Accountable - A Torah Guide to Fiscal Responsibility
Practical Money Management
I recently read of a rabbi in Israel who was asked for a segula to help prevent a struggling family's debt from growing each month. The rabbi answered: spend less than you earn.
That's about it. The rest is commentary.
Preventing Trouble
Plan ahead. Perhaps having things all worked out from before you're married is a bit unrealistic, but at least devote some attention to the question of how you're going to pay your way through life before things become unmanageable. Here are a few ideas to get you going:
Budget
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Have a clear idea how much money you have in reserve (to cover emergencies or occasional large purchases like a new car), how much is coming in each month and how much you're spending. Divide your expenses into categories (i.e., food, home, travel, entertainment etc.) and rate each for its importance. If you find that your income doesn't match your expenses, you will be able to quickly decide which items should be cut first.
- Keep a list of regular bills (credit cards, rent, car loan etc.) and the time of the month each is due to make it more likely you will actually pay them...and to avoid late-payment penalties and unnecessary interest costs.
- Write it all down or use software to keep track and to project the consequences of current trends.
- Define your goals: what would you like to be able to afford this year or ten years from now or once your children are married. Knowing what you want makes it easier to figure out how to get there...or to know what is unrealistic.
- Share your financial concerns and plans with your spouse. He or she has a right to know how things are going - and two heads are better than one (you got married for a reason, right?).
Sensible Credit Card Use
If you absolutely must borrow money, do just about anything (legal) to avoid leaving a balance on your credit card. Find a free loan or a line of credit secured against your home. Anything but a credit card. Why? Because banks charge frightening rates of interest for credit card debt. You can find a secured line of credit these days for very low rates of interest. That means, for an outstanding loan of $15,000, you will be paying $750 a year in interest (at, say, 5%). Many credit cards charge 28% interest. That, for our $15,000 balance, will hit you for $4,200 a year in interest! That's $4,200/year just for the privilege of owing a bank money. But paying that $4,200 won't get you any closer to paying off the actual loan.
That's why you should never keep your debt on credit cards.
You should also remember that the very convenience of cards makes them all the more dangerous. Can't decide whether you can really afford something? Charge it now and figure things out later. Can't decide which item to buy? Get 'em all, and work out the details later! Well just suppose you never get around to "later"?
What about using cards for their convenience and loyalty reward points? If you are careful and disciplined enough to pay the outstanding balance on time each month - and there isn't a prohibitive annual fee associated with the card - this isn't a bad idea at all. Just make sure that you keep a good eye on your account to ensure that it hasn't been compromised by identity theft criminals (sure sign of trouble: large purchases suddenly appear on your statement of which you're not aware). If in doubt, call your card issuer immediately.
Tax Planning
Get to know your government well. After all, you'll be spending a lot of money together over the years. Understand the tax consequences of any decisions you're making before you sign on any dotted lines. You have the right to legally arrange your financial affairs in whatever way provides you with the greatest benefit and lowest liability and you'd be a perfect fool not to. Take the time to learn for yourself how things work or sit down with a competent and honest tax accountant and let him figure it out. The payoff can be huge.
Don't just close your eyes and hope for the best. One couple I heard about ran a private business for years and simply assumed that their income wasn't taxable. Predictably, government auditors eventually caught on and paid the two of them a friendly visit at home, leaving behind a bill for many tens of thousands of dollars.
Insurance
Do life insurance and bitachon in God's providence get along? That's a good question that deserves attention. Ultimately however it's something only you can answer. Nevertheless, for most of us at least, practical considerations require good coverage: in a well-known teshuva, Rabbi Moshe Feinstein (Igros Moshe Orach Chaim 2:111) strongly advised men with wives and children to buy term life insurance as an extension of their responsibility to care for their families. He even expressed happy surprise at just how much a beneficiary could expect when compared with the relatively low monthly premiums...
Similar practical considerations suggest we take other simple and relatively inexpensive steps to protect our financial health. Insuring our property against various common risks is one. Investing in sheltered retirement plans is another.
Here's an example to illustrate the point: placing only $10,000 in a sheltered retirement plan earning an average annual compounded return of 5% at the age of 25, would return $73,584.17 at age 65 - and that assumes you don't add a single penny in the intervening years! Adding only $100/year would increase that to $86,353.99. Albert Einstein was supposed to have said that the most amazing thing he had ever seen was compound interest.
Avoiding Unnecessary Expenses
How much trouble can you avoid by foregoing some small but frivolous indulgence? Lots. Look at this:
Suppose you choose not to smoke (you'll thank me later for giving you the idea). The half carton per week that you won't buy will save you around $35.00. Those weekly non-expenses, if they are instead invested in some very conservative savings certificate earning only 3% compounded interest will, after fifty years (from a smoker's first puff at 15 until his last breath at 65 - if he lives even that long), amount to $150,789.21 (nearly $130,000 of that will be interest). Or suppose you know a hot-shot fund investor who manages to get you consistent annual returns of 10% on that money: the total waiting for you on your lucky 65th birthday will be more than $1.9 million!
Now that'll solve a lot of problems, won't it?
Scams
There is no end of too-good-to-be-true, stay-at-home-and-earn-thousands-per-week offers out there. Perhaps it's an on-line job requiring no experience or skills and promising instant wealth ("just send us $50 for your starter kit!"), or the infamous email offer from the widow of Nigeria's former minister of defense who needs a trusted friend into whose bank account she "will deposit $26,583,928.56 in gold bullion - of which you, because you are such a reliable associate, will get to keep 25%".
Here's the quick and ready formula to keep you and your money living happily ever after together: if the offer is too good to be true, then it isn't true.
If the offer involves divulging any of your banking information to strangers, then the scam almost certainly involves a crime - of which you will be the victim. And don't assume the police or your bank will be able to get your money back for you.
Finally, for an extra level of protection, carefully read credit bureau reports on your financial activities that you can order annually for free.
Digging out of Trouble
The philosophy, tools and tricks of debt-recovery are well documented in "Dealing With Debt" later in this book.
Attitude
First, develop an appropriate psychological relationship with money. Take responsibility for yourself (and your family) rather than expecting anyone else to take care of you. That means that, for all intents and purposes, you have no guaranteed right to any particular home (in any particular neighborhood) or to any particular level of income or to any particular lifestyle. While they might choose to act with great generosity, from a moral (and often halachic) perspective, your parents, your community, your government and even God owe you absolutely nothing.
Next, educate yourself. Understand the consequences of things like credit card use and tax laws (both of which we'll discuss later). Take some time to read through a reliable collection of basic financial advice. Knowing how money works will give you the confidence you need to make the right choices. Before I purchased a used car from a dealer for the first time, I spent a few hours researching the negotiation process. As a direct result, I came out of the deal having knocked 15% off the sticker price and left with the salesman's friendly respect.