Getting Financially Fit

  • Published
  • By 2nd Lt Emily Rautenberg
  • 514th Air Mobility Wing

“Making more money isn’t what makes you rich—having discipline and efficiently managing your money is,” said Chris Tomolonis, a wealth management advisor from Jersey City, at an Advanced Financials briefing in the Military and Family Readiness Center Feb. 12.

The session, which focused on money management, was the first in a four-part series of financial briefings focusing on helping airmen of all ages and financial backgrounds to gain more financial security. Future sessions will include investing, retirement, and estate planning.

Tomolonis started by drawing a simple chart on the whiteboard. The x-axis was time, the y-axis was money. He drew a diagonal line out from the origin to show the general goal of steadily gaining more money over time. Then, he drew a curving line, going both far above and far below that first line, showing how unsteady money can be in life due to large purchases like homes, or setbacks like medical expenses.

“Everyone’s situation is different,” Tomolonis said. “But everyone has one thing in common: they want financial security.”

How much money every person needs after retirement is unknown. A financial planner tries to make the ups and downs of money throughout life more tolerable by teaching people how to create, build, and maintain their own net worth. The goal is to make the large dips on the chart less drastic.

According to Tomolonis, the first step in wealth is creating it. Cash management is all about saving money and learning to stretch the money you have now. You can create wealth without getting another job and without making any major lifestyle changes.

Creating wealth can sound like a daunting task, which is why the session outlined specific methods to put money back into your pocket. The first step is itemizing expenses.

Attendees were provided a spreadsheet to help outline living expenses, which contained categories like housing, food, utilities, child care, automobile, clothing, insurance, leisure, etc. Various similar templates exist online and with financial planners, and there is no one correct spreadsheet. The goal is simply to look at all of your bills, bank statements, paychecks, etc., and document exactly how much you spend on what.

Tomolonis said when he does this with his clients, he goes through every statement with a fine tooth comb. When the clients see money consolidated like this, he immediately gets reactions like, “I spent what? On that? I didn’t need that!”

“After listing all of your expenses, you can begin prioritizing these costs,” he said. “Determining what is important and what is less important will allow you to find places to cut back your spending.”
Tomolonis outlined three every-day expenses and scenarios to watch out for: food, cars, and shelter.

“One of the largest expenditures most people have is grocery shopping,” said Tomolonis. “The average person spends 42 minutes at the grocery store, goes approximately once a week, and spends about $118 each time.”

Tomolonis recommends shopping online when possible because, in most cases, you will then only buy what you need. When visiting a store, it is easy to buy additional products impulsively. He noticed a 20 to 30 percent decrease in his spending when he switched to shopping online, just because he was no longer buying unnecessary items. He also recommends leaving your children at home as they can be the biggest proponents of putting extra items in the cart.

Other recommendations included buying in bulk, purchasing store brands, and utilizing membership cards and coupons when possible. Additionally, try to buy seasonal produce as the imported, off-season goods can be marked up as high as 30 percent.

Grocery shopping may not seem like that big a deal, but Tomolonis did the math for us. By simply shaving off $10 from a grocery trip, you can save $40 a month, or $520 a year. If you invest that $520 each year for 30 years, at an interest rate of five percent, you reach $32,000.

“Grocery bills have to be a focus of saving money because it is a cost that is never going to go away,” he said. “You have to eat!”

The second area where Tomolonis finds people overspend is on car purchases. The average new car in the United States costs $33,000. The average person buys 9.4 cars in their lifetime. Additionally, the average person overpays by $2,000 per car. Over a lifetime, that is at least $18,000 of overspending.

“At car dealerships, knowledge is power,” Tomolonis warned. “Always do your homework.”

He recommends checking your credit score, before going to a dealership, negotiating the price with the salesman before discussing how to pay for the car, and always being prepared for the conversation about add-ons and upgrades. Include things like warranty costs, stereo upgrades, and winter tires in your initial budget calculation.

When financing a car, Tomolonis cautioned against getting sucked into the trap of stretching a loan across more months just to have a lower monthly payment. In most cases, you will end up paying much more due to the interest rates.

Additionally, shopping around for car insurance, even when you already have coverage, is important, he said. As you age and as your credit score changes, you may be able to find lower insurance rates with other companies. Don’t be afraid to tell your current insurance company you will leave for a lower-priced company. Since they do not want to lose customers, companies will often match the quotes you receive from competitors.

The third area Tomolonis says people overspend is on their homes.

As an example, he gave us the following scenario: You are purchasing a $300,000 home and have received a 30 year mortgage at a rate of four percent interest. If you pay $1,432 per month, for 360 months (12 months for 30 years), you will end up paying $515,000.

Additionally, in New Jersey, the average homeowner’s tax is about 2.17 percent. If you assume about $5,000 in property taxes, after 30 years, you will have paid $150,000. If you add an average of $932 per year in insurance, that’s another $28,000 after 30 years. Lastly, if you spend approximately $3,000 per year in maintenance and repair costs, as experts recommend spending ten percent of your home’s value, you will have spent another $90,000. This leads to a total of $783,000 on a $300,000 home over the course of 30 years.

While many of these costs cannot be avoided, such as taxes and insurance, though Tomolonis suggests shopping around every few years for this just like car insurance, there are measures you can take to minimize your interest payments, such as asking your bank about the ability to pay bimonthly. In this way, you may end up paying 26 times instead of 12 times a year, but this will help you to pay off the mortgage five years earlier and save $35,000.

Lastly, Tomolonis recommends being cognizant of your utility costs and maintenance requirements. Invest in LED lightbulbs and energy efficient appliances as they will pay off over time. Make repairs quickly so issues do not compound and cost you more later on.

“Food, cars, and shelter are always going to be there,” Tomolonis stated. “How you handle these every day scenarios is how you’ll handle everything else.”

He also gave suggestions on purchases outside of these top three expenses.

Tomolonis recommends using the “30-day rule” when shopping for things you think you want. The 30-Day Rule means if you want something today, write it down. Wait 30 days after you write it down, and if you still want it at that point, buy it. Chances are, you do not want it anymore.

Tomolonis also suggests paying with cash and not charging a credit card if it can be avoided. In most cases, if you are charging your credit card in the hopes of paying off the bill at a later date, you cannot afford to make the purchase. Alternatively, if you plan on paying off the bill right away, this may be a good way to boost your credit.

“Analyze your spending, see where you spend the most, and find credit cards that give you rewards in that field,” he said.

Companies like AARP offer points or cash back for things like purchases at restaurants, he said. If you like to eat out a lot, considering applying for that, but be careful. Review your bank and credit card statements regularly. Sometimes you get charged for subscriptions and other fees without even realizing it.

Tomolonis repeatedly stressed how important it is to remain consistent and to pay close attention to your purchases. These are essentials in getting financially fit, which is the first step in ultimately gaining financial security.

“It’s not about how much you make,” Tomolonis said. “It’s about discipline.”

Tomolonis will be returning for at least three more sessions, so be on the lookout for these events!