One of the biggest financial challenges in the frum community is the urge to “keep up with the Goldsteins” – the Jones’s generic Jewish relatives. The social phenomenon of measuring one’s success based on that of others often leads to dissatisfaction and poor financial decisions. It’s essential to understand where these social pressures arise and how to overcome them. Below are some examples as well as a solution to consider.
Lifestyle: The lifestyle choices your friends make will likely influence your decisions in similar situations. If folks in your social circle spend Sukkos in Israel, yeshiva week in Miami, and Pesach in Arizona, this may affect your decisions about where you spend your vacations and Jewish holiday. The size of your friend’s home, the cars they drive, and the way they share their smachot can also influence your own decisions. Whether they have a luncheon at shul for a bar mitzvah or rent a hotel for the weekend, you may be inclined to follow suit. These choices impact your lifestyle and your wallet.
Investments: Every Shabbos in shul, the talk at the kiddush amongst my friends turns to investments. Friends like to share a recent real estate deal they invested in, a hedge fund they just got access to, or other financial wins. The issue with these discussions is twofold. First, people tend to only share their winners. You will hear all about the investments on which they made a windfall but will never hear about the duds that cost them a fortune. It’s an incomplete picture of how they are investing their money. Second, the way someone invests their capital should have no bearing on how you invest. Everybody has different goals, liquidity needs, and risk tolerance. It’s important to invest according to your own needs.
Legacy: Money can help shape how somebody is remembered after their death. When drafting your estate planning documents it’s easy to get caught up in how others left their legacy. But just because a friend left all his assets to his family does not mean that is the legacy you want to leave. Perhaps you’d like a portion of your nest egg to go to a yeshiva, shul or other worthy charity to teach your children the importance of tzedaka. Others may want to instill the importance of higher education by designating a portion of their funds to pay for college for their grandchildren. Some may want to encourage the family to remain close after they are gone by earmarking a portion of their estate to pay for family retreats at a hotel once a year. There is an infinite number of ways to leave your legacy, and none of the decisions should be affected by what others are doing.
The importance of an Investment Policy Statement (IPS): One solution to help families overcome outside influences is to develop an IPS. An IPS serves as a roadmap to help people achieve their financial goals and the lifestyle they want. A proper IPS should clearly define your financial goals, time horizon, risk tolerance, liquidity requirement, income needs, and any special guidelines that are important to you and your family. Depending on circumstances, the document might specify how responsibility for elderly parents or a disabled child should be carried out and their money managed appropriately. For other families, there may be multi-generational wealth intended to benefit their family for decades to come. These nuances should be specified while developing the IPS with your financial advisor to ensure that your assets are being managed appropriately.
An IPS is a living document, not one written in stone. Your IPS should evolve as circumstances change. After a divorce or remarriage, it would be prudent to reevaluate an IPS in the context of new family dynamics and financial needs. Experiencing a large windfall from the sale of a business or an inheritance may also require IPS revisions. In such a situation, your IPS can be updated to reflect, for example, that you no longer need to worry about retirement and are now more concerned with achieving your philanthropic goals. It’s imperative to regularly revisit your IPS to make sure you have the correct strategies in place.
At the end of the day, financial planning is personal. Making financial decisions based on what others are doing can harm your ability to achieve your goals and live the life that you want. Setting up a properly crafted IPS can help you ignore all the noise and remain focused on what is important to your family.