3 Steps to Starting Your Financial Plan

That Crucial Budget – Why?

The most critical financial decision any of us can make is to take control of our money and not let it control us. Once you have set your priorities and goals to help you decide whether Aliyah is a current reality or something that might need to wait a few years the next big question becomes: “Now I know what I need, but how do I get there?”

A solid budget will help your Aliyah process tremendously (both in the planning stages, before you make the final decision to come to Israel, and through the first years of your Aliyah).

Too many people feel that a budget is a financial straitjacket inhibiting their every move.

Budgeting should be — and is — a positive experience helping you to achieve your goals, not preventing them. Your best chance for success in budgeting prior to and during your Aliyah experience will come from understanding why it is so important and how it can help you.

Creating awareness

The most significant benefit of creating a budget and tracking expenses is improved awareness. People tend to think they know how much they’re spending. However, at the end of the month, they still don’t know where the money went or why they’re in overdraft.

Most families underestimate their expenses by 20–50%.

The increased awareness a budget offers gives the incentive to make lasting changes in spending patterns. When putting together a budget for your Aliyah, you’ll have a much clearer picture of the costs and issues you’ll face in the process — a concrete image of the possible implications of your decisions. Putting the plan in writing together with a budget (or multiple scenarios of budgets) will help you think more clearly about the matter at hand.

Solving problems

By comparing budgeted spending to actual spending, you’ll identify areas that aren’t accurately reflecting your priorities. For example, if you’re spending more on clothing than you’ve budgeted, you can either adjust your budget to reflect the greater importance you place on this item (if you have the money available) or change your behavior to reflect your priorities.

Some questions that can come up in budgeting are:

How much can you afford to spend on housing, transportation, and food?

How will holidays and summertime impact your plan?

What will happen if it takes you twice as long as you expected to find a job?

Creating a budget and tracking income and expenses provides the internal feedback necessary to evaluate what problems exist and how serious or long-term they are. With this feedback, you’ll be able to accurately assess what the issues are and figure out how to deal with them.

Prioritizing your expenditures

Budgeting allows you to prioritize in advance exactly where you want your money to go.

Is it more important to have a larger apartment or to own a car?

Do you want to go on vacation or have money for summer camps?

We all need to make trade-offs in order to accomplish our goals. Preparing a budget offers a rational, clear-cut way to make decisions, especially in a new country and society where so many things are different.

It also helps you avoid impulse buying. If it’s not in the budget, you’re more likely to impose self-discipline and avoid unnecessary spending.

Streamlining decision-making while easing conflict

When families don’t really know how much money they have and how much they can realistically afford to spend, purchasing decisions easily get bogged down in disagreements, uncertainty, and confusion. Creating a budget (and referring to it often) reduces the need to constantly reevaluate, contemplate, and argue about money. The budget becomes an agreed-upon rulebook, eliminating tension and disagreements while you focus on getting the most out of your money.

Improving communication and transparency

When you create a plan as reflected in an Aliyah budget, financial communication among family members quickly improves. Not only does it negate the need to consult with your spouse on every little thing, but it also provides transparency in all your financial transactions. At the end of the month or quarter, you’ll know exactly where your money has gone, and so will your spouse. This fact alone can be of major help.

Tracking your goals

Once you’ve set up your short-, medium-, and even long-term financial Aliyah goals, you’ll need an easy mechanism to track your progress. By working within a monthly budget, it’ll be clear if you’re making the grade or not. This is especially relevant for short-term goals that depend on expense cutting or saving for an upcoming purchase. Without monthly progress reports, you risk reaching your cutoff date with nothing saved for your goal. This possibility increases your risk of going into debt to fund current expenses.

Budgeting for the unexpected and for long-term savings

Many people find that they’re able to put a reasonable plan in place to get through the first six months of Aliyah. But what happens when unexpected expenses pop up (as they inevitably will)? Budgeting allows you to put money aside for those non-standard expenses and prevents you from going into debt. During Aliyah, you’ll need to budget explicitly for the unexpected and then track what actually happens so that you can determine if you need to make changes to your budget framework.

Budgeting allows you to prioritize long-term goals that can easily be forgotten or ignored in the pressure to meet your immediate spending needs. Once you’ve decided how important it is to save for a large event or other important goal, it will be easier to put money aside for it. This concept is called paying yourself first. Just as taxes are deducted in Israel at source (from your employer) before you see your paycheck, you too have the ability to deduct money at the beginning of the month for goals that aren’t part of your immediate monthly needs.

Budgeting can help you in ways that you might never have considered. I’ve yet to find someone who wasn’t amazed at the insights he or she gleaned from creating a budget and tracking expenses.

Step 1: Set Your Goals

Translate your Aliyah requirements into quantifiable and measurable goals, prioritizing the items that are most important to your family.

Be as specific as you can in outlining your goals so that you can truly visualize what you’re trying to accomplish. It’s easier to picture, “I want to be out of credit card debt in the next six months before we make Aliyah” than “I want to be in a better financial situation before we make Aliyah.” Assign priorities when setting your goals — it’s impossible to attach the same level of importance to everything.

Break your goals into manageable steps. Create specific steps to help you reach your goals, for example monthly savings plans or debt payment plans. When building your budget, prioritize your expenses, adjust your assumptions, and talk to others about creative solutions for cost cutting or generating revenue.

The following are specific examples of goals and steps necessary to attain them.

We need to save six months’ worth of living expenses in Israel prior to making Aliyah. With a projected budget of NIS 10,000 a month, and monthly aid of NIS 5,000 (on average) from oleh organizations and the Ministry of Absorption, we will be able to stretch these savings for the first year, giving us enough time to take an ulpan (an intensive Hebrew language course) and start looking for work. Target date: one year from now. Follow up: quarterly.

In order not to touch our savings in the first year of Aliyah, we will need to earn NIS 4,000 monthly. We’ll attempt to continue working part-time for our pre-Aliyah employer, and if that doesn’t work, we’ll look for part-time work in Israel or for international companies abroad, working remotely. Target date: prior to Aliyah flight. Follow up: monthly.

Step 2: Net Worth Statement

Determining your net worth requires gathering data, retrieving past records, and organizing virtually all your financial information. Completing the net worth worksheet gives you control by outlining your financial situation to help you make better decisions. It is a critical starting point to achieving your goals.

Please note: You must put this down on paper or on screen. Ideas and numbers floating in the air are nearly impossible to concretize into a plan. A net worth statement lists your assets (what you own) and your liabilities (what you owe).

The difference between your assets and your liabilities is your net worth, and it will become an invaluable financial tool helping you to monitor your Aliyah and longer-term goals. It offers a snapshot of where you are right now and where you are in relation to where you want to be. It also gives you feedback, enabling you to adjust what you are doing or perhaps modify your goals.

Is your total net worth similar to what you had in mind to make Aliyah with? Your assets provide you with a jump start to getting settled in Israel. The more money you come with, the more flexible your Aliyah plan will be.

You don’t have to be rich to come on Aliyah, and you don’t need to postpone your dream if you haven’t saved up enough money. However, olim who don’t have the assets in place need to be realistic about what that means in terms of Aliyah. The net worth statement gets us thinking realistically about what we have and what we can afford.

For example, if your income earning potential is high, you’ll be able to afford to pay high rent, enabling you to live almost anywhere in the country. But if you need to save money every month in order to eventually buy a home, you may not want to spend all your income on rent, and so may be more careful about which community to live in and which apartment to rent in the meantime.

Olim with limited income and minimal savings need to be realistic about the standard of living they can afford and where they can live. A low-cost solution is living in the periphery (away from the center of the country), where housing prices are less expensive. The challenge in those areas is often finding employment.  However, over the past few years the train infrastructure has been the beneficiary of major investments, with an increasing number of areas already, or soon to be connected as stations on the various lines.  This means that those living in the periphery are now able to commute to different major cities much more easily.  Also, depending on your career and your ability to work online you could potentially continue to work in your previous position abroad or for international companies who are flexible as to the location of their employees. One thing coronavirus has made very clear is the option of working from home as an alternative to a full-time office-based position.

If you’re moving from an existing home in which you have equity carefully evaluate how much of that equity you’re likely to come to Israel with, and what that will mean for possible housing options. See the  “home” section for more information.

Step 3: Sample Budget

Create a sample Aliyah budget plan with all your projected income and expenses. Look at all your major expenses and estimate how much you will spend on each one per month. Use the sample budgets shown here to get started. They provide an initial glance at what a budget might look like without taking into account personal circumstances.

Use the samples to provide you with perspective as you build your own budget. All budgets assume that olim initially rent apartments, and the costs reflect this basic assumption. If you’re looking to rent a larger home (or a villa, as they are referred to in Israel), you should expect all your basic expenses to be substantially higher.

While every case is different, the average family in Israel (of two adults and two children) earns approximately NIS 12,000–13,000 a month (the average for Anglos is significantly higher) — that’s total net income per family (after taxes) — based on two salaries, Bituach Leumi benefits, and any other income a family receives. Few families in Israel can afford two cars or a large house.

The standard of living in Israel is different from that of the United States, Canada, or the United Kingdom. A paradigm shift is necessary in order to succeed in Israel. Successful olim learn to think differently about how they spend their money, and become more “Israeli.” For example, the average Israeli family spends about NIS 2,300 a month on food. The average large Anglo family, when it comes to Israel, spends at least twice to three times that amount. Adjusting spending patterns and priorities is necessary under most circumstances, as the disposable income in Israel is also considerably lower.

The Israeli cost of living is high. Consumers often pay more for goods and services than their counterparts in some other Western countries.

Monthly Expenses ₪Retirees (2)Family (6)Couple (2)Singles (1) – under 30
Rent3,500-6,5005,000-10,0003,500-6,5001,400-2,200 (for a room in an apartment)
Phone/Cell Phone/Internet (not including devices)525-875600-1,500110-330200-300
Municipal Taxes – Arnona (includes 70-90% reduction)250-800250-800250-800100-200
Health Insurance  (supplemental coverage)0-8750-7400-1600-160
Additional Insurance (life, home, dental, optical)700-1,050650-1,200N/AN/A
Transportation1,750-2,275 (includes fuel and maintenance of car)1,800-3,500 (includes fuel and maintenance of car)440-700 (monthly bus pass and occasional taxis)250-350 (monthly bus pass and occasional taxis)
Children’s EducationN/A740-3,330N/AN/A
After School Activities (Chuggim)N/A350-1,000N/AN/A
Gym Membership200-600200-600200-600200-400
Total9,125 – 18,050
($2,607 – $5,157)
13,905 – 35,205
($3,973 – $10,058)
6,100 – 13,890
($1,690 - $3,850)
3,950 – 6,810
($1,095 - $1,885)

However, statistics from the last decade show that the gap is narrowing.  Although some consumer areas remain much more expensive than comparable ones in the Western world, other areas, such as communication and transport, furniture etc have shown a substantial drop.  And with a very strong currency these welcome figures mean that the expenditure gap is narrowing.

Putting together an initial estimate of possible expenses is a crucial first step. But it’s not enough to gather information and estimate future expenses. The next step is to create and evaluate your plan. What’s really important and what can you live without? In order to make Aliyah successfully, what aspect of your current standard of living are you prepared to do without?

Once you’ve put a realistic budget framework together, your budget will become the single most important motivating factor in helping you to live within your means and achieve your goals.

Your Building a Financial Plan "To Do" List

Write down three short-, medium-, and long-term goals. Each goal should have a specific action, target date for completion, monetary value associated with it if appropriate, and follow up timeframe specified.

Build your net worth statement (listing your assets and liabilities).

Evaluate the sample budgets in the above table and start planning how your budget will look in Israel.

Prioritize your expenditures to match your goals. If your goals include renting an apartment initially to save money for a purchase, estimate the cost of the rental (using the wealth of online resources available) and enter it into your budget. If you need to reduce your debt prior to making Aliyah, start cutting other expenses so that you can start paying down debt.

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