How to cope with the economic changes of recent times

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Since the outbreak of the Corona plague in our lives, we have all experienced upheavals and changes. In an attempt to reduce the economic damage to the Israeli economy, the government announced a series of various measures and facilitations, from grants for the self-employed and parents, to easing the withdrawal from the study fund.

The question marks over what a day child is and what the next steps will be for the government to decide, along with the fear of contracting the virus and economic harm, raise the threshold of stress and anxiety for many. About 2.4 million people, constituting about 42% of the Israeli population, reported such feelings in a survey conducted by the Central Bureau of Statistics last July. [1]

The distress is not only noticeable in the national mood, as many experience real damage to the economic situation: 55% reported in the survey by the Central Bureau of Statistics[1] Because they fear that they will not be able to cover their expenses and 41% reported that their economic situation has worsened. Although this is a challenging situation, there are quite a few things that can be done to try to reduce the damage and allow us to end the current crisis as well as possible.

What mistakes are important to be even more careful about when the economic situation is challenging?
When the chance of harming the scope of the job or harming revenue from the business increases, it is not advisable to make particularly large purchases that can be postponed further. For example, you should consider whether to enter into a significant long-term financial commitment, such as a mortgage, or moving to a new apartment where the rent is higher, since even if you are currently able to meet existing monthly expenses, you may later run into some difficulty.

Deferring large payments is also not always recommended. Although the banks, with the blessing of the regulator who supervises them, have allowed their customers to defer mortgage repayment payments – this postponement involves increasing the total interest you will pay as part of the loan repayment, so you should carefully consider whether you really should take advantage of this option.

If you were fired from your job or expelled to the IDF, it is certainly not easy to make ends meet with a lower income. To assist in these situations, the government has approved in an exceptional move for employees and the self-employed affected by the crisis to withdraw funds from non-liquid training funds without paying tax,[2] And even published draft regulations that would allow self-employed people who were forced to close the business to withdraw some of their tax-exempt pension savings.[3] However, before you rush to use these funds, remember that these are funds that are supposed to be used with you in the future, when you retire and need a regular source of income. In addition, these funds may entitle you to significant tax benefits, so early withdrawal of these funds may harm your financial future.

As much as your income has been harmed, or you fear that it may be harmed as a result of the situation, you should prepare for it as soon as possible and adjust your current conduct to the new situation. It is important to build a responsible budget that will help you get through the crisis in peace, identify the savings that will allow you to overcome significant harm and build your savings cushion for the future.

What mistakes are important to watch out for (Photo: Shutterstock)

Step 1: Map out all your savings and assets
In order to meet all your existing liabilities even when income is declining, it is important to identify all the savings and assets you have accumulated over the years and understand what can and should be done with them. We have compiled for you the relevant sources of information to perform an accurate mapping of your assets:

  • Bank website
    In your personal area on the bank’s website, you can get information about savings plans and deposits that you have in the bank, as well as about investments in securities that you have made through it. If you want to withdraw money from a savings plan, you should first check whether it is liquid, and whether there is a commission that we will be required to pay for an early withdrawal. In the bank account we can also see the current situation and your current income from work and from any other source.
  • The Silver Mountain site and the pension clearing house site
    In order to map the funds you have accumulated in pension types of various types, such as a study fund, a pension fund or a provident fund, you can use two main sources of information:

On the Money Mountain website, you can get information about the companies in which you have inactive savings that you do not continue to deposit money in. Once you have identified companies where you have some savings, you can get detailed information about it in the personal area on each company’s website. Even if you have never registered for information on the site, you can enter your personal area through a relatively simple identification process and receive a one-time password directly to your mobile. On the pension clearing house website, you can get comprehensive and detailed information on each of your accounts in the pension savings in a concise manner. It is important to know that requesting information through the pension clearinghouse involves the payment of a commission. Pension savings include various benefits and rights that are worth considering before deciding to withdraw the money.

Step 2: Get a complete picture and map out all the expenses
In the face of income, it is important to map expenses as well. To track your average monthly expenses, you should go through bank records and credit cards, and record all the expenses you have had each month over the past three months. It is advisable to start with the large and fixed expenses like rent or mortgage repayments, electricity, gas and water bills and gradually move to the changing expenses.

Have you found that your average expense is higher than your monthly income? It is important to try to recalculate a route and adjust the spending budget to the existing income framework. If you are operating within the framework of your income and expenses each month are lower than the income, you are in a relatively good position and it is important to continue to maintain this.

Step 3: Think far and prepare for the future
Whether you manage to maintain a balance in current expenses or not, we all have big plans for the future and they can include significant expenses such as a bar mitzvah trip for a child, help buying an apartment and financing higher education for adult children or a family trip abroad. Apart from these planned goals, it is very worthwhile to also prepare for a situation of significant unplanned expense like major dental care, refrigerator that suddenly broke down or urgent repair that needs to be done in the vehicle. So that you can prepare for these expenses and also build a safety cushion that will allow you to deal with all the unplanned expenses, you should have one or more savings for these purposes. What savings and investment instruments can you save for the future?

Thinking Far and Preparing for the Future (Photo: Shutterstock)Thinking Far and Preparing for the Future (Photo: Shutterstock)
  • Education fund
    Savings for planned expenses that you expect to happen in a few years, can be made, for example, in a study fund that will in most cases become a liquid to withdraw within 6 years.[4] The study fund offers significant tax benefits even at the stage of depositing the funds in the fund and full exemption from capital gains tax when making a withdrawal when the fund is liquid (up to the beneficiary ceiling[5]). If you are self-employed, you can open a training fund for yourself[6], But if you are an employee, only your employer is allowed to open a training fund for you. If you have a study fund, you should carefully consider whether it is worth withdrawing the money at the moment or continue to enjoy the many tax benefits that usually become more significant the longer the savings term. If you need money right away, check to see if there are other savings you can use or get a loan at the expense of existing savings in the fund.
  • Investment provident fund
    You can also save in an investment provident fund in which the funds can be withdrawn at any time.[7] In an investment provident fund, you can choose the investment route that suits the purpose for which you are saving and change the investment route whenever you want.[8] The high flexibility in changing the nature of savings and attractiveness options makes the provident fund an investment for an ideal short-term to medium-term savings instrument, or for savings for a rainy day for unexpected expenses.
  • Savings for every child
    If you are a parent of children under the age of 21, it is likely that each of them has savings opened for them by the state (as part of a savings plan for each child). Many parents have chosen to deposit the same savings per child in an investment provident fund, similar to the one you can open yourself for any other purpose. Some parents even chose to increase the savings deposit for each child from the monthly child allowance according to the options available in the plan.

Especially in the current period, it is important to act carefully and not to make hasty decisions. You should defer as little expense as possible, and gradually build a safety cushion in savings for future expenses. Even if your financial situation is challenging at the moment, it is possible to build a safety cushion even by depositing small amounts every month that will accumulate within a few years to a significant amount.

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[1] All the data in the paragraph are taken from the CBS survey of July 26, 2020
[2] In the period from 10.8.2020 to 9.2.2021, it is possible to withdraw from all of Amit’s study funds, non-liquid funds in the amount of up to NIS 7,500, each month. Without tax deduction, Provided that at least one of the following conditions is met: (1) The member or his / her spouse has been fired or left for the period from 1.3.2020 until the date of submission of the withdrawal application. (2) The average monthly taxable income of the member and his / her spouse as of 1.3 2020 and until the end of the month preceding the date of submission of the application, it has decreased in relation to the average monthly taxable income of the member or his / her spouse in 2019.
[3] Draft Regulations of the Supervision of Financial Services (Provident Funds) (withdrawal of funds of a self-employed person in a state of unemployment that is subject to a deposit), 5720-2020.
[4] Study fund funds will become liquid in the following cases: if 6 years have passed from the date of the first payment to the same account or if 3 years have passed in respect of an employee or individual who has reached retirement age or in amounts used by the employee or individual for training (training as defined in the Income Tax Ordinance [נוסח חדש], 1961, hereinafter: “The command“).
[5] Withdrawal of funds Liquid Accrued in the fund above the beneficiary ceiling will be subject to capital gains tax.
[6] You must meet the conditions set forth in the provisions of the law and subject to the company’s procedures.
[7] From funds withdrawn on a one-time basis from an investment provident fund, tax will be deducted in accordance with the provisions of the law as they will be relevant at the time of withdrawal.
[8] Switching between investment routes will be made within 3 business days from the date of receipt of a complete and valid application. To the extent that the date falls on one of the first three business days of the month, the action will be taken on the fourth business day of that month.
9. The information detailed above, including the amounts and rates specified therein, is updated for 2020, and is subject to the provisions of the Legislative Arrangement, the relevant By-Laws and Company Procedures, as updated from time to time. In the event of a conflict between the provisions of the legislative arrangement and / or the relevant regulations and the information detailed above, the provisions of the law and / or the relevant regulations will prevail, as the case may be.
10. The Company may change the nature of the investment policy and / or the composition of the assets in the funds, as decided from time to time, subject to the fund / fund regulations and the provisions of the legislative arrangement.
11. The information listed above is only helpful material and should not be considered as complete and exhaustive information, it does not constitute legal advice, pension advice or marketing, recommendation and / or opinion and does not constitute a substitute for personal pension advice and / or marketing and / or tax advice. Tailored to customer needs.
11. The above data and examples are for illustration purposes only and do not constitute a commitment by the Company to achieve returns. There may be deviations between the estimates presented in the information and the actual results.
12. The use of the information listed above is at the sole responsibility of the user. It is desirable and recommended to consult about the amount of the deposit with a suitable professional (holder of a pension marketing license / pension advice or tax advisor / accountant).



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