Welcome to episode 100 of the Maple Money Show. To celebrate this milestone, I decided to invite back when my very first guests on the show, the one and only JD Roth. JD is an accomplished personal finance writer and founder of the popular blog, Get Rich Slowly. The last time he visited the show, JD shared with us his biggest money mistakes. This time around, I wanted to get his advice on the most important things we should do with our money.

Welcome to the Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. This week’s episode is brought to you by EQ Bank. Did you know you can now transfer money overseas with TransferWise directly from an EQ Bank Savings Plus account? Not only will you benefit from earning 2 percent interest on your savings, but you’ll pay far less for international money transfers. While other banks have a habit of sneaking in mark-ups and extra charges, it is not something you have to worry about with EQ bank. Visit maplemoney.com/eqbank to start saving money today. Now, let’s chat with JD.

Tom: Hi JD, Welcome to Maple Money Show.

JD: Hey, Tom. Thanks for having me.

Tom: This is the big episode 100. I had you on way back in episode 10. Back then, we weren’t business partners. You were in a hot tub (which people can see on YouTube) talking about your money mistakes. I wanted to bring you on to go in the opposite direction where instead of just learning from the things that you’ve screwed up in the past, let’s share some wisdom of the things that you actually know can help people.

JD: Some wisdom. I like that.

Tom: I know that on Get Rich Slowly, you have a list of what’s most important to you?

JD: Yeah. It’s 15 or 16 things that I’ve learned over 14 years. Over that time span, they are things I’ve learned about money. I started out not knowing anything. I was dumb with money. So these are the 14, 15, 16 things I’ve learned over that time span.

Tom: Okay. And even though it’s episode 100, I won’t ask you to give 100 tips or anything cute like that. I really want to consolidate down to what the most important thing is for people’s finances. We’ve done 99 past episodes. We’ve covered everything; investing tips, side hustles, budgeting and all that. But let’s try to piece it all together into what really matters. If we can just pick something from your list, what do you think the first thing should be?

JD: Well, you’re talking about how you’ve had 99 previous episodes. You’ve talked about the gamut. But to me, smart personal finance comes down to one thing. We talk about all this in blogs and books. We have all this stuff and it really comes down to just spending less than you earn. That’s it. You don’t need to know anything else. The fundamental law of personal finance is if you want to build wealth and be able to pursue your financial goals, you have to spend less than you earn. It’s as simple as that. Everything else is just window dressing. We try to make it so complicated. We try to over think it. The other stuff does matter, but fundamentally, you’ve got to spend less than you earn if you want to achieve your goals.

Tom: Yeah, that’s a good point. I’ve been a victim of this too with lifestyle inflation. Earning more on its own isn’t the whole answer, right? It’s not that I’m spending more than I earn but if you’re spending is going up with your earning, you’re not really getting ahead.

JD: No, you’re kind of treading water in. I get the lifestyle inflation because I’ve succumbed to it myself especially when I was younger and deep in debt. I was really, really bad with money. For your listeners who don’t know, I’m not a financial professional at all. I’m just a regular guy. The way I got into writing about money, was trying to figure this out; why am I so bad with money? Why am I so deep in debt? How do I turn that around? I process things by writing so I started writing a weblog because that was the thing to do back in those days. Back then, I really bought into lifestyle inflation. As my income increased, my spending increased. And I’ll admit, even to this day, there are times I spend on things that I ought not to spend on. We all have things we like. You know I have season tickets to the local soccer team, the Portland Timbers. That’s a few thousand dollars a year that I don’t need to spend. That’s kind of an extravagant expense. But at the same time, I’ve learned what remeet safety calls conscious spending or mindful spending. Because I love the Timbers, I spend on it but I’ve cut back hard on the things I don’t care about. I don’t care what kind of car I drive so I drive a beater truck, a 1993 Toyota pickup. It’s a piece of junk. It’s so ugly that last week my girlfriend went and got the keys and pulled it forward down the driveway so it was away from the road. I had it parked out by the road because I was loading and loading it. She was so embarrassed that she moved it down to the bottom of the driveway. But I don’t care. This truck runs great. It’s cheap. I don’t care about having a nice car, so I don’t spend on it.

Tom: That’s the whole sort of “afford anything” idea. It’s not that you have to cut out everything. Like you said, don’t spend more than you earn, but that doesn’t mean you can’t spend. Just find out what actually matters to you. It’s not always just “needs” versus “wants”. Sometimes on “wants” are okay. Like your soccer tickets. That’s not a need, but it is something that you’ve actually thought about and decided was important to you, I assume?

JD: Yeah, absolutely. I feel like a lot of times our spending is done out of reflex. We don’t ask ourselves, “Why am I spending money on this thing?” We just do it because in the moment it’s something we want. It feels good. We don’t ask ourselves, “Is this aligned with what I actually want to accomplish long-term?” For me, if I were to go out and buy a car, there’s no question I would like a new car. Don’t get me wrong, it would be great. But it’s not aligned with what I want long-term, which is to have this lifestyle where I can sit in a hot tub in the middle of the day and talk to you by Zoom or whatever. If I were to buy a new car and maintain that, that takes money away from things I think are more important to me.

Tom: If someone’s got their spending under control (spending less than they earn) and taking care of some “wants” as well, what’s the next step? What’s the next important thing they should consider to get their finances under control?

JD: Well, saving and investing is a big part of the process. Over the years, I’ve become involved with the financial independence movement, the FIRE movement which is all about financial independence and early retirement. Financial independence is just another way of saying early retirement. But a lot of people want to argue with you about what retirement is so financial independence is a way to avoid that argument. The technical definition of financial independence, what most people think of when they hear the term, is that financial independence is what happens when your investment income exceeds your monthly spending. You have enough saved that you can support your lifestyle indefinitely based on what you have invested. But in reality, there are a number of stops along the way. There are degrees of financial independence, I guess. When you spend less than you earn, (which is the fundamental thing you have to do) what this does is opens doors. It allows you to gain greater financial freedom. There are steps along the way. For example, getting out of debt; if you’re starting out in debt (as I was when I started) then paying off your consumer debt is one degree of financial independence or financial freedom. When you have enough saved that you could quit your job without stressing too much… Say you have 6 months or a year of expenses and savings, that’s a degree of financial independence and freedom, too. I’m getting sidetracked here from the question you asked, but it all comes down to your saving and investing to be able to do these things. And if you don’t invest the money; say you just keep it in a bank account that earns nominal interest? What aren’t interest rates in bank accounts in Canada, by the way?

Tom: Nowadays in this market they’re headed back down towards nothing. I’m not sure what the rates are right now, but just when we we’re starting to look good a few months ago they are heading back down again. It definitely doesn’t do much for you.

JD: No. And I know a lot of people who think, “Oh, I’ll just keep it in a bank account because I’m scared of the stock market.” But the reality is, if you look at the numbers long-term, the stock market has provided the best returns of any available option over long periods of time. By which I mean decades, 10, 20, 30 years. In the short-term, there are certain investments that might do better. For example, gold has done better in the stock market over the past 18 months here. But that’s 18 months. And if you’re investing for retirement or to buy a home or put your kids through college, you don’t care about 18 months, you care about 18 years. In the long-term, the stock market’s the best option. So once you have that gap between your earning and spending, learning how to invest wisely is another fundamental thing you’ve got to accomplish and figure out.

Tom: And then it feels a little more locked away even if it’s not in a registered account. It’s something you’re not going to be as tempted to spend when it’s sitting in investments. You and I both play video games from time to time, and I always kind of think of when you’re investing that money it’s almost like a score. I don’t want to gamify it too much but just the idea you see that number increase and know it’s sort of locked in. I’ve rarely ever sold anything. I’m basically still just buying just to see it increase. Whereas, if you’re spending less than you earn but it’s sitting in your bank account, it becomes a lot easier to spend. It’s nice to just put it away. It’s going to earn more and that number is going to keep increasing.

JD: I like this idea of how mentally, to you, that’s separate. This brings up a trick that I had to play on myself when I first started getting better with money. It’s not like I flipped a switch and went from being crappy with money to being great with money because that’s not what happened at all. It was a process. I had to play tricks on myself. And one of the things I did was open a checking account at a credit union. It was just my normal bank account. Do you have credit unions in Canada?

Tom: Yes.

JD: Okay. I just had to double-check.

Tom: Thanks for considering us. Yes.

JD: I had my checking account at a credit union but I knew that if my savings account was at the same institution, I would be so tempted to spend that money because I’d done it in the past. So I had to open up a savings account at a completely different bank. And sure, I could transfer money between them. And I did do it from time-to-time. But it was a hassle. So I created this barrier. It wasn’t much of a barrier, but any barrier is better than none if you’re trying to prevent a bad habit. And conversely, to foster good habits, you want to tear down barriers that are there.

Tom: That’s kind of the thought I was just having. Being a personal finance guy, I’ve got various accounts. If someone’s got a better savings rate, I’m at that bank. And if someone’s got the free checking, I’m at a different bank. Speaking of money mistakes, one thing I find is most of my mistakes come from a lack of organization. I’ve missed a mortgage payment before. It wasn’t because I didn’t have the money. It’s because I didn’t transfer from one bank to another bank to be there in time for the mortgage payment from yet another bank. So yeah, there were three different pieces involved, really. And the lack of organization really caused me issues. It wasn’t lack of money. But I do like having that separation. It’s like investing—like putting money into a piggy-bank that I have never broken. The money goes in and that’s it. But it can get complicated if you get too many barriers.

JD: That’s another reason it’s important to keep things simple, as simple as possible. You want to complicate them a little bit, I guess, to outsmart yourself. But you want to keep things as simple as possible. This whole discussion reminds me of another thing I think is really important; smart money management is more about mindset than it is about math. I read a lot and talk a lot about financial literacy. There are a lot of studies that show that financial literacy programs, financial education programs, don’t really have much of a long-term impact. The study showed that if somebody goes through a financial literacy workshop, for example, their money skills will improve for a short time. But after that period of time, their performance is no better than people who haven’t gone through it. Financial literacy programs tend to be mostly about mechanics and math. The mechanics and the math is important, there’s no question. You have to understand how the math works and you have to understand the mechanics. I think the reason they fail and don’t have a long-term impact is that we don’t focus enough on the psychology. The math and mechanics are pretty basic. What’s really hard is mastering your psychology, learning how to resist the urge to spend and learning how when the stock market crashes, how to resist the urge to sell your stocks and bail out which is one of the dumbest things you can do (to me). This is an example of a time when finance can be like fitness. In the personal finance world we make this analogy from time-to-time that finance and fitness are very similar. And this is an example because eating healthy is pretty basic fitness; burn more calories than you consume and you should maintain your fitness. Then you’ve got to exercise too so it’s a little more complicated because some people have different physiques and things going on in their bodies. But generally speaking, that’s how it works. So it’s not the math of fitness that’s hard. The basics, we all understand. It’s the psychology.

Tom: It’s interesting you brought up the idea of selling your investments as a psychology, because I actually looked at that one as math. I trust in the math enough where I won’t sell if we hit a down market. I trust that it’s going up so I actually consider that when a math thing. But I see the psychology side of that as well.

JD: Interesting. Well, maybe more people need to know the math of that. I don’t know.

Tom: Yes, because I’ve said before on the podcast. When I was in college I had an economics teacher explain the whole idea, “If you invest now and get that extra 10 years in, it’s going to make a big difference.” I never did it. So obviously, the math alone doesn’t do the job. He showed it to us right at the front of the class and it still didn’t really make a difference. I didn’t have this sudden urge to go and invest right then. So obviously it’s not just math. I always thought I was more math based but, obviously, maybe the two are kind of playing together a bit there.

JD: Yeah, they do. And I think bringing up the college stuff is interesting because when you’re a college student, you don’t have long-term plans. You’ve come out of childhood and teenage-hood and you’re a college student. You’re used to just thinking short-term; days, weeks or maybe months. You’re not thinking, “Oh, I’m 21. What do I want to do when I’m 65?” That’s twice as long as you’ve lived already. It seems like forever away. It’s so hard. I wish I knew how to talk to the college aged JD and explain to him, “If you were to make some smart choices now, you would set yourself up so much for the future,” but I don’t know how to have that conversation with the college aged me or college aged anyone.

Tom: We don’t qualify as young anymore.

JD: Especially me.

Tom: What’s your feeling on what it’s like for people nowadays? I have to assume it should be better. Mindset aside, there’s probably still the same problem. But things like robo-advisors make it so much easier to invest. It’s not this scary thought of how to even start a broker account—you can get a robo-advisor. The information’s a little handy and you don’t have to go find a book. Someone could share something on social media with you that might give you “a spark” much quicker. Have you had conversations with anyone where maybe that is improving?

JD: No, I haven’t, actually, Tom. But I read a lot of stuff online and as always, there seems to be two camps. There is a subreddit called The Lost Generation subreddit. I’m going to sound like a mean old man here but it’s a bunch of young people whining about how rough they have it and how their lot in life is so much harder than anybody has ever experienced before. And it just drives me nuts. I guess my point is there are people who feel like things are more difficult for them now than they used to be for other people. And at the same time, I know lots of young people, 21, 22, or 25 who are not getting caught up in that mindset. They are amazing hustlers, doing amazing things. And there they are investing. They consume the information and take it to heart. They trust the people who followed the practical, time-tested, financial advice. They see the people are successful—that they’ve made it so they want to do the same thing. They might even make it sooner than they did. I like to see that.

Tom: I have hope. When you’re younger you might feel like you’ve had it harder. And, in certain ways you do. It’s harder to find your way in careers and things like that. There was a point where you decide on a career and you did that job for your whole life. You didn’t have to worry about it. And now there’s this constant thing, “What am I going to do?” And maybe you’re only doing that for five or 10 years and then you’re changing your career completely. I could give it to them that there’s a new kind of anxiety there.

JD: See, this is interesting because I wonder if that is actually true. I haven’t seen any studies one way or the other, but it’s a narrative that we hear all the time in the media. I look at my own father and he never had a stable career. He jumped from job to job. He was always starting businesses. Maybe that was a flaw in him. He was a flawed man, no question. But this is something I should think about—to go back and try to remember what my friends were like? What were my friend’s parents like? My friend’s fathers and mothers because we hear this all the time, that jobs used to be more stable. You could be in a career for a long period of time. But do I actually know anybody that did that? I don’t know.

Tom: I sense a future post on Get Rich Slowly around that.

JD: Ah, maybe so. I think this all leads to one quick point; another fundamental thing I’ve learned over the past 15 years is you are the boss of you. You are in charge of your own destiny. Your situation may suck right now. You may have been dealt a bad hand. But it is up to you to figure out how to make the best of that bad hand. Nobody is going to solve your problems for you. And again, it may suck. It may not be fair. But ultimately, that’s irrelevant. All that matters is that you take it upon yourself to figure out how to get to where you want to go, wherever that might be. It’s up to you to do that and to figure out the best tools and strategies.

Tom: That mixes well with my personal situation. It wasn’t until a “spark of action” came to me that it was time to get my finances under control; get the debt paid off and start investing. All of it kind of came around the same time I was getting married, buying a house, having a kid—all in a very action-packed couple of years. So I agree completely, you’ve got to make your own changes and you’ve got to decide to take action. Otherwise, you can sit there forever in the job you don’t like or one where you’re not making as much money as you want to make and not saving as much as you want to save. You’ve got to do something because no one else will do it for you.

JD: That is so important. I know a lot of people in my own life, my friends, and my family who don’t like their situation but all they do is talk about it. They never take action to improve. And it just boggles my mind. Although, again, I used to be that way, too. So I don’t want to be judgy. I don’t want to come off as judgy, because for the longest time, all I would do is complain. I would never take action. And eventually, at some point, I just decided if I wanted out of the situation, I’ve got to do it myself.

Tom: I’ve heard the same thing too. It’s water cooler talk where people are saying they wish they made more money or could start a business. They can do all this. And I’ll give you a break. I don’t think you’re being judgy. I think you’re being enlightening. You’ve gone through this already so it’s just something people have to see and experience. It really is kind of that snowball effect where they keep going with it. So thanks for being on the big 100th episode. Can you let people know where they can find you online and what you’ve been up to?

JD: Sure, you can find me online at getrichslowly.org which is the site that Tom and I are running together now. And you can also find me on Animal Crossing, New Horizons.

Tom: (Laughs) Thanks for being on the show.

JD: Yeah, thanks, Tom.

Thanks, JD, for sharing your top tips for creating wealth. Spending less than one earns and then investing the difference is truly a combination that’s hard to beat. You can find the show notes for this episode at maplemoney.com/100. Whether you’ve been around for all 100 episodes or you’re tuning in for the first time, I want to thank you for listening. If you’re interested, you can check out videos of past episodes that are releasing every weekday a maplemoney.com/youtube.