In today’s economy of instant gratification mixed with easy credit access and mounting bills, financial freedom can seem like nothing more than a pipe dream. However, saving money is simpler than you think once equipped with the right information.
“Most of us know what we need to do to not be in debt — spend less money than you actually bring in,” said Jonathan Marcello, financial coach and founder of Marcello Solutions. But, he said, many of us need to work on our discipline to achieve our financial goals.
“I have clients who are millionaires and those who are literally rubbing two nickels together. The number-one issue I see from either side is discipline and sticking to a budget,” he said. “It’s also difficult if you don’t really know what you are spending each month. You pay this month’s bills and then think you have all this ‘play’ money and you really don’t.”
Here, he shares tips for dedicating time to learning how your finances work and how to make them work for you.
Create a budget
Most of us have less actual free money than we think. “You pay your rent or mortgage, phone bill, light bill and forget that every three months your insurance is due or that you have to buy toilet paper and bathroom supplies every two weeks,” said Marcello. “It all adds up.”
But be realistic about it, he said. “Don’t restrict yourself from everything. It’s like a diet. If you deprive yourself of every little thing, you’re not going to stick to anything.”
He recommends doing a budget that looks at the entire year, including expenses that only happen a few times a year. “Split the cost up over the year and put the money away in an interest-bearing account,” he explained. “That way, you might make a few extra dollars while also avoiding getting hit with a large bill that seemingly came out of nowhere.”
Pay attention to small expenses
Take note of the ‘latte effect.’ “If you buy a $7 latte every day when you go to work, you’re spending $35 a week, over $1800 a year on coffee,” said Marcello. “I’m not saying stop getting coffee, but you need to, one, make sure you include it in your budget, and, two, decide if that’s really where you want your money going.”
Establish achievable goals
“If you make $50K a year, you’re not going to save $50K a year,” he said. “Start small and work your way up. It’s okay to not start off where you want to be — the goal is just to get started.”
Change your thinking
“So many of my clients, when they start off, are in an “I want it now” mode — whether it’s a car, house or a new pair of kicks,” said Marcello. “My goal is to help with their discipline and changing their mindset. Do they really need everything they’ve listed in their budget? Do you have to spend $200 on shoes? Are you even ready to buy a house yet? At the end of the day, being successful is more important than appearing to be successful.”
Work on your credit score
“Your credit score is based solely on discipline. All you have to do is remember to pay the bill before it’s due,” said Marcello. “Let’s say, worst case scenario, you pay a few days late — it doesn’t even show up on your credit as long you pay within the 30-day time frame. You’ll just get hit with a late fee,” he explained. “Now, if you don’t have the money at all, call the credit card company and work out a repayment plan. But, the worst thing you can do is not pay AND not call.”
Marcello also said pay more than the minimum due, when possible. This will help you pay off your cards quicker and with fewer interest fees. This will also get you on your way to reducing your credit utilization ratio — the ratio between your limit and your balance.
“Ideally, you want to get and stay below 50 percent,” he said. “That means you want to be at $2,500 or less on a $5,000 card. Just because your card has a $5,000 limit, it doesn’t mean you have to charge $5,000,” he continued. “That’s where discipline comes in. The key is to only charge what you can pay back immediately. “You never want to carry balances over. If you pay your balance in full before the next bill, you won’t have to pay interest.”
Reduce your debt
Marcello also recommends putting a certain percentage of your “play money” into reducing your debt, especially high-interest credit cards. “Whether it’s $5 or $500, every dollar counts,” he said.
Don’t cancel your paid off credit cards
“Part of your credit is dependent upon how your long cards have been open, how long have you had a relationship with this card,” said Marcello. “If you close it, it’s over.” He said it’s not just being able to pay the card, it’s also how you manage your credit over time.
“The people who have the highest credit scores have cards 10-15 years and they have established a history of not just paying off their cards, but also paying them on time.”
These tips are just a few of the myriads you can begin your journey towards meeting your financial goals. Just an hour a month of budgeting can help you turn what may have seemed like a pipe into reality.