Overview
There are two ways of achieving financial freedom. One is through having more, and the other is through needing less.
Having More
Oftentimes, financial advice is geared towards helping people accumulate more wealth through savings and investing. That is where topics such as mutual funds, 401(k)s, real estate investments, index funds, and portfolios come into play. Being educated on these topics is useful and can really accelerate your wealth goals. Most individuals could retire on $10,000/month, which means that the sooner you reach a few million dollars in net worth, the sooner you can retire.
Needing Less
But, what if alternatively you just needed less? Lao Tzu once said “To attain knowledge, add things every day. To attain wisdom, subtract things every day.” If Lao Tzu worked for Savology, he may have said something like, “To retire rich, have more. To retire happy, require less.”
And that’s where financial minimalism—the practice of needing less—makes all the difference.
What is financial minimalism?
You may have heard the word “minimalism” a lot recently. Maybe you associate being a minimalist with owning less than 100 belongings or sleeping with a mat on the floor. Well, that’s not quite it.
The principle of minimalism is about having fewer things you don’t value highly so you can invest more time and money into the things you want to prioritize.
Example
Instead of having a wardrobe full to the brim with clothes you forgot you had, the financial-minimalist version of you would open your closet to find clothes that you were excited about wearing. Do you remember what your favorite outfit was as a child? Do you remember how great it felt wearing it? For a minimalist who only owns his or her favorite clothes, every day feels just like that.
For me, instead of owning 17 pairs of jeans (yes, I counted them), I now own 4. Although I now spend more money on each pair of jeans than I did before, I now only have jeans that I know I’ll be thrilled to wear. It hasn’t necessarily changed my bank account—although I do tend to spend less money now—but it has changed the satisfaction I get from my material belongings.
So, now that you understand what financial minimalism is, how do you get started?
How to practice financial minimalism
The first step towards financial minimalism is to become aware of your spending habits. It’s hard to change something that you are not aware of.
Be aware of your spending habits
So, let’s start with a fun little game.
Pick only one of these three categories: shopping, eating out, or coffee.
Now, try to guess how much you spent in this category in the last 30 days. Just take a wild guess. Make a mental note of the number, or write it down.
Next, open your bank account and add up how much you actually spent in this category. If your spending total in this category is within ten percent of your original guess, then you win.
When I played this game, I chose “eating out,” and guessed I spent $15/day with a total of $450/month. I thought it was a high guess since I don’t eat out every day and some days I eat out twice. So, it all should have averaged out, right?
I lost miserably. I actually spent $745.97 in one month! I forgot about the one night I offered dinner to a friend, the few times in the month I decided to treat myself to a nice restaurant, and I didn’t consider the sandwich I buy daily at a coffee shop.
What about you? Did you win or lose? Was your estimate close to the amount you actually spent?
This little exercise doesn’t necessarily mean that you need to spend less or change your behavior, it is just to raise awareness.There are other steps you can take to become a financial minimalist.
Seven steps to practice financial minimalism
1. Set a maximum budget for subscriptions.
There is a subscription for everything nowadays. CatLadyBox, Henny + Roo Chicken, and Letters from Dead People are examples of subscriptions being offered. Maybe you don’t have any of these, but Netflix, Amazon Prime, Spotify, Disney+, a gym membership etc. easily add up. To maximize your enjoyment, decide the maximum amount you’ll spend on subscriptions each paycheck. If you are tempted to go over budget, consider replacing a subscription that you are not getting a lot of value from with a more desirable subscription.
2. Set text notifications each time your debit/credit card is charged.
Most banks offer this service. You can do this by visiting a local branch of your bank or setting it up online. A google search may help. Search for “how to set up text alerts when my card is charged.” This way, each time a payment is made from your card online or in person, you’ll know. This will not only create more awareness of how often you use your card, but it can also help you to catch potential fraud if your card is charged without your consent.
3. Invest as you spend.
There are many apps like Acorns, Webull, Robinhood, and SoFi that offer micro-investing services. It’s simple. Each time you buy something, you can choose to round your total to the nearest dollar and have the difference go towards an investment account. So, if you buy a coffee for $5.17, then $0.83 would be invested into an investment account of your choice. I used one of these apps for a year and barely noticed a difference in my monthly budget. After a year, I ended up with more than $2,000 in my micro-investing account. What I love about these apps is that you only need to set it up once and you don’t need to think about it again. Speaking of which…
4. Automate and forget.
No one tracks their spending and earnings with a checkbook anymore. We are very fortunate to live in a software-enabled world. Many of the tedious tasks of the past are now automated by computers that work to make our lives easier. Try to use that to your advantage.
Some essential payments that should be automated:
- Debt payments (credit cards, loans, etc.)
- Retirement contributions (401K, IRAs, brokerage accounts, etc.)
- Savings & emergency fund contributions
- Mortgage & rent payments
- Bills & insurance payments
5. Buy used.
I agree that some things should be bought new, but there are so many like-new items you can find in second-hand stores, donation centers, online marketplaces, or auctions that are priced at a 70-90% discount just because they are not wrapped in plastic in a store. Used cars are a great way of saving money. Refurbished electronics have a similar warranty to new electronics and can save you 20-30% off the retail price. It may take some time to dig for a good deal, but wearing a basically new pair of Nikes that you paid 60% less for is totally worth the search.
6. Identify your priorities, then intentionally spend without guilt.
The goal of financial minimalism is not necessarily about spending less, it’s about spending better. Spending better means identifying what you value most and choosing to spend money on that as opposed to other things. Do you want to prioritize traveling? Instead of eating out, you can put that money towards saving for your next trip. Do you prioritize designer clothes? Maybe instead of drinking coffee at Starbucks regularly, you decide to make coffee at home and save for that next clothing item. Or to the contrary, instead of buying new clothes every other week, you save that money to try a different coffee shop every day.
For every “no” you need a very exciting “yes” to keep you motivated. So, have fun with this! Once you have automated the important payments in your life, what are your priorities?
7. Don’t forget to give.
Even though I have far fewer belongings than I did five years ago, I still feel that I have more than enough. I aim to give to others whenever I see an opportunity. Whether it’s paying for the person behind me in line or leaving a $50 tip to a waitress that is a full-time student, being able to give to others enables me to be grateful for what I have.
Accumulating wealth is necessary, but it can also be blinding. It’s easy to fall into the trap of believing you’ll give to others once you have enough for yourself. The day of “having enough” may never come if you are only focused on achieving financial freedom through having more. If you focus on needing less and giving to others, you can experience what financial freedom is really about—having your own financial needs met so that you can spend your life helping others meet their needs.
The journey to reaching financial freedom isn’t always easy, and there are multiple ways to get there, but financial minimalism can help you reach financial freedom by needing less.
