The House That Debt Built

Everyone knew that Dovid was making a mistake — except for Dovid himself. He was doing nicely in real estate, but not nicely enough to build a massive house with the finest fittings and appliances — unless he’d take out a massive mortgage. Dovid was confident he could cover the mortgage. After all, his properties were all rented out and the money came in reliably every month.

Then one of his tenants moved out of a property, and it stayed vacant for several months. Without the income, Dovid had no way to cover the exorbitant mortgage, so he just didn’t pay it. By the time Dovid sought my help, he hadn’t paid his mortgage in four years and his $700,000 mortgage had ballooned to $1.2 million, because of outstanding fines and penalties.

He had to file for bankruptcy and spent more than five years of his life in court. He aged 20 years while he was in court and, ultimately, the only thing that saved him was when his family bought the house from the bank. Today he has no credit, no car loan, and no mortgage. But worst of all, his losses weren’t due to a medical emergency, a bankruptcy, or even an unforeseen loss. Everyone warned him, everyone realized how thin his margin was — and he has only himself to blame.

Plan It Early

Lately I’ve been counseling a new demographic: people in their fifties and sixties who have balanced their budgets all the years, supported families, and held down jobs responsibly. Why are they seeking advice? Because they have saved nothing for their retirement. Some have been let go from their jobs and literally have no money to live on.

A person who has worked their whole life, helped their kids, and done all the things good Jewish mothers and fathers do — are they going to ask for money back to pay their bills or sell their house and move into a tiny apartment? This is a huge problem facing our community and it is terribly sad because it comes from just being good to your kids.

The way to avoid this situation is to start planning for retirement many, many years earlier, no matter how daunting a prospect that may be. Everyone says they don’t have enough money to do it, but there is generally enough money for what is important and retirement should be first and foremost. When something’s important, you make it happen.

MEIR MANDELL

Financial advisor for MassMutual Metro New York

I work together with my brother Ben Zion, who is not only an expert in life insurance sales, but a paramedic for Hatzalah of Flatbush. He sees firsthand, unfortunately all too often, people in medical emergencies. No one plans to have a tragedy, certainly not financially, and that’s why the ten-minute conversation about life insurance and disability insurance is so important.

I had a very young client in his twenties who bought a very economical $1 million term life insurance policy for $30 a month. It was very sad when a year and a half later, he was diagnosed with a serious illness and two years later he was niftar. I went with my brother to deliver to the almanah the $1 million check for the life insurance policy and it was a bittersweet moment. She had two little kids and it was a real relief to her to know that her husband had planned ahead.

Dress for Success

I believed that an “envelope budget” — where you put aside a certain amount of money for expenses like rent, food, and clothing, and budget accordingly — works for only 20 percent of people, even though there are a lot of virtual envelope budget apps available. What does work, I find, is looking for ways to actually make more money. For example, if a spouse who has not been working can get a job, even just for half a day. If an individual is working, he could ask for a raise or look for a different job, or try a side business. Look for ways to increase your income, like making sure you are valuable at work so your employer will have a reason to keep you and raise you, or going back to school and getting a degree to make yourself more valuable. And, dress for success!

First Set Your Goal

A lot of my clients need a mindset change just as much — or perhaps even more — than financial advice. I tell those clients who need a little extra hand-holding, “Hashem has enough money; there is a sufficient amount of money in the world for you to get what you need. If you look at it with a small-mindedness, you can get stuck and not have too many solutions.” That’s not to say that it is not important to budget our expenses or that we should spend more than our means, but we need to prioritize our goals.

If you have a goal, you will figure out a way to accomplish it and be successful. Whatever it is that you want — whether it is to own ten more houses or be able to give $100,000 to tzedakah — you should set a goal and it should motivate you. That’s what makes people successful. Sometimes people are too complacent. They just want to make enough money to pay their bills, but when unexpected bills pop up, they are lost. If someone has a goal to accomplish more, he won’t be caught off guard.

We Can’t Afford a House

I hear from a lot of people who tell me they can’t afford to buy a home, because they don’t have a 20-percent down payment. Actually, first-time home buyers in the US can often buy a house with putting down as little as 5 percent on a 30-year fixed mortgage. A lot of people don’t know this.

One couple that I advised was earning a combined income of $75,000. Every year, they could only put aside $8,000 toward their savings. They figured they would never be able to save enough money to buy a home, and so they used those savings to rent a bungalow every summer. After I encouraged them and showed them how they can actually realize their dream of buying a house by only putting down $45,000, they decided to forgo the summer in the Catskills. Instead they took a vacation for just $1,500 and put aside the $6,500 balance every year. After a few years, they were excited to buy a house.

Pay Yourself First

One of the most important principles I teach my clients is that the first thing you must do after getting your paycheck is to pay yourself.

Let’s say you earn $10,000 a month, and as soon as the money comes in, you use it to pay your rent and other bills — in the end, you can be left with nothing because you didn’t pay yourself first. So first you should separate $1,500 and “pay it to yourself” so that you can invest properly. Only after removing that sum should you construct your monthly budget.

Remember, you’re not working to pay your electric bill; you are working to be successful down the road — to be financially independent in the future. If you start saving and investing when you are young, the compound interest of whatever you saved is very, very powerful. If a client comes to me at age 69, about to retire with no savings, it is very hard to help him. So when you are making and spending money, make sure you are paying yourself first. First save, then spend — it’s sort of reverse engineering.

I once met a high-earner client, a lawyer earning close to $500,000 per year married to a doctor earning about $200,000. They were making a very adequate salary — but were still nervous about the expenses of making a chasunah and paying for their children’s college degrees. Why? Because they had no adequate plan for savings and investments.

ELI POLLOCK

Baltimore-based CPA, finance columnist, and financial guru

Before our children get married, we hopefully educate them about shalom bayis, but we often do not teach them about managing money — despite the fact that the Talmud teaches that strife in the home is due to money problems (Bava Metzia 59a). Clearly teaching people well before marriage about basic family economics and money management would be very helpful.

Everybody who starts tracking their spending starts to see what’s going on and becomes more aware. Over the years, I’ve seen that the top tips to make a real change in your budget are: 1) make a written budget; 2) read books on how to properly maintain a family budget; and, 3) track your spending. To the extent that people do this, they will live happier lives.

Just Keep My Medicaid

One of the saddest scenarios I ever dealt with involved a call I received from a family who had a severely handicapped child. Medicaid was providing around-the-clock services that were so badly needed. If the couple’s income exceeded the guidelines, they would lose their Medicaid and the kid would lose critical care. I never asked the caller his name. I said, “In light of the dire situation, I can’t really advise you.”

When a person is trying to stay on Medicaid, it becomes a do-anything-to-keep-your- income-down situation. I know someone who is putting away $15,000 a year in their 401K. This brings down their reportable income, which allows them to stay on Medicaid. If they lose their Medicaid, they are going to have to pay possibly $15,000 a year for health insurance. So, their contributions to the 401K are not costing them a penny. It is saving them more than the $15,000, when you consider saving on taxes in addition to the cost of health insurance.

Everyone on Board

I have a rule: I only discuss budgeting with both spouses present. Since they are both spending money, both spouses have to agree with one another about how to spend it. When only one spouse comes in, he/she will go back to the other spouse and say, “Eli said such-and-such” which means “I’m right and you’re wrong.” I don’t want somebody to be a bully in my name — and I don’t want to turn somebody into a bully. I want both spouses to hear me out; there’s just too much that they both have to hear to understand how to make things work. When I talk to couples, I try to be humble, show them the Excel spreadsheet, and say to them, “Can you think of anything else that might work in this situation, other than what I suggested?”

Appreciate the Trade-Offs

I once counseled a couple who wanted to make a bar mitzvah kiddush in their house to avoid spending $2,000 on a shul kiddush. The problem: Their son was embarrassed, because each of his friends had his bar mitzvah kiddush in shul. I advised the parents to offer their son a consolation prize. I suggested spending one-quarter of their home kiddush savings to buy him a $500 professional camera he wanted. He was thrilled to trade the shul kiddush for the camera. As soon as he realized there was something in the trade-off for him, his opposition completely disappeared. The camera turned into a gift that kept on giving, as he started making money as a photographer!

JOSH HUREWITZ

is the Director of Coach Training for the Living Smarter Jewish initiative. He has been a financial coach in Baltimore for 12 years. Professionally, he is the managing director of GrowBridge, LLC, a consulting company focused on realigning and growing middle market companies.

My definition of financial health

A family is in a state of financial health when money is carefully managed and they have both the awareness to know what they can and cannot spend as well as the acceptance to feel okay with whatever that reality is.

Don’t Try This at Home

Sometimes people are over-eager to get control over their spending, and take steps that are just too drastic.  They ultimately sabotage themselves by cutting something truly necessary from a budget, or assume a drastic change can be made in one fell swoop.

The Blame Game

In my experience, the “hopeless” cases are not those with the daunting numbers — they’re the ones where one of the spouses does not take individual or joint responsibility for managing money. Blaming is easier than working together and making sacrifices. Disagreement between spouses on spending and earning is the single most frequent cause of failure in budgeting and it is the most difficult to overcome.

Teach Your Kids 

Raise financially savvy children by teaching them two critical trade-offs:

1. a) This Vs. That: They have the freedom to choose one or the other of two options, but the limitation of knowing they cannot have both.
2. b) Now Vs. Later: They can spend it now, but then they won’t have it later. (This is a lesson that not only kids need to internalize!)

MOSHE ALPERT

Certified financial planner and financial advisor with Northwestern Mutual Wealth Management Company

Invest, Don’t Save

I went to school for economics, but there are regular economics and Jewish economics. In our community, families are large and it can be difficult for those leading a typical lifestyle to get by, even without luxuries. Many can only make ends meet with the help of family members.

I’m finding that people rely on savings when they really need to be investing, because the money they are saving now won’t be worth nearly as much as it is today in 20 or 30 years and the $20,000 they put aside for a future wedding is only going to cover half the cost. If there is one message, it is that today’s people need financial coaches. Getting into a big hole isn’t the product of one problem, it is a product of many bad decisions and it takes just a small amount to go over the top. A financial coach will be working alongside the clients through every step of their financial lives and prevent bad decisions.

(Originally featured in Mishpacha, Issue 878)