By Douglas Goldstein, CFP®

Making ends meet means having a positive cash flow, plus having extra to put away for future needs. In other words, you need enough cash to pay your bills, and add to your savings programs without slipping into overdraft at the bank. Many people think they are living within their means because they are able to pay off their bills at the end of the month. However, if all you can do is minimally satisfy your obligations – and don’t have anything left over for savings – then you are living dangerously.

It is easy to gradually begin living beyond your means, even if your spending habits do not significantly change. This happens because inflation turns moderate spending patterns into lavish lifestyles. In addition, unexpected circumstances (such as family sickness, loss of a job, etc.) or even planned events (like weddings, buying a new car, or taking a long-awaited trip) can upset the most carefully worked-out strategy. And, as if these challenges were not enough, some families have one or more members who indulge in spending sprees that make it impossible for the family to stay in the black.

By understanding exactly how much you can afford to spend each month, you can keep a collar on overspending. When you prepare a budget, your income sources and expenses are set forth in front of you and you can check whether you can afford to purchase a given item. In addition, by studying your figures, you can make well-educated estimates as to how much capital you will need in the future, which expenses you can minimize or eliminate, or when sufficient funds will have accumulated so that you can make future purchases.

Forgotten expenses
An often forgotten line item in a budget is the cost of borrowing money. For example, if you borrow NIS 5000 on your credit card and the finance charges are 15% per year, you’ll owe NIS 750 above the principal loan each year.

Where does your money go?
By keeping tabs on your money as it comes in and goes out, you will have a well-organized budget that you can rely on to help track your financial situation. Creating a budget can help catch a small spending problem before it becomes a big problem. This, in turn, may keep your bank balance intact and keep you out of overdraft.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

By Douglas Goldstein®

While spontaneous decisions might be fine in deciding how to spend your weekend, forethought and planning are crucial to achieving investment success. When deciding whether to purchase an investment, consider the following points:

Investment Goal: Income, Growth, or Capital Preservation?

Why do you want to invest? Are you retired and need income on a regular basis? Is the assurance of having a steady stream of income more important to you than potential double-digit returns? Do you need growth? If you are saving for a new house, retirement, or some other goal, you want your money to grow. Yet, often the returns desired in growth investments require assuming a certain amount of risk. Or, are you looking for capital preservation? Do you want to be sure your investments retain their value in the future? If you live in a high-inflation environment or are retired, this would be a central point to consider before purchasing an investment.

Since many people have goals that fall into more than one of the above categories, it is important to prioritize which is more important and purchase investment products accordingly.

Liquidity

If you’ll need your money sooner than anticipated, will you be able to get it? Are there any financial penalties for taking money out of a mutual fund or bond fund early? Cashing in CDs before they’re due might also carry hidden costs. Liquidity in and of itself isn’t a requirement for successful investment (often it’s fine to “lock” your money away for a given time period); however, you must consider liquidity as a factor before investing in any product.

Remember that not every investment in your portfolio needs to be easily converted to cash, but a certain amount of your portfolio should maintain liquidity. The amount of liquidity necessary depends on how far you are from reaching your fiscal goals, and whether your portfolio is an “investment” portfolio (saving for some time in the future) or a “nest egg” portfolio (providing for all of your current living expenses).

Before purchasing a specific investment, look at the larger picture. Stay focused on your final goal, and make sure every particular investment furthers that goal.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

By Douglas Goldstein, CFP®

A bear market, meaning a down market, is named for how a bear fights, slashing his paws down. While that might be a dramatic image, many investors who find their portfolio ripped to shreds can identify with the devastating feeling the image conjures.

However, as counterintuitive as it may be, a bear market may be the best type of market for a young investor. This is because for those folks striving to grow their savings, it’s better to have a bear market at the beginning of their accumulation stage rather than at the end. If an investor buys stocks during a down market, then, hopefully when the market rebounds, his portfolio will increase proportionately.

No one has prophecy
I’m frequently asked if I think the market will rebound to its previous high. Instead of answering the question, I ask a different question, “How are the market’s movements affecting your financial plan?” While it may be emotionally difficult to recover from the last year’s market’s slide, if your financial plan was sound and is still appropriate, things should eventually work themselves out. The question is: how and when will the “eventually” take place?

If you are closer to retirement, there is much less room to maneuver. Since there is less time to recover a loss, and less tolerance for increased risk in your remaining funds, the question becomes how to protect your principal best. You need to protect your principal both from losses and against inflation. Perhaps postponing retirement or increasing savings can help your bottom line. Other times, reallocating your assets into income-producing streams might do the trick.

If you are further away from retirement, there are more options. Without embracing too much risk, there may be suitable investments that can boost your nest egg in time to meet your goals. Since time is on your side, you may be able to invest in high risk/high potential instruments in order to meet your target. If your investments are too conservative, they might not earn enough to retain their real value against inflation.

In both scenarios, asset allocation is the key. Make sure your portfolio’s actual allocation reflects the allocation set in your financial plan. Chances are, the market’s moves moved your portfolio allocation. Though it may be difficult to align the reality with the ideal, doing so is perhaps the single best move you can make for your fiscal future.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments

By Douglas Goldstein, CFP®

Sometimes the right decisions are clear cut, but difficult to implement. For example, I recently met with an owner of a company who decided that he wanted to give his employees a perk and provide them with a keren hishtalmut plan. This means that every month, the employer would contribute 7.5% of the worker’s salary into a tax-free account, while the employee would contribute 2.5%. The monies could be redeemed in six years, or continue to grow tax-free. While most employees welcomed this valuable perk, others resisted receiving the package because they were reluctant to take the small drop in net income. While I can sympathize with those who feel as if they need every shekel now, this decision is short-sighted. I coached this business owner on how he could impart the importance of participating in the plan to his employees.

Tax-free savings plans are one of the best investment decisions someone can make. This is for several reasons:

The tax-free benefits
By investing pre-tax shekels, the real value of your investment increases proportionately to your tax bracket. In order to invest a similar sum of after-tax income, you would need to earn more money.

Automatic deductions make savings easier
By the time your salary is deposited in your bank account, your most important creditor, your future, has already been paid. If it’s difficult to make ends meet while you’re employed with a set salary, imagine how much more difficult it will be when you’re a retiree with a limited income (usually pensions are between 35-70% of one’s salary.)

Maximizing your investments
The employer contributions to tax-free savings plans are greater than the worker’s contribution. There is no better way to get “more bang for your buck.”

As a financial adviser, I meet with hundreds of people and review their budgets. It’s extremely rare to see a budget that is so lean that there is no room to cut a little. Financial success boils down to making choices. The seemingly mundane choices of where to live, what to eat, or how to dress, have far-reaching repercussions.

Good saving habits
Even if participation in these plans means your net income drops a little, it is a good habit to live slightly below your means. This leaves some maneuvering room in time of crisis. If a large dental bill or car repair causes you to go into overdraft, it is a sign that you may be living beyond your means. In addition to your tax-free savings plans, strive to put aside a set sum each month for emergencies. This way, if you have a one-off large bill, you’ll be able to meet the expense without going into debt.

If you are having trouble making ends meet now, or anticipate difficulties while retired, consider meeting with a budget adviser and/or financial planner for practical tips on how you can make it. Don’t be penny wise and pound foolish; when it comes to tax-free savings plans, a penny saved can really be a dollar earned.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.