Minimalism in Personal Finance

Money is a source of stress for most Americans. In fact, 73% of Americans ranked finances as the biggest stress in their lives. 

There are many underlying causes to this worrying statistic. But among the top contenders are having too many monthly bils, overspending, medical expenses and an overly complicated financial picture.

That's where financial minimalism comes in. Financial minimalism can help alleviate some of the stressors that come with navigating your finances. Of course, the idea of "minimalism" depends on each individual and their specific financial situation. 

As such, a new variety of minimalism has emerged, which could help you break free of some of the stress of your finances. Are you ready to become a financial minimalist? 

What is financial minimalism? 

Financial minimalism is the concept of simplifying your financial life, focusing on the products and services that truly bring you value and ditching any that don’t.

Minimalism itself is the practice of living with only what  is required for your lifestyle and nothing more. 

Minimalism involves refining your possessions down into the bare essentials. Minimalists declutter their homes, lives and minds, focusing on what truly matters and eliminating what does not. 

Financial minimalists apply these same principles to their spending habits, their investments and their entire financial life. 

While there’s no clear-cut definition for financial minimalism, there are three main features of the practice that we should all be aware of. 

• Refining spending habits to focus on what matters most

• Simplifying banking, budgeting and investing

• Automating as many financial tasks as possible

We’ll discuss each of these factors in greater detail below.

Financial minimalism & spending habits

A key principle of minimalism is to identify the things in your life that bring you joy, fulfillment or purpose. Then, you can get rid of anything that doesn’t contribute to these key components of your life.

We can apply this principle to our spending habits. 

• Start by tracking down where your money is going each month. 

• Think about your spending categories and which actually bring you value or joy (and which do not)

• Eliminate spending that doesn’t contribute significant value to your life

• Start a budget with your new spending priorities in mind

For example, let’s say you are spending $200 per month on restaurants, $120 per month on cable and streaming services and $120 per month on clothing. 

After some thought, you decide that streaming services do provide you joy but that you don’t use cable that much. You cancel your cable bill and save $80 per month. 

You decide that restaurants and clothes shopping do bring you value but you realize you don’t need to spend quite as much. You drop your restaurant budget to $100 per month and your clothes budget to $80 per month. This saves you $140 per month. 

From these simple tweaks, you’re now saving a total of $220 per month! You could put this in a high-yield savings account, or better yet, start investing.  

Here’s a powerful perspective: That $220 per month, invested in the stock market at an average return of 10%, would result in over $450,000 after 30 years. 

Financial minimalism & financial simplicity

Simplicity is another important principle of financial minimalism. 

Simplicity could look like:

• Consolidating multiple checking or savings accounts into one

• Combining finances with your partner or spouse

• Consolidating multiple loans or credit cards into one loan

• Switching from picking stocks to investing in diversified index funds 

• Automating bill payments and other financial tasks (see below)

Simplifying your financial life can contribute to your peace of mind. 

In some cases, it could also save you money.

For example, if you have credit card debt, you may be able to consolidate your debt into a single loan or line of credit, often with a lower interest rate. This would mean you only need to make one monthly payment instead of several, potentially saving you money on interest. 

Tally† is a personal finance app that may help qualifying Americans pay off their credit card debt faster. Tally works by helping users consolidate debt with a line of credit. 

Financial minimalism & automation

Finally, you can become a financial minimalist by automating as many of your financial tasks as possible. 

This could mean:

• Setting up autopay on your credit cards

• Setting up automatic payments for all your bills

• Prepaying for certain bills (i.e. 6 months of auto insurance upfront, rather than monthly payments)

• Setting up automatic transfers to your savings account or investment account

These strategies can free up your focus and brainpower so that you can accomplish more important tasks – or simply have more time to enjoy your life. 

There are practical benefits too. Automating your bill payments can help you avoid late fees, for example. And automating your savings can help you get closer to your financial goals. 

Life is about balance — your finances should be too

Minimalism is often associated with extremes, however, it doesn't need to be –  and neither does financial minimalism.

The underlying idea behind financial minimalism is to be more intentional about your finances. That might mean cutting back on spending or it may just mean understanding why you spend on certain things. 

It might mean radically simplifying your financial tasks and accounts or it could just be a small shift towards simplicity. Financial minimalism might not be right for everyone. But if you’re open to trying new things, adopting a more minimalist mindset is well worth the experiment. 

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.