Community Magazine March 2014

48 COMMUNITY MAGAZINE Mesila presents... The Short and Long of Savings – Part I RABBI MAX ANTEBY If you’re like most families that are, at least, keeping their heads above water, you still can’t seem to put anything aside for the future. Saving money just seems like an impossible goal. What does Mesila recommend? The first step towards successfully saving for the future is having an appreciation for the value and importance of savings. It is not only financial experts who advocate saving for the future; the concept is rooted in Torah tradition, as well. The Maharsha states in his Hiddushe Aggadot ( Niddah 65b) that a person should put aside money for his old age. And Harav Shmuel Wosner, shelit”a , in his Shevet Halevi (4:1), writes, “It is obvious that [for] something that is the nature of the world, such as old age or marrying off children… it is a mitzvah to prepare in advance so that one will not become dependent on others.” How to Start Saving Saving is not something you do when you have extra money. There is no such thing as “extra” money – no matter how much money a person has, there are always demands made on it. Saving is simply a habit. For some people it comes naturally, while for others it has to be learned. How do you get into the habit of savings? Here are some pointers for getting started: Start small. Put aside your pocket change at the end of the day. Just save something. Perutah perutah mitztarefet – if you save consistently, the amounts will eventually add up. Save now. You will always have good reasons not to save. Don’t listen to them! Save your windfalls. Anytime unexpected money comes your way – in the form of product rebates, tax refunds, gifts, etc. – put at least a portion away into savings. Make savings automatic. If possible, arrange for a portion of your paycheck to go directly into a 401k or Roth account. Save first. The first expense that comes off your paycheck (after ma’aser ) should be your savings. Make it a team effort. Both husband and wife need to be actively involved in the savings habit in order for it to work. Watch where the money goes. Keeping track of where your money goes generally leaves you with more money to save. Once you have decided to start saving, the next step is to decide what to do with your savings. There are two important categories of savings: short-term and long-term. Each of them requires a different strategy. Short-Term Savings This is the money you’ll need for emergencies and for foreseeable large expenses. Everyone needs some short-term savings. If you don’t have any, even minor financial setbacks can have disastrous results. Aburst pipe, or even something as predictable as summer camp, can land you in debt or ruin your credit score. You would not want to lose your house or your car because you are temporarily unable to make the payments. Short-term savings can earn enough interest to keep up with inflation, but will never yield the high returns associated with higher-risk investments. When choosing where to invest your short-term savings, your primary considerations should be accessibility, liquidity and safety of principal. Where should you keep your short-term savings? In a place that is accessible enough to dip into in a time of real need, yet not accessible enough to spend anytime you run out of cash. We recommend that you put short-term savings in a separate bank account or in very low-risk investments such as money market accounts, money market funds, certificates of deposit, high-interest savings accounts (available at certain banks and financial institutions) or treasury bonds. Each of these options has its pros and cons, but all of them are relatively safe and relatively liquid (easy to convert to cash), and earn a small amount of interest (currently, only about 1-3 percent). You should not put your short-term savings in higher-risk investments such as stocks, commodities or real estate. How much money should you keep in short-term savings? That depends on your situation and your family’s needs. We usually recommend setting aside at least three months’worth of living expenses to tide you over in the event of an emergency or temporary unemployment or disability. Besides for this emergency fund, you should also save for expenses looming on the horizon: your annual car insurance bill, the sputtering refrigerator that will need to be replaced soon, your son’s bar mitzvah, and so on. These expenses are all predictable, and you have two choices how to pay for them: save up money and earn interest, or borrow the money and pay interest (at a much higher rate). Next month, we will look at long-term savings. Mesila is a nonprofit organization dedicated to helping families and businesses in Israel, the US, Canada, and England achieve financial stability and independence. For further information please contact us at info@mesilainternational.org.