Have you ever wished your life could just be simple? Today most people desire fewer commitments and less clutter. But did you know the concept of minimalism can also be applied to your finances?
Minimalism is a way to get rid of the excess so we can focus on the essential, creating space for what’s really important in our lives. By clearing away the financial clutter and simplifying the process, you can focus on what’s really important. Here is my financial minimalist approach.
If you don’t need it, don’t buy it. It’s as simple as that. Buy what you need and no more. I know it’s sometimes hard to do. But the rewards can add up quickly and you’ll begin saving more money than you ever thought possible. Start today by making a commitment to buy only what you need.
Build an emergency fund. I’ve written before about the importance of establishing an emergency fund, and if you haven’t already done so, that should be your first priority. Until you establish an emergency fund, you’re always going to be living paycheck to paycheck. You can start by saving $50 from each paycheck until you have $1000 set aside. Ideally, you’ll want to set aside three months of essential living expenses.
Avoid credit. Use Cash instead. When you use a credit card, you’re essentially spending money that you don’t have. In addition, studies show that we spend more when we pay by credit card instead of cash. If you’re using it solely to accumulate airline miles or other bonus rewards and you have the discipline to pay it off every month to avoid interest charges, then you are in the minority. Roughly 60% of active credit card accounts are not paid off monthly.
Have fewer accounts. When you apply for a credit card or a loan from a financial institution, the lender requires you to open up an account – even if you don’t intend to use it. Over time, it’s easy to end up with more accounts than you ever intended. And each one comes with its own monthly statement and tax forms, not to mention login and account information you have to retain. Take the time to gather all your credit card, bank account, and investment account information and see if some cleanup or consolidation is in order. You should also try to keep all your accounts with one financial institution.
Automate Bill Paying. Technology lets us automate most financial tasks, which will free up your time and give you greater control over your finances.Automatic bill paying can help you avoid late fees, prevent service interruptions, and give you peace of mind. But if you prefer to pay bills the old-fashioned way, there is nothing wrong with that. By all means if that works for you, keep doing what you’re doing.
Automate Savings. One of the best known ways to consistently set money aside is to automate savings. While we all have good intentions, when left to our own devices we often fail to follow through on our savings goals. Several online financial tools make saving money easy. But you can also have your HR Department deposit a portion of your paycheck into a separate savings account with your chosen financial institution and the remainder into your regular checking account.
Cut unnecessary expenses from your budget. Look closely at your spending and see what can be cut. Consider:
- Cable TV
- Magazine subscriptions
- Monthly payments for services you don’t really need
- Books – you could use the library instead.
- Coffee shops – you can make your own coffee at home.
- Storage facilities – consider selling your stuff instead.
- Eating out at restaurants – you could cook healthy meals at home.
Minimize your tax liability. Americans spend more money on taxes than on food, clothing and shelter combined. Yet, most of us don’t do any active tax planning. Contrary to popular belief, tax planning is not just for the rich. By finding strategies to lower your taxes and avoiding tax penalties, you may be able to rack up big savings. Tax planning can help you find areas where you can reduce your tax liability, often substantially. If you are paying a tax preparer to file your income tax return, in most cases your tax preparer is not providing tax planning advice to you.
Opt out of Consumerism. We live in a consumer-driven world, inundated by advertisers with graphic images that seek to define the ideal lifestyle and promote the accumulation of stuff. Most of us buy into it, only to find that even after achieving the ideal lifestyle, we are still unhappy. The first step in opting out of consumerism is becoming aware of it. The next step is deciding not to let it influence your buying decisions.
I hope these tips help you clear away the financial clutter in your life and focus on the things that are most important to you. Remember to stay consistent, and most importantly, keep it simple.