Money and Happiness: Personal Finance Tips From a Hot New Book

Written by
Beverly Blair Harzog
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I recently visited with J.D. Roth, founder of, to talk about his new book, Your Money: The Missing Manual (O’Reilly Media, 2010). If you’re struggling with financial issues, this book might be just what you need. 

Q: You write a lot about money and happiness in your book. Can you explain why you think it’s important to make that connection?

A: Obviously, the deeper in debt you are, the more unhappy you’re likely to be. In the 10 years after graduating from college, I accumulated over $35,000 in debt. I felt like I was drowning. I turned my life around and paid off the debt. When I finally got out of debt, I thought I’d hear a chorus of angels singing, but I didn’t. I want people to know that getting out of debt gives you a chance to focus on things that matter, but it doesn’t instantly create happiness.

Q: How important is it for people to set personal financial goals?

A: Setting goals helped me take control of my finances. Goals are about the big picture. What do you want to accomplish? Maybe you want to save for a house or pay for a wedding. Set your big goals first and then create a budget and a financial plan that helps you meet those goals. This is also what I call ‘conscious spending’ in my book. You want to make conscious choices about how you’re spending your money. When you do this, you make choices that are in line with both your goals and your values.

Q: Why do budgets sometimes fail?

A:  This can happen when your budget is too complicated, doesn’t reflect your values, or just isn’t realistic. Don’t set up a budget based on your plan to change your spending habits. If you like to buy CDs, then include music in your budget. When you’re setting your goals, this should help you determine what you value. And review your budget frequently so you know when you’re over or under budget. You might need to adjust your budget from time to time so it accurately reflects your life.

Q: Your book has an entire chapter about using credit wisely. Do you think credit cards have a place in our lives?

A: Credit cards do have a place in our lives, but they can be dangerous. I like to compare credit cards to a chainsaw. Like a chainsaw, treat credit cards with respect so that you don’t get hurt financially. If you use cards wisely and pay your bills in full every month, you can use credit cards to get a financial edge, especially with rewards credit cards.

Here’s an example. I had a $2,500 sewer bill I had to pay. I used my 1% cash back rewards card and got back $25. Not a huge amount, but I got paid to use my card.

Q: In your book, you have a chapter called ‘The Magic of Small Thinking,’ which discusses the importance of being frugal about the small things. Why do you think this is so important?

A: When you’re frugal about the small stuff, it instills good habits. Then when you’re ready to make a large purchase, you use that same skill and you make smarter choices. And the small savings you find here and there also improves your cash flow. It can help you build long-term savings, too.

Q: Are there any money management tools, such as online budgeting software, that you recommend?

A: There are a lot of good choices out there. But there isn’t one thing that will work for everyone. I recommend that people do a lot of research and find tools that work for their personal financial situations.

Q: In your book, you describe the three steps involved in debt reduction and give some terrific advice about how to make it through each step. Would you give our readers a brief description of each step?

A: The first step is to stop accumulating debt. When you’re in debt, you’ve had negative cash flow, which means you’re spending more than you’re earning. The second step is to set up an emergency fund. Don’t tie it to your debit card. One option to consider is a high-interest saving account.

The third step is to get rid of your existing debt. Here, you’ll need to plan how you’re going to do that and set some priorities. Some people want to pay off credit cards with the highest interest rates. Others prefer to knock out the smallest balance first. Just make a choice that works for you.

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