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.