minimal amount of Bituach Leumi   (NIS 212) every month, whether they receive income or not.  BFs only pay bituach leumi during months they receive income.

4) Pension:  Both BFs and OAs can put aside money for pensions.  BFs can put aside up to 7.5% from the employee side (which means after tax money, but 35% of the deposit is a tax credit, 7.5% from the employer side (tax and bituach leumi exempt money), and up to 8.33% for pitzuyim (also, tax and bituach leumi exempt money).  Note that the percentages from the employer side turn out to always be a bit less than listed above because these are percentages of your declared salary after you remove the deductible and refundable expenses, including the hishtalmut and pension (there is some complicated math in this).  OAs can also put aside money for a pension, 5% from the employee side and 11% from the employer side (both have the same tax deductible policies mentioned for a BF).

5) Hishtalmut:  One of the best ways to get some money past the tax man is by paying to a keren hsihtalmut.  Typically, a keren hishtalmut, allows a worker to pay in 2.5% of his or her income, which the employer matches with 7.5%.  Since BFs are paying both the employer and employee side, this means that they get to pass the 7.5% through tax free and bituach leumi free (Note: like pensions, percentages are a bit less than 2.5% and 7.5% because these are percentages of your declared salary after you remove the deductible and refundable expenses, including the hishtalmut and pension).  Similarly, an OA may deposit 2.5% from the employee side, but only 4.5% from the employer side. 

6) Social Security:  This is where the OA’s have it rough.  If you’re an American and registered as an OA. you’ll have to pay 15.3% of your revenue (before taxes, but after deductibles and bituach leumi) to the US government for social security.  This is sometimes a good thing, because if you’re close to having 40 quarters, being an OA can push you over the edge, but it also means you’re going to be paying a lot of extra taxes.  (For those interested, I plan to have a post discussing the social security issue at length in the near future).  Again, this tax does not apply to BFs at all.

7) Billing company fees and accounting fees.  Billing companies charge a certain percentage of your initial revenue as a fee for its services (the fess is paid on revenue after removing VAT, but before removing expenses.)  This fee covers not only billing, but all Israeli accounting expenses you’ll need throughout the year including deductions, refunds and tax planning (fees range from 4% – 7% with a maximum fee per month).  Similarly, an OA requires the services of an accountant.  I know there are many OAs out there who choose to do it alone, this is often a huge mistake.  The major perk in being an atzmai is the ability to utilize tax exemptions and if a worker is not using an accountant he or she risks either not taking advantages of all the tax advantages at his or her disposal or, conversely, committing fraud.  The cost of an accountant is usually between NIS 1000 and 3,000 a year for preparing an annual report.  Obviously this price varies depending on the extent of the time and service you need from your accountant.

Some final thoughts:

There are a variety of billing companies that can offer you their services (Yeul Sachir, Atzmai Sachir, Autotax, Cheshbonit Sachir, Sveram & Taxpay to name a few.)  When choosing a billing company, it is important not only to look at the fee, but the level of customer service offered.  I have heard good reviews from customers from Yeul Sachir.  If you have worked with any of these companies, please share your experience in the comments below.

Many choose to be an OA because issuing a receipt from one’s own company looks more professional.

Despite what many say, and what I have been told in the past, it is not a big deal to close a tik.  Just speak to your accountant and he or she will probably do the paperwork for you for a small fee.

This is the first time I am posting about this topic and I anticipate feedback and corrections.  I’m going to be on vacation next week, so if there is any problem, please e-mail me and I’ll correct it when I come back.  In the meantime, please enter any comments relevant to this topic below.

simple tips to create an effective budget plan

Hi.  In keeping with the last post’s ending about the importance of keeping a budget, no matter how simplified the budget, the following guest post was submitted outlining a few steps to get going in the right direction.  In the next post,  we’ll get back to housing solutions.

Author’s Bio: Sophie Kinsella is a contributory guest columnist for various websites and communities including Oak View Law Group and CMFA . She has completed her Graduation in Finance and is currently working with an Investment company located in California. She has written some great articles on topics like bankruptcy, investment opportunities, debt management plan and more.

People are generally afraid of formulating a budget plan but it is an essential part to manage your finances. Consumers who did not plan a budget they generally incur insurmountable amount of debt as they start spending recklessly. If you are struggling to pay off your debt then formulating a debt management plan can help you eliminate your debt. If you hire a debt management company then the credit counselor will evaluate your financial situation and create a budget plan so that you can pay off your debt with ease. If you are preparing your own budget plan then here are the following things that you need to keep in mind: 

1. Calculate your owed amount:

Try to calculate your total amount of debt you owe to the creditors along with the interest on it. Write down amount of debt your need to pay back in descending order of the interest rate. You need to keep aside a potion of your income so that you can start paying off your debt. Put extra money towards high interest loan so that you can eliminate it immediately.    

2. You need to plan your budget according to your financial state. Therefore, track your income and expenses as it will help you prepare a stringent budget plan. You can maintain an excel sheet where you can incorporate your daily expenses as it becomes easier to track your monthly expenses.    

Items

Week #1

Week #2

Week #3

Week #4

Monthly Expenses

Groceries

Transportation

Electric bills 

Medical expenses

Emergency exp. 

Entertainment

Total weekly expenses

This chart will help you check whether your expenses exceed your income. 

3. Curtail your extravagant lifestyle:

When you plan your budget then your prime objective should be to pay off your debt. You can curb your lavish lifestyle to utilize the money to pay off the debt. Avoid eating at a plush restaurant when you can arrange a good sumptuous dinner at home. You can reduce you unnecessary expenses like gym memberships, splurging on branded clothes and curb your entertainment expenses. The money you save can be used towards paying off your debt.   

4. Open an emergency fund:

You can set aside a portion of your income in the saving account as it can be used in time of financial crisis. If you have an emergency fund then you don’t need to skip your debt payment to pay for the unexpected expenses. 

Budgeting is about managing your finance in an organized manner therefore you don’t need to panic while planning your budget. It will help you secure your financial future and liberate you from debt.

my other anniversary (with budgeting software)

 

On an anniversary, one normally expects calls from friends and family of mazal tov and fond wishes – but not today.  Today is not the day that marks my wife and I entering into what we call marriage – although it has had almost as much impact on our life together as a couple.  Today is our one year anniversary of the day when we began to choose how we want to live together.  Today is our one year anniversary of living on a budget.

Looking back, it has been an incredible journey and perhaps one of the most significant steps that my wife and I ever took.  About a year and a half ago, our financial lives were paralyzed by fear and guilt.  We feared we were not making enough, we feared we were spending too much, and every time we spent a shekel we felt guilty.  We felt financially helpless and out of control.

So I did what any logical 25 year old would do – I turned to the internet.  After a quick search, I found a simple budgeting program that allowed my wife and I to track every single agorah we were spending.  At the end of the month, we looked over our expenses and if they were less than our income, we figured we were going in the right direction.

But it wasn’t enough.  My wife and I did not know how to use the knowledge we were compiling, and in order to have good numbers at the end of the month, our fear and guilt continued.  Then one day, I ran across Dave Ramsey’s envelope budgeting system.  At first I was put off; after all, I was an MBA; certainly I did not need such an elementary system to control my spending.  But about a month later I came to the realization that I did not have any system for controlling my money and Dave Ramsey did, so unless I was going to make a new system, I may as well shut up and listen.  I downloaded an audiobook of The Total Money Makeover and was on my way.

I listened to the entire book over a few days and began implementing immediately, albeit it with a few changes.  For example, while I did not literally put the money I made into envelopes, I did develop an excel file in order to build a budget and monitor my spending (I thought I was unique; little did I know that most Dave Ramsey followers do the exact same thing).  I also decided that since Israelis get paid on the tenth, it would be best to make the months from the 15th to the 14th of the following month.

Soon after, my wife and I sat down to build our first budget.  The entire process took around 10 minutes, which is much less than I had expected.  But our first attempt was far from perfect.  There were a few times in that first month when we had to call an emergency budget meeting and decide what to move from one budget line into another, but life happens.  The important thing is that we decided what to do with our money and built a life plan around it.

Knowing that we are spending money we have and that we are in control of our financial lives is a absolutely fantastic.  We know when we should cut back, we know when we can spend more, we know when we can give and we know how to adjust our lives to make room for the things we want.

Does this make us rich?  Of course not.  Money still has to be made; being a nice couple on a budget doesn’t pay the bills.  But a budget has given us control over our finances, peace of mind, and has allowed us to plan our life together (as much as man can without God laughing…)

To celebrate this one year anniversary, and because my old excel workbook is full, I made a new Excel workbook for budgeting.

You can download my excel sheet for budgeting here.

For more information, this post explains how to use the excel sheet and build a budget

PS – I think it would be interesting it shadchanim would ask a potential couple to build a budget and live by it for a month.  I think it would do a lot more insightful than the typical laundry list of questions.

PPS – As usual, if there are any problems with the Excel sheet, please email me at jonnydegani@gmail.com and I’ll try to fix it as soon as possible.

too much at once

Welcome back; it’s been a while.  On one hand, I have so many ideas that have been popping into my head over the past few weeks and on the other hand, I don’t know what to say.  The birth of my son has been such a life changing experience that words do not begin to describe the vast amount of life experience I have gained, nor sleep that I have lost, in the past month.

And while so much life was happening all at once, my money felt like it was spiraling out of control.  Every day I was running to get bottles, equipment, medicine and so many other things, all while trying to help take care of my wife and child who were staying at my in-laws, that I could not keep up with my expenses.  Additionally since the entire area of raising a baby is fairly new I had no idea where, if at all, I could cut costs.  Finally, the time for a new monthly budget came and my wife and I could find no time to work on the budget together.

But after a few days, I came to a few realizations that calmed me down and helped bring my financial life into control.  On a bus ride (yes, I still don’t have a car) I was set down a couple of rules in my head to help me cope with the first few weeks of a new baby:

1 – I should not worry too much about money.  I estimated how much I was spending and came to a realistic figure.  As it turned out, this figure could easily fit into my budget and so I should record it in my expenses.  My feeling is that it is better to be imprecisely right than precisely wrong and as long as I estimate conservatively and try to record my finances even once a week, everything will turn out okay.

2 – My wife is my ultimate authority regarding what to buy and where to cut costs.  She is more knowledgeable than I am in this area (she helped raise her nephews and nieces) and I need to rely on her to decide what to get.  She knows to ask others for advice when she is unsure, and I trust her to decide who and what to follow.  I may ask my wife about cutting costs (ie trying a different brand), but I trust her to have ultimate veto power.

3 – In my wife’s absence, I will do all the budgeting and expense tracking myself, knowing that when we move back home in a few weeks, we will look at how much money we have been spending and call an emergency meeting to fix the budget I built.  It is more important that we start with something and then change it later than to just ignore our finances.

Now that my wife and I are home again, we have begun getting a grip on our finances.  We have resumed planning a monthly budget, where, for the next few months, we will keep an additional line in our budget for all the random things we will expect for the new baby.

In short, when life deals you too much at once to follow your finances: (1) estimate conservatively, (2) trust your partner and those who are more knowledgeable than yourself, (3) if necessary take temporary measures to ensure you have some sort of accountability, and (4) cease all temporary measures when the need disappears.

Have you had something happen that threw your finances for a whirl?  How did you deal with it?

working for God Inc

We’ve all done it one time or another.  A beggar sticks out a hand and you whisk by.  You only have ₪ 10 left and you can’t afford to give it right now.  But then another beggar comes, looking much more desperate than the last.  So, out of pity, you give that extra tzedakah that you’re not sure you can afford.

Or maybe it is a phone call you receive from a Yeshiva asking for money.  You know you should give, but it’s hard to commit.  After some clever begging on the Rosh Yeshiva’s part, you fork over some money.  Maybe you can afford it; maybe you cannot.

And it isn’t that you don’t give tzedakah.  You give to your shul, your Yeshiva, and your pet tzedakah that you admire.  But sometimes the requests are too much and you become annoyed that others are asking for money when frankly, you already gave your share.

But it does not have to be this way. Tzedakah does not have to be some pity and guilt contest where you weigh your needs against others.  Luckily, all you have to do is change your mindset pertaining to how to give tzedakah. 

When I make my monthly budget, I allocate the approprate amount for tzedakah.  While I look at my finances, not sad faces, I am able to make a rational decision as to how much I can afford to give.  I don’t designate the funds for a particular charity yet; I simply designate funds to be given to the Almighty.

From then on, I am the distributor of charitable funds for God Inc.  The Almighty trusts me to be his agent; my job is to find viable places to give His money.  I am not trusted with an unlimited amount of money, just the amount designated in my budget.  When a request comes, I don’t check to see if it is worthy of my money; I am checking to see if it is worthy of God’s money.  It’s no longer personal; it’s professional.  People who work for a foundation and distribute funds never do it personally.  They give what the foundation would want them to – they do not give less, they do not give more and they make sure that they give to the right charities that will use the money the way the foundation’s leaders would want.

Does this mean you shouldn’t give extra if you see a need?  Of course not.  There are some extreme times when you have to sacrifice from another line in your budget and have an “emergency budget meeting” with your partner in order to reallocate money in your budget.  But (1) this should be very exceptional and (2) you should not decide to reallocate your money without consulting your partner first.

Generally speaking, give once a month, give generously, and then stop.  For the rest of the month, you’re working for God Inc.  Good luck.

How do you make a small fortune in Israel? Come with a large one

When making Aliyah at a young age, Israel has the appeal of a bold new step and a plan for developing a life on a new sheet of paper.  But when making Aliyah at a slightly older age and with a family, it is not enough to just come and soak in the surroundings; one has to plan for a new life in the context of the life one already has.

Generally speaking, there are three important financial steps one has to take in order to adjust to Israeli life: (1) get out of the American mindset (2) thrive in Israel (3) plan for retirement. 

(1) Getting out of the American mindset.  Financially, living in America is like living in a crack den.  Technically you are in control, you don’t have to take drugs – but on the other hand, the longer you live there, the more you are affected by the environment and the greater the odds are that you will.  Americans are brainwashed consumers fighting crack dealers at every corner.   Debt is the most aggressively marketed item in the US and instant gratification is okay as long as you’ll be able to make the payment.  And because the United States is so far behind nearly every other western country, it is permissible for children to be brainwashed at the youngest of ages so that their financial irresponsibility will follow them throughout their entire lives. 

Americans olim, particularly those with families of all ages, need to actively undo the brainwashing of American financial irresponsibility.  The most important financial lesson that American Olim must learn in Israel is the most important financial lesson never learned in the United States.  Spend less than you earn.  Nothing I can say can make up for this simple fact of life: if you spend less than you earn, you will always have more money.  As a family, you must agree on, understand, and stick to a budget every month.  Having a budget allows you to adjust financially to Israel while understanding how you choose to live.

“But Jon, my family and I just made Aliyah, we need to just have some freedom to spend until we adjust to life here!”

And what exactly will make you adjust?  There is no shortage of people who want to take your money, and there is no lack midst the plethora of ways to spend it.  So every day you will spend “only” ₪ 25 on shwarma (with a reasonably priced ₪ 10 can of soda) – and then go out for some nice dinner because “it’s just another couple of shekels and isn’t a shekel just a quarter anyways?”  Well, quarters add up.  Your expenses will begin to pile, you’ll make less and you’ll spend more because you feel bad about the money you don’t have, but continue to spend.

Make a budget.  Even if you decide to budget more than you earn and dip into your savings a bit as you gradually budget down each month until you finally spend less than you earn – make a budget.  Train yourself to live on less.  Just because it is kosher does not mean you have to eat it.  You can buy some school supplies at the ₪ 1 store.  Spend time in Israel’s beautiful parks and begin to focus less on the materialistic and more on the religious / personal / spiritual.  Isn’t that why you came here as a family in the first place?

(2)  The next step is to thrive in Israel.  Once you get your expenses under control and you begin to settle in, it is time to work on your Israeli lifestyle.  Do you need to get any additional licensing to advance in your field?  How’s your Hebrew?  Are you from a community where, generally speaking, children marry younger, and if so, will you be able to offer support?  Can you adjust your work schedule to make more time for learning?  This is the time to ask these questions.  Set goals for yourself financially, socially, and religiously and live the life you made Aliyah to live.

(3)  The third, and perhaps most ignored step, is to plan for the future.  Find out how much you’re going to need.  Not sure how much?  Ask an old person.  

Don’t just throw money into some investment and assume it will pay you enough to retire with dignity.  Unautomate your finances – take a hands-on approach and watch your investments.  Put some money into kupot gemel in order to have a lump sum when you retire and put money into your keren pensia in order to have the proper annuity you’ll need in order to live out your days. 

I know these words sound all complicated and Hebraic, so let me clarify what these mean and how to do it.  A kupat gemel is a providence fund. 

“Hey Jon, I just checked wikipedia, and they’ve never heard of a Providence fund?!”

You got me there.  The ministry of finance chose the term “Providence Fund” even though it is a made-up word that means nothing except what it is translated to mean, much like “firmament.”  What it really means is a long term mutual fund that you an only cash it at retirement age (currently 64 for women and 67 for men.)  These will help you get that lump sum you’ll need when you retire.

And how will you live after that?  Either from a ton of cash you have in a nice off-shore bank, or like most of us, from a keren pensia.  I would take the active approach and call the keren pensia and describe your situation (physical health, age, etc) and ask “how much do I need to put in before retirement in order to have an annuity of ₪ X per month?”  Odds are you won’t get an answer at first, but keep pushing and get an approximate amount.  Remember in Israel, “no” means “not unless you make a big deal out of it.”

The amount you’ll be told will depend on many factors including how the market is doing, so it is really hard to know an exact amount; play it safe and always be conservative with your money.  Also, keep reading as I continue to delve into the pension system here and explain how to understand the pension system here.

So now you know you want to have ₪ X for your kupat gemel and ₪ Y in your keren pensia.  Now it’s a race to get the money.  You have a goal; plan around it, try to get the money into these accounts as soon as possible and reach your goal.  Remember, these funds have compound interest, the sooner you put in the money the more interest you get.

“I advise you to go on living solely to enrage those who are paying your annuities. It is the only pleasure I have left.”

            – Voltaire

And finally

“Don’t simply retire from something, have something to retire to”

            – Harry Emerson Fosdick

there’s no “I” in money

I’ll never forget the first book I read for High School, A Tree Grows in Brooklyn, by Betty Smith.  I was too young to fully appreciate it then, but a few witty parts have always stayed with me.

A little over halfway through the book, Francie, the main character, and her brother Neely approach their mother to learn about sex.  Francie begins by asking her mother the following:

“… why are girls different than boys?”

Mama thought for awhile.  “The main difference is that a little girl sits down when she goes to the bathroom and a little boy stands up.”

“But Mama,” said Francie.  “I stand up when I’m afraid in that dark toilet.”

“And I,” confessed Neely, sit down when…”

Mama interrupted.  “Well, there’s a little bit of man in every woman and a little bit of woman in every man.”

That ended the discussion because it was so puzzling to the children that they decided to go no further with it. 

The differences don’t stop there.  Men and women relate to money differently as well.  In marketing, this is a given, but somehow in finance, this is not.  Many people plan financially ignoring the individual’s predisposition and attitude towards money, hurting some and pushing away others in the process.

So what do studies tell us about how men and women relate to money and personal finance?

Many studies claim that women see money as a sense of security, whereas men see money as a sense of power and way to conquer.  This conquering attitude makes many men better at negotiating a price, whereas women are better at finding a bargain to begin with.  These attitudes toward money also have implications for what happens when a couple is without money.  When men do not have money, they loose self esteem, whereas women face absolute fear.

But like all generalizations, they are subject to reality.  I know a lot of women who can bargain much better than any man and a lot of men who can hunt down a sale with the best of them.  The important thing is to figure out how each individual relates to money and have that sensitivity when engaging him or her about anything monetary.

When my wife and I go out to dinner, my wife goes online and finds the perfect coupon that will save us money and get us the best deal possible.  On the other hand, she does not have the stomach for negotiating.  I used to be unable to negotiate as well, but living in Israel long enough taught me the joy of haggling.  After understanding how we each work, my wife and I are able to live off one another’s strengths.

Equally important is being sensitive to one another’s fears with money.  I lose my self esteem when I have money problems, whereas my wife responds in fear.  I recall a time when I felt completely worthless due to my financial situation and turned to my wife, expecting a comforting shoulder for my bruised ego.  Instead, as I described my problems, my wife erupted into panic.  Does this mean I should have hid my financial distress from my wife?  Of course not.  But it does mean that I cannot go to her expecting something for me without taking her feelings into account as well.

In short, everyone is different when it comes to money.  Different people have different value systems, goals and fears when it comes to money.  Realizing our differences and striving to grow beyond our limitations is the key to living together, working together, and growing together.

budgeting in Israel (including software)

A few weeks ago, I mentioned the advantages of having a budget.  Much of the post is based on Dave Ramsey’s envelope budgeting system but several items are changed in order to adjust for Israel’s financial system.

To sum up, building a budget lets you tell your money what to do before it tells you.

And it really does not take long.  At first, my wife and I thought it would take hours, but after the first time (which was 30 minutes), we found that the entire process takes about 5 minutes a month.

This file contains my budgeting software. (If the link does not work, go to http://www.mediafire.com/?tftkjqmjyyi).  As you’ll see it is a simple spreadsheet.  Once a day, my wife or I type in whatever money we spend under the column for the appropriate day and into the proper spending item.  It takes about 15 seconds and gives us tremendous peace of mind financially.

Because pay in Israel comes in by the 10th of the month, I believe that the fiscal calendar for spending money should begin on the 15th.  This allows one to plan how to spend the money he or she received in an organized manner after he or she sees that everything already hit the bank.

In order to use the spreadsheet, a couple of items need to be explained:

Rows:

Inflows (to be filled in):  Add up to five sources of income for the month.  This includes any salaries earned, any presents received, and any money found.  If you got money overseas, then just add it in shekels at the approximate rate.  Remember, we’re trying to be imprecisely right, not precisely wrong.

Outflows (to be filled in):  This should include every category of money you spend.  Every time a shekel leaves your domain, you gotta stop it and say “hey! who are you and where do you think you’re going?!”  You can change the categories to match whatever you spend (note: for your convenience, I arranged it so that changing the name of one expense category will change the names in all the subsequent months as well).  I personally have fewer categories, but I left some open in case you need more.

Columns:

Now (to be filled in):  This is where you should be entering all the money you will allot for the current month.  Make sure that at the bottom total outflow equals total inflow.  Every shekel has an address.  You tell your money what to do, not the other way around.

Pre (do not fill this in.  This will fill itself automatically):  This is the outstanding balance from the previous months.  I greyed this out for the first month, because it will be blank.  In subsequent months, this will be filled in automatically so you know how much you already have left over from the previous month in each category.

Total (do not fill this in.  This will fill itself automatically):  This column tells you how much you have to spend on a particular expense.  This adds the amount you put into “now” and the amount in “pre.”

Remaining (the last column):  This column tells you how much money you have remaining for a particular expense.  This should never be in a minus.  If it is then you (and your spouse) need…

an emergency budget meeting:  This is when you (and your spouse) sit down and rearrange how much you allot in each category for the month (in the “now” column) and change some numbers so that you do not have a minus for any expense under “remaining”.  Remember, if you raise the amount for one category, you have to lower it for another category.  In the end, total inflow must equal total outflows.

Sooner or later you will need to look over your finances.  And believe me, planning how you’re gonna spend your money is a whole lot more fun than wondering where it all went.  Good luck!

long term

Amongst the day to day planning of a budget, people often forget to plan long term.  Many believe that the future will work itself out or can be worried about later.  Make no mistake; the future is coming, and unless you prepare for it now, it will be a pain to deal with later.

I realize that “long term” is vague , but planning is necessary for each of its definitions:

(1) Within the next year:  I consider this short term, but I know a lot of people who never plan this far ahead.  These people are shocked when their kids need new clothes.  They cannot believe Hannukah came so soon, as if the date changes every year (okay, maybe it does, but only 11 days.)  As Dave Ramsey puts it, “your kids growing should never come as a shock.  [Hannukah] is never a shock.”  Think of the costs you will pay on average for new clothes for the kids, the major birthday season of your family, and your summer vacation.  Project these costs and divide the number by 12.  This is how much money you should strive to set aside every month.  Keep it in a small envelop or separate account, while you have an excel file explaining what every shekel is aimed for.  This way, when these expenses come up, you’ll be prepared.

According to Israeli law, workers receive dmei havraha.  This is money that comes every June or so in order to kickstart your income and get you spending during the summer season.  Some people think they should not save for their summers at all and just hope the dmei havraha will cover it.  Theses people go onto to spend 5 times the amount of dmei havrah on their summer vacation and wonder where their money went.  There is nothing wrong with factoring your dmei havraha into your income so you know how much to save, but do the actual calculation.  Five minutes of math can save you from the shock of an empty bank account.

(2) Within the next 5-15 years:  What are your goals?  Do you want to save for a down payment on a house?  Do you expect any of your children to get married or go to college?  Well, then the amount you plan to save should be taken into account and pro-rated as well.  You may also want to take into account your keren hishtalmut when planning for this.  My advice would be to just assume you are getting back what you pay and your company matches from the keren.  Consider any interest a bonus.

(3) Retirement:  You will want to retire someday, and unless you plan for it, it isn’t going to be what you imagine.  According to Israel law, at least 5% of worker’s pay is set aside for retirement, rising to 15% by 2013 (see the previous post about pensions).  The good news is that if this is true, then Israelis will have most of their retirements taken care of for them.  Obviously lifestyle will affect this greatly, as will the choice of when to retire.  It is becoming a given to my generation that we will never retire; perhaps we’ll just work fewer days as we get older.  Anyways, Israel’s system of mandatory pensions will hopefully be social security done intelligently.  As always, you should consult a financial expert to see what is right for you.  

A word of warning and advice.  Many financial consultants are really just salesmen for funds.  Not that selling funds isn’t an important part of consulting, but there are some who are a bit too much salesman and not enough consultant.  Never be afraid of getting a few opinions and educate yourself in order to make sure you choose the right consultant.  Don’t be afraid of hurting anyone’s feeling, after all this is your retirement.