Placers Marketing associate, Sam Ide recently sat down with Mark Olazagasti, a managing partner with Info Solutions, to discuss commonly asked personal finance questions. Info Solutions is an IT services company that specializes in consulting and cloud-based solutions. Mark also started the nonprofit organization YourMoney101, the goal of which is to educate and advise people on the basics of budgeting and investing for the purpose of helping them build a solid financial foundation. Mark has over 25 years experience with operations, personal, and project management. In June, Mark was awarded Entrepreneurial Advocate of the Year by the New Castle County Chamber of Commerce. Placers invites Mark into our offices each month to help our employees with their own personal finance and budgeting questions. Below, are some of the most common questions Mark receives.
Sam: What are the most common financial mistakes you see people make?
Mark: I’m going to sound like a broken record, but not budgeting is the most common mistake I see people make. Budgeting is the key to meeting your obligations, creating an emergency fund for life’s unexpected, saving for a purpose (car, house, education, etc.), and saving for retirement. A close second is not understanding the power of compounding and the time value of money. Often this means being too conservative with your investments when you have time – 20, 30, 40-years until retirement – on your side. The earlier you start, the more your money works for you over time.
Sam: What is the best piece of financial advice you could give to someone who was just starting out in the workforce?
Mark: Create a budget – this will help you in determining how much you can contribute to your retirement plan. I know you are thinking “I just started working and have another 40 or so years until I retire – why should I worry about this now?!” As mentioned previously, the reason to start now is the power of compounding and the time value of money. Start early, and you can finish (retire) early. Saving for retirement is especially important if your employer matches your contribution, so do what you can to contribute an amount that provides the maximum match because it is “free” money. If your employer does not have to match, it’s still in your best interest to contribute whatever your budget allows. If your employer does not have a retirement plan, I encourage starting a Roth IRA and invest each month automatically.
Sam: What are some easy tips that anyone can use to help them save money?
Mark: No surprise here – create a budget as it’s your best way to “keep score” of your money. Then set a goal with a timeframe and do the math. For example, if you want to go on vacation next summer with friends and the cost is $1,000, you will need to save $83 per month over the next 12-months to reach your goal. Using your budget helps you find and set aside the money and doing the math provides clarity around what you need to do.
Get a handle on your discretionary, out-of-pocket, expenses. You have income and expenses that you have some degree of control over; however, it’s the discretionary, out-of-pocket spending that generally has the most significant impact, positive or negative, on our ability to make ends meet and save for a purpose.
The best advice I can give is always to ask yourself before making a purchase – “do I really need this?” If you make the purchase and days later re-ask yourself the same question, and the answer is “no,” but you purchased it anyway, then you should make a pact with yourself to only purchase items after waiting at least one-day. “I’ll never buy anything on the spot” or “I’ll never buy anything over $X on the spot.” However, don’t make the threshold too high as 4 unnecessary purchases at $20 each makes saving that $83 per month that much more difficult.
Sam: Do you recommend keeping track of all income and expenses through spreadsheets? What would be the best way to implement that?
Mark: Absolutely. There are apps like Mint (www.mint.com) and YNAB (www.youneedabudget.com), which are quite helpful but require you to provide user IDs and passwords for your various accounts. So, I use a spreadsheet for my own budgeting and share it with my clients. The spreadsheet has two categories – income and expenses – because I believe simple is better. The more complex or burdensome you make something, the less likely you are to continue doing it. Most importantly, there is a section to track your discretionary, out-of-pocket, expenses. You will be able to identify the “leaks” in your budget just by reviewing this section each month without having to categorize every single item.
Sam: What are some bad habits (financially) that you see from the current workforce, and how could they be improved?
Mark: Not doing a budget, living beyond one’s means, funding a lifestyle by taking on too much debt, impulse buying, not doing the math when trying to save or pay down debt, insufficient savings for emergencies, procrastinating or being an ostrich (head-in-the-sand), being afraid of the stock market and being too conservative by failing to think long-term with your investments. Aside from doing the opposite, I recommend reading “The Index Card – Why Personal Finance Doesn’t Have to be Complicated” by Helaine Olen and Harold Pollack. Unbiased, easy read, yet very informative.
Sam: “I want to start budgeting for myself, where do I get started?”
Mark: Email me at molaz@ym101.org, and I will send you the budget template. Make it your own, and if you need any help, I’m only an email or call (302.743.0504) away.