I recently came across a term called financial minimalism which blends the personal finance world with the minimalism movement. It’s a way of managing your finances that I believe will appeal to many in the Financial Independence/Retire Early (FIRE) community.
While doing more research, however, I found that it surprisingly isn’t discussed as much as other personal finance topics.
So in this article, I’ll be introducing the financial minimalism concept and how it helps you reach your financial goals.
What Is Financial Minimalism?
Financial minimalism is the strategy of simplifying and decluttering your finances. By doing this you can focus on the financial goals you feel are important while cutting out the unnecessary.
The concept of minimalism is about living with only the things you feel you need. It closely resembles frugality which I’ve embraced during my FIRE journey. I believe frugality is an important part of achieving financial independence if you want to get there as early as possible. I’ve discussed this in detail in my FIT FIRE Strategy.
Financial minimalism expands on the concept of minimalism into living with only the financial accounts, tools, or obligations you feel you need. This is done by specifically consolidating financial accounts, investments, and credit cards.
This helps you simplify your finances and take control. It also saves you time, helps you avoid surprise fees, and reduces anxiety/stress.
Next, I’ll show you exactly how to use financial minimalism to your advantage.
Financial Minimalism Categories
- Bank Accounts
- Credit Cards
Money and Minimalism
Minimalism often results in a more organized and stress-free lifestyle by focusing on decluttering and having fewer possessions. By concentrating on value over quantity a minimalist ends up with fewer items but the items that remain become much more important.
Another element of minimalism is having intentionality with purchases. A minimalist will often think long and hard before purchasing a new item.
These same processes can be applied to money and with the same results. By focusing on value over quantity you can cut out unnecessary accounts, consolidate debts, and reduce the number of credit cards you own.
Introducing this level of intentionality into your financial life is important. It prevents you from becoming overwhelmed with accounts and credit cards that all have different fees, terms, and due dates.
Other people love it when you are overwhelmed by your finances. It helps them convince you that you need them to manage your money for you. This management comes with an additional fee of course.
By reducing these unnecessary accounts you become more confident in your abilities to handle your finances. This also saves you money in the process.
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Financial Simplicity Works
Minimalism appeals to many because of its simplicity. There is a reason why organizing consultants like Marie Kondo are so popular. Marie Kondo has a popular organizing method called The KonMari Method. It works by helping you declutter your stuff by category.
I would like to propose the same for your finances. I truly believe organization and decluttering your finances will help you have more clarity in your life.
So lets Marie Kondo your finances!
If you find that you have multiple checking accounts or multiple savings accounts you should be asking yourself if you need them all. If you don’t, then start the process of transferring your money into one checking and one savings account. They don’t have to be the same banking institution.
I enjoy the convenience of having a checking account with a large bank that has plenty of local branches. I never worry about not having a branch close by to use their ATM’s. As for the savings account, I recognize online savings accounts offer a better interest rate. So I have one online saving account to take advantage of the increased interest rate.
Choose the one checking and one saving account that works best for you and close the rest. Consolidating your bank accounts helps you keep track of your money and to catch sneaky fees.
As a bonus, ask your bank to switch you from paper to e-statements and watch your mailbox get lighter.
It’s important to look at your investment portfolio and assess if you have a good handle on your investments. If you invest in single stocks, are they organized? Consolidating your investments into one platform such as Vanguard or M1 Finance can help you keep track of your performance.
Another way to simplify your investments is by investing in index funds instead of single stocks. There is a lot to like about index funds. They are diversified, tax-efficient, and are easy to manage. Organizing your investments will also help you when it comes time to sell.
I have all of my investments in either Vanguard or M1 Finance. I decided to transfer my funds from Robinhood to M1 Finance and I’ve never been happier. They have a much more robust platform with options to invest in fractional shares.
You can even get up to $2,500 when you transfer funds from a different brokerage.
Having investments with only a few trusted brokerages makes moving money between different accounts easier. It also helps you reach investment thresholds like with Vanguard’s Admiral Funds which require a minimum investment of $3,000.
Take some time to consolidate your investments carefully without creating any unfavorable taxable events.
Credit cards are a big problem in our society. The average credit card holder in the U.S has at least 4 credit cards and an average of $8,398 of household credit card debt. It is far too easy to get approved for a new credit card and start spending money before you’ve earned it.
To apply financial minimalism in this category you can start by clearing out the credit cards that don’t give you any benefit such as travel rewards or cashback. Once paid off, if they don’t have an annual fee, you can lock them in a drawer to never be used again.
Next, try to switch cards that do charge an annual fee to another card with no annual fee. This lets you keep your rewards and in most cases, you can also transfer your credit line.
Ideally, you would like to cut down to 1 or 2 cards that you use responsibly and can take advantage of travel or cashback rewards.
Financial Freedom Through Minimalism
The best way to reach financial freedom through minimalism is to ask yourself what can I do to make my financial life simpler. If you aim to simplify your financial goals, you will find it easier to achieve them because of fewer distractions.
Financial minimalism makes things easier because you no longer have to juggle multiple accounts, investments, and credit cards.
This has a tremendous effect on your mindset and confidence in managing your finances. It also frees your mind to look for ways to increase your income or prioritize your investments.
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This information is my opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.