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Creating a financial plan is an opportunity to shape your current as well as future financial well being. It’s about making informed decisions and taking a hard look at reality so that you are prepared to maximize the success of your life goals. Some people are lucky enough not to have to worry about money, but most of us have limited financial resources that we need to balance with a desired quality of life. Even people of means should manage their finances responsibly if they wish to pass down their wealth or make donations to worthy causes. As with anything in life, it is always best to have defined goals and a sequence of steps to arrive there. Circumstances and goals will change, and you’ll need to update your financial plan accordingly. In any event, having a plan will help position you for success, or at the very least, minimize unnecessary expenses or losses.

There are many strategies that can potentially save you money when you have a clear understanding of your income and expenses within your short, medium, and long term financial objectives. With that clarity you can better balance your desired standard of living with the need for lower cost alternatives. As a new immigrant, you may also be eligible for certain tax breaks. Some of these benefits may be available for only a certain time period while others may depend on the structure of your finances and investments.  We will evaluate your overall financial situation and make the best recommendations to help you improve your current financial reality, and plan for the future.

When it comes to retirement planning, the earlier the better. With the compounding effect of money, investing early means reaping exponentially large benefits when you cash out at retirement. In addition, there are tax and other benefits that can be gained with proper structuring of your retirement investments. Good retirement planning takes all those elements into consideration along with your current earnings and future sources of income. With the right planning you will know that you can reach your goals and secure your future.

The greatest benefit to employees currently available in Israel is called the keren hishtalmut (advanced training or sabbatical) fund. Keren hishtalmut contributions are made for six years and then, from the beginning of the seventh year onwards, the money accumulated in the fund is available tax-free to the employee (for contributions made on salaries less than NIS 15,700 bruto (gross) monthly). Maximum contributions to a keren hishtalmut are 7.5% of the bruto salary from the employer and 2.5% from the employee. This is 10% of one’s salary, prior to paying any taxes, contributed monthly, and invested over the life of the fund. It can be taken out tax-free in Israel after the sixth year, or can remain in the fund and continue to accrue gains that are tax-free in Israel for as long as you keep your account open. Once funds are taken out of the account, no new contributions can be made (new payments will need to be contributed to a new keren hishtalmut), but money in the account can continue to be invested, and all gains are tax-free. Contributions are not automatically deducted from your monthly salary or received from your employer, rather you must request this fund and negotiate your employer’s contributions.

Everyone’s situation is different, and so there is no simple answer to this question. Aside from finances, there are many qualitative factors to consider. Renting provides a good opportunity to feel out a community before committing to live there, with a relative ease of changing your living arrangements. Renting is also relatively cheap, at an annual cost of only 2-3% of the home value. Many people prefer to rent so that they can invest their money at a higher rate of return. Having said that, the lack of a developed long-term rental market in Israel, means that tenants can be subject to volatile rent increases as well as sudden termination of their lease. Home ownership provides more stability especially if your mortgage is locked in at a fixed rate. Many Israeli home owners have enjoyed a great deal of wealth creation with the value of their homes increasing, especially in the last few years. Home ownership also provides a good hedge against inflation. However, one of the greatest difficulties in home ownership is the high cost of housing compared to relatively low wages. Coming up with a 25-35% down payment can take many years of savings, and since the average mortgage is around 1,000,000 NIS, even a low mortgage rate can translate into high monthly payments. Home ownership also comes with other expenses such as insurance and maintenance, and of course purchase fees for agents, lawyers, and mortgage brokers. A financial professional who understands your situation and goals can help you make the right decision and plan accordingly.

As an American citizen living in Israel, there are both benefits to be gained and pitfalls to avoid. You can receive cash bonuses for your American and Israeli born children. One thing to be concerned with is investing in Israeli listed securities or Israeli based mutual funds, which may be considered Passive Foreign Investment Corporations (PFIC) by the IRS. As such, your US tax returns may be subject to a 60-80% tax  payment on any gains made by these investments, whether realized or not. The US-Israel tax treaty provides tax exemptions and deductions to eliminate the double income taxation. Israel, however, does not have a totalization agreement with the US to alleviate the double taxation with respect to social security taxes, which can affect the self-employed. It is best to consult an accountant who is well versed in both American and Israeli tax regimes.

Unfortunately, government social security and pension plans will account for only 20-40% of our required retirement income. The only way to meet the shortfall is by regularly putting aside money for additional savings and investments.