When I first started studying Personal Finance around 20 years ago, some gurus said “put aside 10% of your disposable income every month for savings”, some said 30% and some said 50%.
How can Israelis, who barely make ends meet, put aside 50% of their neto income for savings?
Last week, I heard Dan Ariely give an excellent presentation relevant to the Corona period and he provided an interesting insight. Some of our financial worth is public, for all to view: the house we live in, the car we drive, the clothes and jewellery we wear, the smachot we invite our friends to. But some is secret and out of the public eye, namely how much money and other assets we have saved up.
Ariely pointed out that people tend to invest more in possessions which can be seen and admired and which achieve social status. Often, their true worth in terms of financial stability, is far less than it appears to be to the outside world.
As a result, when crisis strikes, people are unprepared and don’t have a cushion to fall back on.
Lurking in the shadows of course, are the banks and loan sharks, offering everybody loans which they in all likelihood will not be able to pay back.
As bad as the social unrest is right now, it will be far worse a couple of years down the road when huge numbers of people default on their loans and go into hoza’a la’poal.
So as it turns out, maybe the financial experts were right, maybe more money should be put away for emergencies.
Perhaps Corona is an opportunity to re-examine our spending habits, and especially think of the values we are imparting to the young generation.
Who determines what we need to buy? The stylists and trendsetters making fortunes off our insatiable desire to have new designs and better stuff?
Who says we have to invite hundreds of people to a simcha? Do people really enjoy these events?
How often do we need to buy food on-the-run and eat out? Can we prepare more of our food and enjoy it at home?
What brings us happiness? More stuff in the closet or more tidy, uncluttered spaces?
And on the bottom line, who is responsible for our financial situation? Who can we rely on to bail us out? The government, the banks, our parents and in-laws or ourselves?
Corona is a wakeup call and a forced re-evaluation of our personal financial management.
Maybe we can think about doing things differently and making some changes in our spending and saving habits.
And most important of all, let’s pass these important lessons on to the next generation.