A few months ago I wrote the first in a series of articles giving pointers on how to run a small business effectively. The initial article focused on the crucial need to plan and focus in order to be a success. This time I want to reinforce how vital it is to take responsibility for your finances, whether you are self-employed, salaried or a home-maker.
These words are directed at everyone, regardless of your professional situation, and regardless of where you are living.
I recently returned from a trip to North America, as part of the NBN Aliyah Mega Event. I met many, many wonderful people excited to realize their dream of a new life in Israel. (BeHatzlacha to you all, and all the others in similar situations whom I was not fortunate enough to meet!)
Whereas I met potential olim who were single, married and divorced, younger and older, working and retired, the one thing they almost all had in common was when they asked the question, “how much money do I need to live in Israel?”
Although I understand exactly their need for an answer to that question, they, and everyone, need to recognize that there is no ‘one size fits all’ answer to a financial question like that.
And that’s why I say to everyone – take responsibility for your finances!
For those contemplating life in Israel, you will only be able to decide if it is a financially viable option once you have a very clear picture of your finances, and are aware of all the elements within the picture. Where is your income supposed to be coming from? Do you intend to work, or live off savings/retirement income? How secure is this income flow? What are your projected expenses and how much flexibility do you have to make changes? Once you’ve answered these questions then you, or the professional you are working with, can make an accurate financial projection of how much money you will need in order to start your new life in Israel.
However, regardless of where you live, you must take responsibility for your finances in order to make sure that you are living within your means, and saving for those expected and unexpected events that occur in life. You have to ensure that you are tracking, monitoring and adjusting your income vs expenditure – something which is unique to you.
Take the run-up to Pesach as an example. It has to be one of the most expensive times of the Jewish calendar year. There are unavoidable expenses – but there are avoidable ones too. If you have worked out your disposable income for this period (including money that you’ve saved because you know Pesach is always expensive) you will know what you can afford, and when you should be cutting back, or finding cheap alternatives. So once again I say to you, take responsibility for your finances.
If you are self-employed you must apply this financial awareness to your business, in addition to your home life.
Although naturally your focus might not be on the financial/accounting aspects of the business, and possibly you even view them as a distraction, they are crucial if you want to be able to continue successfully in your chosen field. Don’t rely on your accountant, tax professional etc to the extent that you don’t know what they are doing, and just sign the checks and statements as required.
Take an active role in your financial setup and you may well find that you can restructure for increased benefit. Should you be a corporation? Does your spouse work for you? If American, are your tax issues being addressed correctly? By being a part of the financial consideration of your business you minimize the margin for error for any oversights or changes in status, or financial circumstances that might impact your financial/tax standing.
While most people work in Israel with accountants to calculate and file their year-end tax returns and monthly payments to bituach leumi and mas hachnasa, abrogating responsibility is unwise. Your income tax and bituach leumi contributions are calculated on an annual basis, so it’s crucial that you have the correct figures to ensure you are allocating enough towards these payments and won’t be left with a large year-end bill. Too often I see small businesses surprised by demands for year-end payments that leave them trying to dig themselves out from last year’s mess during the current year. Ensure you understand how much of your earnings are truly after-tax profit and then ensure that the rest is being set up aside for the relevant authorities, pension contributions and insurance payments to avoid unpleasant surprises.
Taking responsibility for your finances is a liberating experience. Pesach is the time when we celebrate our liberation from being slaves as we began the process of becoming a nation. If you haven’t already done so, make this Pesach period herald your financial liberation. Chag kasher vesameach!