7-Step Guide to Financial Minimalism (and a Richer Life)
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Financial minimalism is a growing trend for people who want to simplify their lives and free up their time and money to focus on what’s important. It’s a method of fusing personal finance and a minimalist lifestyle in perfect harmony so that you can lead a happier and richer life.
No one enjoys living from paycheck to paycheck. But, what can you do when you have bills to pay, mouths to feed, and you’re barely making ends meet?
You might feel like you never have enough money, but a fulfilling life doesn’t necessarily depend on how much money you make.
There are plenty of people who make high six-figure salaries but still can’t manage their finances well enough to save money. A recent study supports this, saying that 33% of people making $250k or more each year are still living paycheck to paycheck!
So, where does their money go? They spend it on expensive sports cars, lavish dinners and daily take-out lunches, oversized McMansions, and everything they think they need to feel successful and happy.
On the other hand, my husband and I have always stuck to our frugal values, which allowed us to pay off $250k in family debt.
After selling everything we owned and moving to Europe with eight suitcases, we finally purchased our dream home and settled into a life we love – and sticking to a minimalist budget and being intentional with our spending is what got us here!
In this blog post, I will share the seven simple steps to becoming a financial minimalist with you and how they can lead you to a richer life!
What is financial minimalism?
Financial minimalism is living intentionally but not cheaply. A financial minimalist applies the principles of minimalism to their personal finances, allowing them to spend less, save more, and be more intentional with their money.
A financial minimalist strives to put money towards the things that they value or love doing, and remove the non-essential.
It’s about making time and space in their life for personal growth while saying “no” to consumerism and investing in things that will afford you the freedom to pursue your passion.
After all, when you know the value of your time you know how important it is to spend it on things that matter – every second counts!
7-Step Guide to Financial Minimalism
1. Know Your Values
The first step to financial minimalism is understanding your values. What’s important to you? What do you want your life to look like? Knowing your values makes it easier to make financial decisions that align with them.
For us, it’s the freedom to pursue our passion, experiences, and together as a family. We want to travel and spend time together without the constraints of a traditional job and money worries.
This means that we are happy and willing to live with fewer material possession, exercise mindful spending, and make financial choices that support our lifestyle.
2. Track your spending
Knowing your income and expenses is critical to creating a financial minimalist lifestyle because you can’t work on improving your finances if you don’t know exactly where your money is going.
Knowing where your money is going makes it easier to tweak and adjust to save more. Remember, anything beyond what you truly need is a WANT.
There are a lot of ways to track your spending. You can use a pencil and paper, apps, or online spreadsheets. I have written about expense tracking solutions and also have a free 2-page printable PDF you can download here.
3. Establish a budget
Now that you know your income and expenses and you have your priorities straight, it’s time to create a budget plan.
You should question every expense item during the budgeting process unless it’s an essential item, such as rent, utilities, health insurance, etc. Even then, you can do price comparisons or perhaps renegotiate with utility companies or your landlord to keep the rent flat for the year.
My preferred way to create our annual budget plan is to take a “bottom-up” approach to expenses in conjunction with a “top-down” approach starting from our expected income.
Start with the essentials (shelter, food, saving, investing, etc.) and work your way down to the flexible expenses (entertainment, travel, eating out, etc.).
After creating our budget plan, we track daily expenses and our progress monthly to ensure that we are on target. We are not afraid to quickly make cuts or reshuffle priorities if we expect an income drop or encounter an unexpected expense.
If you would like to learn more about budgeting, I have written a blog post about how to budget here.
4. Build an Emergency Fund
One cannot feel entirely at ease when one doesn’t have financial security. Unforeseeable events do sometimes happen, and you want to be prepared when they do in such a way that you are still able to maintain your cost of living without stress.
Unexpected events can take many forms, such as:
- Job loss
- Illness or medical expenses
- Major car repairs
- Unexpected house repairs
An excellent way to quickly build up your emergency savings is to sell your clutter for cash. You might be surprised how much money you can make while reclaiming your home from all the extra clutter.
On our five-year journey to minimalism, we decluttered and sold off almost all of our stuff, and moved to Europe with eight suitcases. In the process, I made $50k selling that clutter.
You can read more about that and find tips here:
- 7 Extreme Decluttering Tips from an Ex-Hoarder Turned Minimalist
- I Made $50,000 Selling Clutter – Here’s How I did It!
- Top 10 Best Places to Sell Old Clothes Online for Extra Money
5. Pay down debt
You may not think of debt as your most significant resource drainage point, but it can be, especially if you have high-interest credit card debt.
Do you feel that despite making regular, timely payments, your debt balance doesn’t seem to move at all? That’s because the average interest rate on credit card loans is 16.45% in the US, according to Forbes.
The compounding effect of a high-interest rate quickly offsets your payments.
Hence, it would be best if you were aggressive with paying down credit card debts at more than the interest rate. The more, the better! You can read more about debt and how to pay it off in this blog post.
6. Live below your means
Living below one’s means is about being content and grateful for what you have and not trying to spend more money than your income allows.
For starters, your total expenses cannot exceed your total income. Any spending above your income would have to be financed with some form of debt, such as credit card debt, which most people resort to for ease of access.
However, the more you keep costs low, the more money you will save. Think of it this way; just because you can afford something doesn’t mean that you should buy it!
Living below your means is a sensible way of life. It enables you to save money, pay off debt and live a stress-free life. Let no one tell you otherwise.
7. More investing, less saving
Has anyone ever told you that putting all your excess money in a savings account is a bad financial decision? At best, the return on your money in savings accounts is minuscule, earning you under 1%. In fact, money is quickly losing purchasing power due to high inflation, which is currently above 8%.
Financial minimalism is also about being smart with money and making it work for you. There is a mind-numbing quantity of investment options out there in the market; however, just like minimalism, less is more and simple is better.
What I mean by that is that investing doesn’t have to be daunting.
With a few high-quality funds that mirror the S&P 500 index or the total US stock market and perhaps an additional highly rated global equity fund, one would be already well-positioned to grow their investment and diversify their assets.
That said, I want to make an important note: investing does come with significant risks and you need to educate yourself. However, if you think about it, not investing is also risky as inflation eats up a large percentage of your money each year – that’s a fact!
Historically, the stock market experiences a downward correction every two years of at least 10% or more and a bear market every six years with a price drop of 20% or more. It’s important to know how the stock market works and stay level-headed and cool; stay tuned in to facts instead of noise.
Before you start investing, consider the following requirements:
- You have at least 6 -12 months of savings to cover your living expenses
- You don’t have high-interest rate debts (otherwise, pay it off first)
- You don’t need the money for the next 5 – 10 years or longer
- You don’t lose sleep or panic when the market goes down
When investing in the stock market is not for you, consider investing in yourself. It’s the best investment choice anyway. 🙂
NOTE: I do not provide personal investment advice and I am not a qualified licensed investment advisor. The above references my personal opinion and experience and is for entertainment purposes only. It is not intended to be investment advice.
There you have it. To put it simply, financial minimalism is managing your money the way you live your minimalist life, with intention and purpose.
Remember, when everything else fails – sticking to a sound budget is key to achieving financial freedom. Don’t hesitate to make adjustments when life happens and income, situations, or priorities change.
Practice contentment on your way to financial security, or even better, to financial freedom, will make your journey feel like a blessing.
I hope this guide has inspired you to think about your relationship with money and what steps you can take to improve it.
What matters most to you? What would make your life richer? Share your thoughts in the comments below!