A closer look at spending

By Deborah Adamson
Advertiser Staff Writer

Following your heart and making ends meet don't always go together.

Lleliena Loynaz makes about $33,000 a year. But, she says, "I am actually struggling to keep up. ... I'm broke. I have no money." Richard Ambo • The Honolulu Advertiser

As she helps society, the 31-year-old Kaimuki resident wishes she could help herself a bit more.

"You must think, with all these jobs, I must be rolling in dough," she said. "Well, not quite. I am actually struggling to keep up. ... Sometimes, I want to go out with friends. I want to have dinner, but I'm broke. I have no money."

She pulls in about $33,000 a year from all her jobs, which translates into take-home pay of $1,800 a month. Her monthly rent is $750 — she has a roommate — and her only dependents are her two cats. She spends another $130 a month for gas, from about $215 to more than $300 to repay her student loans and another $100 toward paying down her credit-card bill. She gives $50 a year to Aloha United Way.

The rest is spent on food and other necessities, entertainment and stuff for her pets.

Loynaz said she owes more than $40,000 in student loans and $500 on a credit card, which for "some odd reason, I can't get down."

As for retirement savings, she has a little money in a 403(b) account from her full-time job and in a 401(k) from a previous job.

"My hope is to learn a simple way — or perhaps a way that may work with me — on how to manage my money," said the Florida native. "I don't want to feel like I always have to scramble for cash at the end of the month. I hate that feeling."

Eventually, she would like to start her own art gallery, probably in a home that her family owns in Florida.

But Loynaz had mixed feelings about meeting with a financial planner to help her manage money. She was afraid it would be like a crash diet: You'd have to give up everything pleasurable to meet your goals.

Roberta Lee-Driscoll, a Honolulu certified financial planner working with Loynaz, put her fears to rest.

"If I make it painful, you're not going to do it," Lee-Driscoll said. "I'm not your mom. I'm not the police. I'm not the money cop. I have a tendency not to tell people specifically what to cut. Only you know where to cut."

"If you don't have fun, you might as well be dead," Lee-Driscoll said.

Loynaz's first assignment: For two weeks, write down everything you spend money on, whether by check, cash or credit card. Track your spending through a money-management software program like Quicken. The program will analyze spending habits and pinpoint where the money goes — entertainment, food, electronics, rent or other expenses. It will help you identify areas to trim back.

Asked whether she knows what she spends on, Loynaz said that most of it goes to basic necessities.

Lee-Driscoll challenged that perception: "Tell me about your last five purchases."

"Cat food at Kmart. Toothpaste. Over the weekend, we went to the Polynesian Cultural Center ... ," Loynaz said.

"Polynesian Cultural Center? That's expensive," Lee-Driscoll said.

"Well, the tickets were free. But we had breakfast for $10," Loynaz said.

People tend to have selective memory when it comes to spending: "Everybody who comes in only pays rent, buys groceries. But they live paycheck to paycheck. (After tracking their purchases), they are surprised what they spend their money on."

One culprit is Costco. People tend to consider everything they spend at the membership warehouse club as groceries — a necessity. But if they break it down, they'll see they also bought books, DVDs and clothes. Then they wonder why the bill adds up.

You have to ask yourself, "Do I really need a 10-pound bag of french fries?" Lee-Driscoll said.

Wherever she shops, Loynaz should record every transaction made on her checking account, whether it's a debit or check purchase.

"One of my worst habits is not writing things down, so I don't know where the money goes," said Loynaz.

"You're sort of hoping the bank has enough money. Doesn't that capture it?" the financial planner asked.

"In some months, yeah," Loynaz said.

Lee-Driscoll wants her to be more organized. If Loynaz knows exactly how much money she has left in her checking account, she might not be tempted to buy three pairs of shorts on sale, but maybe just one or none.

"I want you to be more proactive in your financial planning," Lee-Driscoll said. "I don't want financial planning to be a default. When you write a check, write it down. When you use your debit card, write it down."

If she withdraws from an ATM, write down specifically where the cash is spent. Loynaz can jot daily cash expenditures on a small calendar or organizer that she can keep in her purse.

After Loynaz has a better idea of where her discretionary spending goes, she can pinpoint her weak area.

"If your weak point is eating out with friends, put some cash in an envelope (as your allowance for the month)," Lee-Driscoll said. "This hurts really bad in the first month, when you run out of money by the 10th. When the money runs out, you're home for the rest of the month."

But she'll learn to make better choices.

"In the second month, you'll be more proactive with choices — I can do 20 Zippy's instead of four sit-downs (at a fancy restaurant)," she said.

Slowly, Loynaz will learn the habit of selective spending without severely cramping her lifestyle.

Another good habit to cultivate is saving regularly.

"I don't have any money to put into savings," Loynaz said.

"But don't you have $5 to put in the account?" Lee-Driscoll countered. "It doesn't have to be in increments of $25. The bank is not going to care how much you put in. You could put $28.28. Don't be stuck on a rule (of depositing set amounts). Pick a number. Just start."

As for repaying her debt, Loynaz should first tackle her credit-card debt, which has an interest rate of 17 percent.

"What's the correct amount to pay every month?" Lee-Driscoll asked Loynaz.

"I definitely know it's over the minimum," she answered.

"The first choice is to pay everything off. For people who can't, it would be everything you charged that month plus 5 or 10 percent. If it's 10 percent, you'll pay off your credit card in a year. If 5 percent, it will be about two years," the financial planner said.

Loynaz also should check her credit report once a year for mistakes that would affect her credit rating and her credit-card interest rate.

Lee-Driscoll said she should get one credit report from each of the three major rating agencies at www.annualcreditreport.com, a Web site mandated by Congress.

As for starting a business, Loynaz should first make sure that her personal finances are in order so she can concentrate on the gallery.

"Fix your finances first," Lee-Driscoll said. "The skills I'm trying to make you learn are skills for life."