Last Updated on April 9, 2024

You work hard for your money, your money should be working hard for you. If you are able to earn more than you spend, the next step is to take a proactive approach to managing your money. The goal of this article is to guide you through a simple process for optimizing your finances and building wealth in Israel beyond your pension. Take some time going through these steps and your future self will be very thankful!

The information contained in this article is for general educational purposes and should never be viewed as specific investment, tax, or legal advice.

Step 1: Make a list

Before you head out on this trip, you need to make sure everyone is in the car. Start by making a simple list of what you own (assets) and what you owe (liabilities). You can get your own copy of our free simple template below by entering your email below. Just delete the sample information in the template and add your own accounts and balances.

The goal here is to be able to see a snapshot of everything you have available to work with.Making this initial list may also be a helpful as future reminder about those accounts you need optimize, consolidate, or otherwise address.

Step 2: Calculate your emergency fund

Before you can put money to work, make sure you have enough security personnel. Savings in an “emergency fund” are designed to keep you financially safe in the event a major unexpected expense or sudden loss of income and to help you manage your monthly cash-flow. Figuring out how much cash you need in your “emergency fund” by looking at what you spend in an average month.

Saving 3-6 months worth of expenses is the common recommendation, though in Israel, 2-4 months may be a healthier target. Here we have a greater safety net (unemployment pay, Pitzuim, public health care, etc.) than in many other countries, which is why some may be comfortable with a smaller target. It is important to take into account both what is optimal and what helps you sleep soundly at night.

The goal of an emergency fund is to keep money safe and relatively accessible in the currency you are most likely to need it. Consider keeping half of it in your עובר ושב (checking account) and the other half in a Pikadon that matures at least once a month (for Americans) or a Keren Kaspit (for non-Americans).

After calculating your emergency fund, if you still have some excess savings leftover, move on to step 3.

Step 3: Identify upcoming savings goals

Do you plan on buying a car, going on an expensive vacation, or hosting a Simcha in the next 5 years? By jotting down specific spending goals and when you need to meet them by you can start to allocate your savings appropriately.

Once you have identified these goals, you now have some basic planning choices to make. Will you fund these upcoming goals with the excess savings you identified in step 2 or by putting aside money each month and working up towards the goal slowly (or by combining both these approaches.)?

You can earn some interest on the money allocated for upcoming goals but you have to do so carefully. The strategy in this case is not to earn the most interest but rather to keep the money safe so it will be there when you need it. In most cases, 0-3 years is simply too short of a time period to justify exposing this money to any sort of market or exchange rate risk. In a time where interest rates are relatively high, you should consider using a 1-2 year Pikadon or buying מק”מ in order to lock in those high interest rates for most or all of your savings period

Very often Olim make the mistake of saving funds in whatever account or currency they are most comfortable with rather than in the currency they actually need. If you are saving up for an upcoming goal in Israel, you will most likely want to be doing so in NIS, even if you can earn a higher interest rate in a different currency. Betting that the direction of any given exchange rate will be favorable in the short-term is nothing more than gambling. For practical guidance on every step in building and implementing your savings plan here in Israel, sign up for our online, self-paced Masterclass.

Step 4: Put your money to work

Banks here are counting on you to let your savings sit around doing nothing. They thrive on inertia – the fact that so many people procrastinate making financial decisions and let money just sit in their עו”ש. In the meantime, they know how to put your money to work for them while you get nothing from it. Today is the day you put an end to that.

If you made it to this step, congratulate yourself on making some serious progress towards beating the bank and optimizing your finances. One of the final and most important steps here is to get beyond saving and start investing. Once you have separated for your emergency fund and savings for upcoming goals, consider sending the rest of your workers to do the real heaving lifting. By getting this money out of the bank and into a long-term investment portfolio, you have the best chance at building serious wealth.

For most people, this is best accomplished by opening a brokerage account and investing the money in some low-cost index funds. This strategy is relatively easy to implement, takes very little time to mange, and has been shown to beat most professional traders and active stock pickers in the long-run.

Nadav and I have worked hard to make our free resources and extensive research available to all those who want to put their money to work and get started investing. If you are looking for more personal support & guidance on this, be sure to check out our Guided Investment Program.

Step 5: Draw your money map

The goal of this last step is to ensure your money keeps working for you on an ongoing basis. Every time you earn income, you now have new workers waiting to be assigned a job. Your goal is to get them to the right place as quickly and efficiently as possible.

Try to think through where all your income should go once it hits your bank account. You may benefit by actually drawing this out so you can easily visualize where your income is going and optimize the money flow accordingly. Here is an example of how this might look:

Set a day in your calendar in the middle of each month to check your bank account balance. For those with a predictable income, pick a day of the month that will fall after you generally receive your salary and your credit cards bills have been deducted from your account. All the money left in your account, beyond the amount you set as part of your emergency fund, needs to be sent to the right place.

Ultimately, putting your money to work is not just about opening a savings & investment account, checking that box, and calling it a day. It’s about making sure every single shekel you have available is working day and night to achieve your goals. To do that, you have be proactive and make sure your money gets allocated properly, every single month.