Could Minimalism Improve My Finances?
As an approach to life, minimalism is most commonly considered a way of reorganising your home—but its principles can just as effectively help you reorder your finances.
Minimalism is an overarching philosophical approach to life whereby you declutter your home of material items that neither afford utility nor bring you joy. It’s all about prioritising what’s actually important and necessary in your life.
A minimalist budget will not necessarily require you to spend less money—you may find yourself as much in need of a loan as the next person—but what it does entail is a complete revolution in your mindset and approach to personal financing. Could it be right for you? Read on to find out if minimalism could improve your finances.
How to start a minimalist budget
A minimalist budget is a system that involves simplifying your finances without having to compromise on achieving your financial goals. It will provide you with greater clarity on what you’re actually spending your money on — and whether those purchases are worthwhile in the long run.
Define and prioritise your financial values
If you’re looking to cut out unnecessary financial concerns from your life, you first need to gain an understanding of what you most value spending your money on — which will define your financial priorities.
This could mean donating more money to charity, or saving a far more substantial percentage of your income. Perhaps you’d like to live a debt-free existence, retire early, or create a hefty buffer between your income and expenses.
Once you have figured out how you wish to leverage your finances for the foreseeable future, you can lay out goals and work out your plans for reaching them.
Maybe first and foremost you’d like to have all your debts paid off within five years, save for an emergency fund, or create a long-term plan that would enable you to retire by your mid-50s.
Alternatively, if you’re struggling to clarify what your financial priorities are, you could work out a 50/30/20 budget: allocate 50% of your income to your needs, 30% to your wants and 20% to your debts and savings.
Adopt a mindset of owning—not paying
Typically, people aim to stretch their finances to their limit, seeking out the lowest possible payments and getting what they consider to be good deals. However, sometimes this leads to living beyond one’s means, setting up a lifestyle that you may well feel entitled to—but that you cannot afford, and potentially risk running into financial trouble using buy now pay later schemes.
A minimalist budget requires flipping this mentality and thinking in terms of ownership, not payments. This may mean becoming more accepting and content with your own financial circumstances and losing interest in comparing your life and material possessions with those of others.
Simplify your finances
Current and savings accounts
A minimalist budget will likely consist of one savings account and one current account. The current account may be used for both your essential and non-essential expenses, with your savings account used as an emergency fund. No more having multiple accounts for holidays etc
Don’t forget to review overdraft accounts
When reviewing your finances include any overdraft current accounts that you’re regularly dipping into on a monthly basis. Consider ways that you can pay off your overdraft to help you better manage your short-term borrowing. These accounts can come with high overdraft interest rates.
Having a single credit card could simplify your finances. You might have to give up some rewards by cancelling others, but in the long run you’ll make it easier to stay organised and on top of tracking your expenses.
Look at any debt you have with multiple providers and consider if debt consolidation could help you streamline your finances further. Debt consolidation allows you to turn multiple debt from business loans and personal loan payments into one consolidated loan and monthly payment. This can potentially offer you a better interest rate and added convenience, while you streamline your finances.
It’s worth noting that debt consolidation can be expensive, so its worth looking into your individual circumstance to see if it’s the right approach to simplify multiple debts.
Providers like Pension Bee offer the ability to easily put your pensions into one single pot. This could be beneficial in keeping track of the pensions you accumulate over your working career.
When looking at your pensions you should get formal pension advice to check that consolidating your pensions is the right approach for you and your workplace pensions.
Create a spending plan
Break down your income and expenses, then decide where every last pound is to be allocated. The expenses you list in accordance with your minimalist budget might look something like this:
- Personal care
- Professional services
Keep your budgets spreadsheet simple. Review it regularly and hold periodic ‘meetings’ with yourself (and your partner if you’re happily coupled) to evaluate and revise your budget.
There are also lots of budgeting apps out there to help you better manage your budget by showing you how much you’re spending in each category.
Automate your payments
Minimalism is all about embracing simplicity, so automating as many of your personal and business payments as possible can serve to seriously declutter your thoughts and administrative priorities.
Automation might involve auto-debiting debt repayments on the same date every month or directly depositing into your pension account.
Just as a minimalist budget entails evaluating past consumption in order to understand spending habits, so it also involves casting a querying eye over future potential purchases.
- Are they necessary?
- How long did you have to work to earn that money?
- Can you avoid making the purchase?
How can a minimalist budget improve my finances?
Embracing a minimalist lifestyle is a big step, so be kind to yourself if you wish to adopt a minimalist budget. Don’t be too critical if you struggle at first; it’s a formative process!
In fact, many people who adopt minimalist living do not do so with the express intent of improving their financial situation—but a huge number do come to realise the positive effect that the philosophy can have on their spending habits.
Minimalism entails a rejection of overconsumption, encouraging instead a limit to material possessions. This means buying less and spending less. This often has the combined effect of reducing your debts.
A minimalist budget also forces you to prioritise your spending. This doesn’t mean not splashing out on a treat; rather, it entails spending with care and deliberation. Like it or lump it, you will end up distinguishing what’s wasteful from what’s needed if you’re to live life as you want to.
Is financial minimalism right for me?
Beyond crafting a life less cluttered and more stuffed with meaning, there are no hard and fast rules to minimalism. You are free to define and live your own unique interpretation of it.
When you apply the minimalist philosophy to your finances, you could become far more aware of your spending habits—and awareness is the first step in changing your behaviours, should you wish to.
John Ellmore is a director of NerdWallet UK and is a company spokesperson for consumer finance issues. John is committed to providing clear, accurate and transparent financial information. Read more