Post written by Leo Babauta. Follow me on twitter or identica.
J.D. Roth’s common-sense, frugal philosophy on Get Rich Slowly wasn’t just advice about getting out of debt and being financially sound, it was advice about living life itself.
J.D. had more influence on Zen Habits than anyone realizes, and continues to inspire me to this day. He’s become one of my favorite blogger friends (among many), and that he’s come out with a new book, Your Money: The Missing Manual, is a source of both pride and excitement for me personally.
I’m also excited that J.D. gave me this exclusive interview, and I have to say, it rocks. Some of the things we covered (it’s fairly long, but that’s a good thing):
- The core of J.D.’s philosophy, that helped him get out of $35K of debt
- How to get out of a job/life you hate
- Automating finances
- The five stages of personal finances
- How to get started getting out of debt, when it seems hopeless
- Becoming frugal with naysayers (or “trolls”) in your life
- Why a frugal life isn’t a horrible life
He shares a ton of great financial info, and as I said, it’s advice that will help in any area of life. Enjoy, and then go and buy his book: Your Money: The Missing Manual.
Leo: You’re one of my all-time favorite writers on personal finance and frugality — on or off the web — and I’ve been reading you for probably close to four years. But for those who are new, can you tell us a little about the core philosophy behind Get Rich Slowly, and how you came to have that philosophy?
JD: Thanks for the kind words.
My philosophy developed slowly over time. I don’t have any sort of formal financial training; I’m just a regular guy who has been trying to learn about money for the past several years (and who has been teaching others as I learn). I’ve made plenty of mistakes — and continue to make them — but try to learn along the way so I don’t repeat them (and so that I can teach others not to make the same errors).
So, over the course of five years, I’ve managed to pay off over $35,000 in debt, quit my day job, and go from having nothing saved to fully funding my retirement accounts every year. In the process, I’ve developed a 14-point philosophy. Rather than belabor all 14 points here, I’ll summarize:
First of all, nobody cares more about your money than you do. It took me a long time to realize this, but nobody — not your accountant, your lawyer, your broker, your insurance salesman, your banker — nobody cares about your money the way you do. Everyone else will give you advice, but it’s advice that generally benefits *them* in some way, especially if they work on commission. YOU have to take charge and do your own research.
I also believe there’s rarely one right answer for any financial problem. Instead of listening to somebody who tells you that you MUST do things one way, do what works for you. Listen to other people’s advice, but adapt it to your own situation. If something feels wrong, then try something else. Make choices that reflect your strength and values.
Finally, always remember that it’s more important to be happy than to be rich. Sure, studies show that money generally increases well-being, and there’s nothing wrong with trying to have more, but don’t make choices that sacrifice your long-term happiness for the sake of a few bucks. Don’t work at a job you hate. Don’t buy stuff just because your friends buy stuff. Don’t invest in the stock market if it’s going to make you nervous. Make choices that will bring you long-term happiness.
Leo: I think the problem for some people is they feel stuck – at a job they hate, or in a lifestyle of a certain type (with spouse and kids expecting certain things, perhaps). How do you change from this, so that you’re not sacrificing your happiness for money?
JD: That’s a great question, and I think it gets at the heart of personal finance. Money management isn’t about the numbers; it’s about goals and dreams. That sounds a little new-agey, but it’s true.
If you feel stuck, the first step is to figure out why you feel stuck. You can’t solve the problem if you don’t identify it. One way to help achieve some clarity is to take some time to actually set some financial goals. From my own experience, I know that if you don’t create a map for yourself, it’s easy to get lost; and when you get lost, it’s easy to become overwhelmed.
Also, I think that when many people feel trapped, they just sort of freeze. They don’t do anything. That’s how I was for a long time. When this happens, the best thing you can do is take small steps toward what you really want. If you’re stuck at a job you hate, then maybe take night classes in something that interests you. Start moving slowly in the direction of your dreams. Even a little bit of change can help you relieve some of the pressure.
Leo: Get Rich Slowly is an amazing title. How is that goal coming, btw?
JD: It’s amazing, it really is. When I finally stopped focusing on “magic bullets” and just put my head down and did the work to get out of debt, things started falling into place. Sure, it was a slow slog at sometimes, and I had to do a lot of work, but ultimately I was able to get out of debt in just three years instead of five. And since then, I’ve managed to grow my savings at rates that I didn’t think were possible. And I’m not doing this through buying gold or selling scams or using chain letters. I’m doing it by doing the boring stuff everyone says to do: work hard, spend less, and save for the future. Sometimes boring is best!
Leo: Now that you’ve been doing the “boring stuff” for awhile, have you been able to automate any of that — bill payments, savings, investments, ways to spend less, ways to earn income?
JD: Absolutely. In fact, I’ve tried to automate as much as possible.
All of my utility bills are automatically deducted from my checking account. I use a rewards credit card (that I pay in full every month) for all of my purchases, which helps simplify my budgeting and expense tracking. My saving isn’t automated, but it’s close. I have several ING Direct accounts that I use to save for different goals, and I make one manual transfer a month to each account. And my investing used to be automated before my income became irregular. I used to make regular contributions to my Roth IRA every month. (Now I do a lump-sum year end investment.)
By automating the boring financial stuff, I’m able to focus on Real Life, which is a lot more fun.
Leo: Your personal finance journey might be divided into a few phases so far: getting into debt, getting smarter and working to get out of debt, and then learning to live debt-free. Does that seem like a fair characterization (obviously over-broad), and what do you see as your next phase(s) over the next few years and beyond?
JD: I actually tried to hash this out on the blog last spring. Just thinking out loud, I said there were at least five stages to personal finance.
- To begin, we’re in the zeroth stage of personal finance. We spend without considering the consequences, we don’t set financial goals, and we don’t really understand how money works. (Some people never have to deal with this, and that’s great.)
- During what I call the first stage of personal finance, we realize that, “Whoa. Something’s wrong here. I have to figure this money stuff out.” We begin to understand that interest can be a bitter enemy or a close friend. We see that saving helps us achieve bigger goals than just having the latest XBox game. Debt feels like a burden, and not some sort of way to cheat the system.
- During the second stage of personal finance, we actively work to improve our relationship with money. We destroy debt with vigor, save for the future, and look for ways to boost our income. We’ve mastered the basics, and are now trying to use them to build a firm foundation.
- In the third stage of personal finance, things are running like a well-oiled machine. We’ve paid off our non-mortgage debt, we contribute the maximum the law allows toward retirement, and we save for other goals, like travel or a new house. We don’t spend on things that aren’t important to us.
- In the final stage, the fourth stage, we reach Financial Independence. We’ve saved enough to live on, which allows us to choose work that we’re passionate about instead of work we have to do. We’re able to live where we want, go where we want, and do what we want.
Five years ago, I was just waking up from 15+ years of aimless spending. I had been in the zeroth stage of personal finance all my life, and was only just beginning to get things figured out. When I started Get Rich Slowly, I was in that first stage, learning the basics. Over the past few years, I’ve been fortunate and have worked hard, and as a result I’m now well into that third stage of personal finance. I’ve followed my own advice (which is really the advice of others), and it seems to have worked. Now I’m looking forward to finding Financial Independence. What will I do then? Who knows! But I’m dying to find out…
Leo: Awesome analysis. So let’s say I’m in the zeroth stage, or am in the beginning of the 1st stage, and things seem hopeless for me. I’m in such debt and have so many bills and so little cash that just taking inventory or getting started seems too difficult. I just pile my bills in a corner and want to forget about them. I am living paycheck to paycheck. How do I even get started, how do I even find the courage to face this mess, how to I find the motivation to take action?
JD: This can be tough. First, you need to understand that you can do this. You can take control of your finances. It may take time (and lots of hard work), but you can dig yourself out. I’ve done it, Leo has done it, and so have thousands of others, and we felt just as hopeless as you do.
But knowing others have done it is much different than doing it yourself, right? I’m actually going through a similar struggle with my weight right now, and I think some of the things I’ve learned while trying to get fit or very applicable to similar financial situations. In both cases, you need to:
- Get back to basics. There’s a temptation when you’re out of shape — physically or financially — to look for quick cure-alls: magic bullets that will solve the problem immediately. That’s not the way it works. There are certain well-known basics that can help you get in shape or get out of debt. (In fact, that’s basically what Your Money: The Missing Manual is all about — getting back to financial basics.)
- Take one step at a time. I mentioned this earlier, but it’s important. Too many people want to rush the process. But you didn’t get fat overnight. And you didn’t end up broke overnight, either. Take your time. Just as the right way to get healthy is to get fit slowly, the right way to build wealth is to get rich slowly. Don’t be discouraged by occasional failures, but keep doing the right thing over and over.
- Finally, get help. If you truly feel overwhelmed, then don’t go it alone. In my case with fitness, I’ve joined a Crossfit gym where other like-minded people are there to provide encouragement. Most of these folks are already very very fit, but that’s okay. I don’t feel like they’re judging me; instead, they’re sharing what they’ve learned. The same is true with finances: Find a community that can support you. I like to think the readers at Get Rich Slowly make up one of the best financial communities on the web (and the Wall Street Journal agrees), but there are other places you can go for help: Debtors Anonymous, the National Foundation for Credit Counseling, and so on. There’s no shame in asking for help.
Leo: One of the biggest challenges for someone trying to lead a simpler, more frugal life isn’t just controlling your own actions, but dealing with others in your life — your spouse, for example, other family members, negative naysayers, people who want you to spend more in different ways. How did you deal with that? Was it hard to get your wife on board with drastic changes? Share some tips for our readers who are having trouble with this issue.
JD: Ooh. Great question. Steve Pavlina calls these folks “trolls”, and I do too. There are all kinds of trolls. Some have chips on their shoulders, some cling to preconceived notions, and some just want to argue. The trick is realizing these people aren’t worth you’re time. You have to learn to ignore them. Redirect the conversation, leave the room, or hang up the phone. Whatever you do, DON’T ARGUE. Any time you argue with a troll, the troll wins.
In some cases, ignoring the problem doesn’t work. What can you do about a partner who insists on sabotaging your family’s financial security? How do you cope with your own compulsive spending? Problems like these may require the help of a trained professional, like a an accountant, lawyer, psychologist, or financial planner.
In my own life, I was fortunate not to face many financial trolls. My wife was totally on board with my change; in fact, she’d been trying to goad me to improve my financial situation for years! Most of my friends were equally supportive. Instead, I was the troll in my own life. I did a lot of self-sabotage, and it held me back. (I’ve conquered the self-sabotage when it comes to money, but am still struggling with this problem when it comes to food and fitness.)
Leo: Leading a frugal life is often seen as a difficult, perhaps boring life full of sacrifices of fun and comfort. Do you find that to be true in your experiences
JD: Frugality does require sacrifices, but there’s the thing. When you’re frugal, you make short-term sacrifices of things that don’t really matter for long-term rewards that do matter. For example, in my own life, some of my frugal choices included giving up television, borrowing books from the library instead of buying them, shopping for clothes at a thrift store, and reducing my comic book budget. (I love comic books.) Yeah, it hurt to give these things up at first. But you know what? After a few months, I adjusted to my new situation, and I wasn’t any less happy than I’d been before. The sacrifices didn’t seem like sacrifices, especially when I saw how quickly I was paying off debt. I found other ways to have fun that didn’t cost money. For example, I have a huge library of books I’ve never read. Why buy new ones when I can just read the old ones?
So, I guess what I’m saying is that in the short term, frugality can seem painful. But when you realize that pinching pennies lets you save for the things that really matter — whether that’s travel, a new home, or whatever — then frugality no longer seems like a sacrifice, but a conscious decision to choose a way of life that means more to you.