There is a strong connection between minimalism and personal finance. For popular minimalist advocates such as Leo Babauta, Matt D’Avella and Joshua Fields Millburn & Ryan Nicodemus(“The Minimalists”), debt forced them to smarten up about their finances and, subsequently, developed their personal philosophy that quality of life increases when you live with less.
No matter your income though, minimalism can help you allocate your money in a way that best aligns with your values. That’s because, at its essence, minimalism is an ongoing practice of reevaluating what you need and, out of all the things that bring you joy, what makes you really want. Instead of viewing the practice of living with less as some cruel sacrifice, consider it a practice of trade-offs.
Daunting Financial Goals
The biggest lesson I learned from eliminating my debt in two-and-a-half years, in hindsight, seems obvious: the simplest system wins. In other words, Occam’s razor also applies to the world of personal finance.
The problem is that we tend to overemphasize the importance of our spending habits while simultaneously underemphasizing the value of a well-run system of which our money flows through. The former relies on will. The latter relies on process.
As someone newly engaged, I had to revise the organization of my finances. After I became debt-free, back in June 2018, I became somewhat lax about my spending. After two-and-a-half years of intense frugality, I no longer tracked my expenses, made arbitrary lump sums towards various savings accounts, and, quite embarrassingly, donated less amount to charity than I could and should have. While I never went back into debt, I wasn’t exactly allocating the amount of my former debt repayments to savings or a worthwhile cause.
Now, saving for a wedding and a down payment, which cumulatively are more than the debt I carried, this is my most ambitious challenge yet.
A Minimalist Financial System
It might be helpful to share how my system operates. At its essence, it involves three distinct components:
- A budget;
- An expense tracker;
- Automated transfers.
The process is cyclical. It starts with the budget, which outlines how much I can spend on various purchases, and over the course of the month, I track all the items I purchase. On the day that I get paid, whatever amount that needs to get allocated to savings gets automatically withdrawn from my chequings account and deposited to the appropriate savings account. At the end of the month, I review my expense tracker to inform next month’s budget.
I’m not a flashy person. My overall aim is to make a reliable process that requires minimal effort and as few moving parts as possible. I don’t use a sophisticated budget app or a complicated Excel spreadsheet, only a simple Excel with 2 tabs- One for expenses and income , and one for an overview with the aforementioned categories ,all summed up.As simple as that
From my past I can say that an alternative would be a great fit for a different type of man (or woman) :
” I write out my budget and all my expenses in my trusty notebook that I keep in the front drawer of my home desk. Writing might take longer, and it certainly means numbers scratched out and intelligible scribbles in the margins, but Robert Caro hit the nail on the head about the value of analog when he said:
I don’t want it to be too easy. I want it to be slower so that when you do things slower, you think more. That’s why I write in longhand because that’s the slowest method of committing your thoughts to paper.Robert Caro
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A Simple Budget
I have a generous budget. To remove the headache of having to dip into other expense categories when you’ve run out of money in another, I consolidated as many categories as possible. The result is that I have fewer categories and more money in each to spend on whatever crosses my path:
- Spending Money
- Cell Phone
The generic “Spending Money” category covers everything from groceries to take-out to concert tickets. It’s my cash for books, candles, and laundry detergent. All that fluctuates and is, in some cases, unessential.
“Pets” covers dog food, check-ups at the vet and paying the dog walker. “Transit” includes a monthly transit pass and the occasional ride share. “Subscriptions” include recurring memberships to Spotify, Netflix, Medium, and The New Yorker.
I use a simple excel every night or when I have a few minutes ,rather than scrolling through facebook . I use Google Sheets.
My previous method was pen and paper, and this could work for you without any problems .
Finally, and perhaps most importantly, I incorporate automation as much as possible. The more things work without any action on my part, the less I have to worry about.
I get paid every two weeks. On the day I get paid, I setup four automated transfers: one to an account that holds next month’s expenses, one to my emergency fund, one to my wedding fund, and one to my brokerage account where I invest in low-fee ETFs. I don’t have to calculate how much money to allocate to each because I did the math once when I first created my budget.
As a result, my savings are guaranteed: I don’t wait until the end of the month to see how much I have leftover to put towards my various savings goals, instead they get deducted from my account immediately.
In doing so, I always hit my savings goals. In taking care of my savings first and then spending what remains, it alleviates unnecessary stress. Unlike the first two components of my system — budgeting and tracking — automatic transfers are more for peace of mind than fiscal responsibility. Knowing that you are putting aside some money, no matter the amount, is priceless.
There are plenty of personal finance bloggers out there who dispel similar advice and are all too eager to review the latest robo-advisors and money tracking apps. But I encourage you to look past the new thing. Because there will always be a new thing. And the new thing will always fail to tell you what you actually need to know: how you should spend your money.
Instead, take out a pen and paper. Write down what you think is reasonable to spend on essential expenses, like rent, groceries, and your cell phone bill, and what is reasonable to spend on non-essential expenses like drinks with friends, a pair of new boots, and tickets to that upcoming concert.
The painful truth is that no one can tell you the magic formula for how to maximize your happiness within your financial means. Instead, you have to ask yourself what you’re willing to forgo now in order to have later. In other words, what do you really need to be happy? And how much does giving up what you don’t need save you in terms of money, time, and physical space?
For me, minimalism is not a turn-key solution, but certainly makes answering these questions easier. I don’t consider myself a simple person but a person of simple needs.
What do you think?
What works for you?
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