Personal Finance Interview with Leo Babauta of ZenHabits.net
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Name: Leo Babauta
Age: 34
Networth Range: Under $20K
Profession: Writer
Websites: Zen Habits
Current Financial Strategy:
At the moment, I’m working on paying off my debts while saving up an emergency fund. A couple of years ago, I was in financial trouble, and only started turning things around about 18 months ago. Now, I have cut up my credit cards, I use cash for everything (as well as online banking), I live below my means, I am very frugal and I am well on my way to being out of debt. My strategy has been to live as frugal as possible (while still enjoying life!), making savings a habit and increasing my income. I’ve been successful at all three so far.
Best Financial Tip:
Don’t get into debt. Cut up your credit cards, live below your means, save your money, and try to pay cash for everything (yes, even your next car).
Worst Financial Move Ever:
Quitting my day job to free-lance, while my wife wasn’t working (she was pregnant), and living off my retirement fund. Yikes! That was a bad move. That’s how I got into debt.
Financially, I need help with:
I’m actually pretty good … I’d like to have a bigger emergency fund, but I’m on my way there.
You have six kids! What are some of the financial challenges you and your family face?
Well, having a family of six kids is definitely a financial challenge, especially as my wife and I made the decision that she should stay home with our two youngest babies (one is almost 3, the other just turned 1) for a few years.
That means that my income supports us all, and as I mentioned before, we’re also trying to save money and eliminate our debt at the same time. So what that means is that we’ve had to live very frugally in order to accomplish all of that and still have money to feed our kids. We live pretty comfortably, however, and the way we’ve accomplished that is to find ways to feed our family and be entertained without spending a lot of money.
We also only have one car, and recently sold our SUV and bought a used van for cheap. I’m always looking for ways to cut costs: on utility bills, on gas, on entertainment, on a lot of things. We cut out cable TV, we rarely go to the movies now (DVDs rule!), and do a lot of cheap family activities that create a bond for us as a family without breaking our budget.
Do You have any suggestions to other families regarding finances?
The key is for you and your spouse to be on the same page in terms of your financial goals and plan, and for you to work as a team instead of working against each other. Finances are a tough issue for many couples, and if you’re not working together, it’ll be your downfall.
A great way to do that is to have some conversations about what you want in life, and how to get there financially. What kind of house do you want, and how soon do you see yourself buying it? How much do you want to provide your children for college? Talk about retirement, and travel, and cars and shopping and entertainment.
It’s also good to involve your children in the discussion a bit. They’re usually too young to handle the details, but at least make them understand why you can’t buy them super expensive things for Christmas, or why you can’t go to the movies every single weekend. Kids are much more likely to be on board if they’ve been included in some of the decision making.
Also have weekly money meetings with your spouse, where you balance your checkbook and review your budget and talk about expenses that are coming up. Above all, curb impulse spending, the enemy of all budgets. Stay away from the mall or Costco or Walmart or other places designed to have you spend. Freeze your credit card (or cut it up like we did) so you don’t buy stuff automatically online. Create a 30-day list where you put all impulse buying on hold, write down the item you want on a list, and after 30 days, you can revisit buying it if you still want it. And find ways to have fun as a family for free or cheap.
Do you have any specific idea on how you’ll teach your children financial skills?
We’re already working on that. We could do more, but we’re off to a decent start. Like I said, we include them on discussions about ways to cut back, or ways to have fun without spending a lot. We are teaching them the value of saving for a goal, instead of just spending on little things.
I’m also considering an allowance, which isn’t something we’ve been able to afford yet, and if we do it I’d like to make sure that they save a percentage and donate another percentage instead of just spending it. Also, as they become teen-agers, I plan to have them work to understand the value of a dollar, and to learn about budgeting, saving, investing, paying bills and avoiding debt. I’ve already begun talking to my oldest daughter (14 years old) about this stuff.
Do you think habits affect finances? If so, what are some positive or negative ones?
Habits are the key to finances, in my opinion. One of the worst habits is impulse buying. It’s really a habit that we must break, and replace with more positive habits. Another related habit is spending more than we have — I’ve been replacing it with the habit of spending less than we earn, and automatically saving the rest.
Savings is a great positive habit, as is investing for retirement. Habits such as budgeting, and balancing your checkbook, and paying your bills on time, and having one place for your incoming bills, are great positive habits, while doing the opposite are negative ones that many people have. Another negative habit is the frequent use of credit cards, which are way too easy to use and hard to keep track of as you spend (until you see the bill later in the month).
What personal finance tools do you currently use to track and manage your money?
I do all my banking online, and have automated my bills and savings. I use Microsoft Money, only because it came with the computer I bought, but it works fine. I also use a spreadsheet on Google Docs for my spending plan and another for my net worth calculation.
What are the problems in your personal finance tools?
They don’t coordinate well with each other. They’re also not that fun to use.
How would your ideal personal finance tool work?
It would interact with my bank, pay my bills, download statements, reconcile itself, and have my custom spending plan in it. Money is supposed to work that way, but it doesn’t work exactly right, and tweaking it is too much trouble, so I do a lot more manually than I should. Also, the ideal tool would be simple and fun to use.
What more do you want to know about your personal finances?
I’m happy with my current level of knowledge.
How much do you think you currently spend on eating out?
About $150 a month.
How often do you want to know about your personal finances?
Once a week.
What is in my wallet?
My ID, my debit card, and a laminated card with contacts on it. Binded with a clip. The ultimate simple wallet.
Mint’s Note: Leo’s website, zen habits, focuses on achieving goals, creating productivity, being organize, practicing sound financial lifestyle, and writings on many other numerous spiffy subjects. While emailing Leo for the interview, we noticed that he definitely practice what he writes about, as his emails and responses were on-time and well organized! With over 4,500 feed subscriber, you should definitely consider adding zen habits to your reading list!
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12 Comments so far
leave a commentI don’t understand this. The CEO of My Mint, someone with a higher net worth and I would say just doing better off, says pay with everything with a credit card.
Who’s right? They’re both peices of advice, but very conflicting ones at that.
Hi Conner … good question. I think both approaches have their own merits, but it really comes down to knowing yourself.
Do you have a good history with paying bills on time, with not going into debt with credit cards, with not having to pay a lot of interest and late fees? If you don’t have any temptation to spend more than you take in, and can pay your cards in full, then I would say that using credit cards would work well for you, and could be a good tool.
However, many people have had problems with credit cards, and for them (and that’s a majority of people), I would say to avoid debt and use cash. Credit cards can be a useful tool, but they are very dangerous.
Also, I would warn that if you are going to use credit cards, you should have a very healthy emergency fund. Because if you rack up $1,000 on your card, let’s say, planning to pay it before the bill arrives, but then an emergency comes up and you can’t pay the bill … you’re stuck with a $1,000 debt plus high interest. Not only that, but if you don’t have an emergency fund, you might also be tempted to use your card for your emergency, in which case your debt and interest would be much worse. That’s the danger of credit cards … but again, if you have a very good emergency fund, they can work for you.
Lastly, I’d like to point out that yes, my net worth is low, but part of the reason is because of credit card debt — and also because I made some bad financial decisions. But not because I don’t use credit cards. In fact, it’s when I *stopped* using credit cards that my net worth actually became a positive, and is steadily on the rise each month. By next year, my net worth should be pretty healthy.
Good interview, It’s good to see a man with six kids still living frugal and passing on his teachings to his children
I had a feeling after I wrote this that they were both different approaches. I don’t have a credit card, or much cash, but I am a pretty young teen at the time. I would think that I would use a credit card as my approach, because it seems that it would be easier to keep track of what I am buying and knowing how much I am spending.
I hope I didn’t offend you, but it’s nice to read your response. Also, having six kids is tough, I imagine. My parents, sending me to a private school, don’t have much money to spend on themselves either.
Interesting about your net worth, and nice stories.
Sounds like someone went through Financial Peace University.
http://www.daveramsey.com/fpu/home/
Good article. The only thing I would add is teach your kids about credit early, before they get their first credit card. We gave our young teen a Visa Buxx card that is pre-loaded with a fixed amount as we add to it from our bank online. That was his allowance and he received it all at once. When it was gone, he was broke until the next period. It quickly taught him how to budget not just for a week, but the whole month, it taught him the value of money, and how to use a card responsibly.
I think if more teens were brought up this way, credit would not be such a bad issue for so many.
This company was built on people being frugal, saving and working hard. We have lost that.
Great post!
Great interview. I read in a book somewhere that Leo Babauta said you should live on just 70% of your paycheck–maybe it was even less. He said something like save 10%, invest another percentage, tithe 10%? I wish I could find that somewhere. I’m trying to figure out how to divvy up my paycheck, and if I have enough to invest.
I think it’s great that he has six children. It’s so refreshing. Children are a blessing, not a burden. Thanks for this.
I think one of the best points of the article is that the you should be on the same page as your spouse, or whomever you share your financial situation with. Until two people are communicating about finances and have a system for accountability, it is very easy to develop bad spending and saving habits.