Tax Estimate

You can ask your accountant for an estimate of how much taxes you’ll owe come tax time.

Then ask how you can lower it.

Most actions must be done by Dec 31.

72

Rule of 72.

To determine how long it will take for your investment to double:

Divide 72 by the expected rate of return.

Example: If you expect 8% returns, 72 / 8 = 9. In this example it'll take 9 years to double your money.

IRA

There are 2 types of IRAs (a type of retirement account).

Traditional and Roth.

Each offers its own tax benefits.

You can have both of them, and depending on your tax bracket that year, choose where to invest your money.

For more info:

https://investor.vanguard.com/investor-resources-education/iras/roth-vs-traditional-ira#:~:text=Traditional%20IRAs%20generally%20allow%20anyone,individuals%20cannot%20contribute%20at%20all.

Value of Money

As Yom Kippur approaches, we ask Hashem for life.

R’ Yisrael Salanter teaches that money is a tool to buy time/life.

Money is important, to be used to serve Hashem.

An important tool we should learn to use.

And when grown/managed well, to be spent on what’s even more important.

3 Strategies

David Swensen’s 3 strategies:

1. Pick the right stocks

2. Pick the right time

3. How you divide your money (aka asset allocation)

Option 1, you’ll be wrong.

Option 2, you’ll be wrong.

Option 3 allows you to get the best returns with the least risk.

New Experiment

Trying an experiment:

Checking my bank account once a day.

That’s it.

I assume I’ll spend less, but time will tell.

Been doing it for a week so far.

Results: I haven’t noticed anything aside for a nudge to finally downgrade a card and use up the rest of my points.

P.S. I’ll keep you posted.

Don’t Pay Fees

3 things I learned about bank accounts:

1. You shouldn’t be paying any fees.

2. If you are charged a fee, call them and they'll usually waive it.

3. If has minimum balance requirements, shouldn’t be more than $500 at most.

How much Research?

How much time should you spend researching a high yield savings account for an emergency fund?

It depends on the rates you’re comparing.

Example: Putting in $10k at 4.45% vs. 4.46% is not worth obsessing over, in my opinion. It’s a $1.04 difference after a year. Just pick one.

However, comparing 4% vs. 5% with $10k is a $100 difference after a year, so a little research is probably worth it.

Run the numbers quickly to see if it’s worth your time and effort.

Especially if you are comparing an account with a reputable bank with one that may not be FDIC insured, or is inconvenient. It may not be worth your research.

P.S. This is based on this week’s article in The Voice of Lakewood, coming out Sep. 5 and available online.

Lesson I Learned

I always thought if I pay my credit card in full, I am winning the credit card game.

I get an interest-free loan. Plus free rewards.

Then I learned that when people use a credit card, they often spend 13-18% more.

Lesson I learned:

In situations with lots of moving parts, there can be factors I am totally blind to.

Yawn or Applause?

Rambam, Avos (3,15):

High levels aren’t attained from great actions. They’re based on the number of actions taken. Levels are reached through repeating actions many times.

“Beware the investment activity that produces applause; the great moves are usually greeted by yawns.” - Warren Buffet

There is no secret to instant success.

Consistently taking sensible actions is the way.

Debt, Good or Bad?

“Every dollar of debt you have is a piece of your future the lender owns. Every dollar you have is a piece of your future that you own.” - Morgan Housel

This does not mean that all debt is bad.

Example: Student loans. This debt increases your future earnings, so although you have debt in the short term, you will hopefully earn enough money to cover it and have more.

Think: Is this debt going to increase or decrease my freedom in the long term?

The point of car insurance

The point of car insurance is to pay for things you can’t afford yourself.

$2,000 in repairs from a crash.

Not something costing a few hundred dollars.

It makes sense to raise your deductible (what you pay in case of crash) as high as you can afford.

This way you pay for what you can afford, and anything above that, insurance pays.

This lowers your premiums (payment to insurance) since insurance knows it won’t have to pay for every single dent.

Study:

According to economists Richard Thaler and Cass Sunstein,

“policyholders would save about $100 dollars per year on premiums by increasing their deductible from 500 to 1,000. Of course, if they have a claim, they will have to pay up to an additional 500. So, they would have to have a claim once every five years to break even…But claims occur much less often than that...only about 5% of policyholders make claims each year.”

According to this study, people average a claim of $1,000 or more once every 20 years, so the additional $500 paid will be more than covered by the $2,000 saved ($100 saved per year x 20 yrs.)

Credit Card Debate

There’s a debate about credit cards:

Is it the credit card or the consumer who’s to blame for overspending?

It’s irrelevant.

Marshal:

There’s a Mitzvah to put a fence/mayka on a roof to prevent falls.

There’s no debate if the roof or the faller is to blame. The problem is just solved.

If you’re like me and spend more when you use credit cards, use them less and make it less convenient to use them.

Problem solved.

Can Numbers Lie?

Numbers don’t lie.

But the way they are presented can.

Example: “Customers who saved by switching to our insurance saved an average of $700.”

Sounds great?

However, it does not mean that customers often save by using their insurance.

In fact, for many (including me), it would cost a lot more.

All it means is that for those who did save by switching (which could be a small percentage) this is the average amount of those savings.

Don’t take claims at face value.

Read them carefully, or better yet, ask someone knowledgeable who you trust.

My Scooter

I recently sold the scooter I used to use for my commute.

For several months I tried to get a “good deal” and sell it for a bit above the market price.

Noone wanted it.

I underpriced it and immediately sold it.

Lesson I learned:

Swallow my ego and accept that getting a “bad” deal is better than letting it rust in storage.

Tiny Step

When a person is making a new Middah become natural to him, he needs to go level by level just like someone climbing a ladder. He must not jump to a level he is not ready for.. Because he will fall down and not attain it.
Vilna Gaon on Mishlei (19,2) Paraphrase

Where can I apply this idea?

Just 2

There are only 2 categories of expenses:

1) Needs

2) Wants

When you need to cut down on expenses, start with wants.

I know you have a question. Here is your answer:

Saving is a need. It’s for your future needs - things you won’t be able to afford if you don’t begin now.

Rav Wolbe on Tiny Steps

It all depends on small actions. This is the wisdom of how a person is built…

Someone who accepts upon himself a large, burdensome commitment, after some time, will feel rebellion getting stronger within him. But a small action that doesn’t weigh down on a person doesn’t have the power to cause this reaction.

 (Rav Shlomo Wolbe, Alei Shur, pg. 189)

Convenience

I recently read a study that knocked my socks off.

The result was the opposite of what I had always thought.

It found that comparing the effectiveness of incentives vs. convenience, convenience was more effective!

In other words, providing tax advantages to save for retirement, saving you potentially tens of thousands of dollars, is less effective than making saving a default. Wow!

Of Gaps and Goalposts

“The hardest financial goal is to stop the goalposts from moving” - Morgan Housel

The main principle in personal finance is to spend less than you make. As life progresses and expenses go up, most people need to earn more money to grow the gap between what they make and what they spend.

However, if earning more money causes you to raise your standards, you haven’t gained anything from your extra work.