Financial Clutter: Minimalism in Personal Finance

Minimalism is a practice that proposes living simply in order to focus on life’s top priorities by removing the distractions of a cluttered life. While it does not directly address financial wellbeing, a natural side effect of practicing minimalism, or even adopting pieces of a minimalist mindset, is an improved financial position.

Decluttering life extends to decluttering personal finances. Creating the space to focus on priorities makes it easier to define spending priorities that provide the greatest happiness. When happiness is the focus, spending on happiness goals rather than frivolous urges becomes easier. Minimalists do not derive joy from consumerism, a key personal finance downfall for many.

Whether or not a minimalist lifestyle appeals to you, picking some key minimalist practices can improve your financial wellbeing naturally. A minimalist approach to improving finances can help individuals feel less constrained and more fulfilled than cutting parts of a budget to save money. Reframing budget cuts as cutting out distractions that decrease your focus on what makes you truly happy is generally more satisfying and maintainable.

Minimalism and Spending

Minimalism leads to a naturally frugal lifestyle. Going on a Target run that results in five new decorative pillows is simply not part of the minimalist life. Neither is adding ten frivolous items to an Amazon cart because an article told you they were 10 of the 25 top items to buy on Prime Day. Neither of those actions is inherently negative, but continuing similar actions will add a lot of clutter to your life—the kind of clutter minimalists try to avoid. These same habits, repeated over time, also impact your net worth in a negative manner. Not buying non-essential items means saving more money.

This is probably the most apparent way in which a minimalist approach impacts finances. However, the reframing of why a minimalist does not go on the Target run or Amazon binge is important. Someone trying to save money for the sake of improving their financial position probably convinces themself to resist making these frivolous purchases. However, the minimalist commits to their priorities and views frivolous purchases as a distraction to what is important. Those purchases are not a bundle of joy to which they are saying no, but a hindrance in achieving focus on what makes them happy.

Increasing mindfulness surrounding wasteful consumption naturally reduces money spent on what you do not value. It also makes it easier not to spend money because your focus on the most important aspects of your life makes spending or accumulating in other areas a negative activity pulling your attention from what is most important. For the non-minimalist, this still offers an insightful kernel in mindset shifts: By prioritizing your happiness spending goals, it becomes easier to say no to other types of spending because that other spending delays your most important goals.

Adding Simplicity to Your Banking

Physically decluttering is a well-known aspect of minimalism, but decluttering extends beyond the physical. By adding simplicity to the processes in your life, you declutter the mental space required to complete certain tasks. Mental clutter is just as harmful as physical clutter, and reducing it can help anyone.

In terms of finances, this means automating processes where possible. Determine the amount of money you want to spend on your most important spending categories in a year, and set up automatic monthly transfers to high-yield savings account buckets allocated for each category. At any point, you can check how much money is in the bucket to know how much you can spend on that prioritized category. Set up any employer 401(k) and/or HSA to automatically receive a deposit from your paycheck before the money even comes to you. You can also set up an automatic transfer to go to your Roth IRA the day after your paycheck hits your bank account, autopay your credit card, and set up automatic payment for routine expenses like car insurance or the water bill.

Automating these processes reduces the amount of attention you must allocate to these tasks. I spend no energy thinking about how much money to give myself for groceries in a given month. The amount I need, on average, is just deposited into the high-yield savings account for groceries, I use my credit card to purchase groceries, and then I pay myself the amount spent on groceries from the grocery high-yield savings account. These processes happen without me giving mental energy until that final transfer from the high-yield savings account to the credit card.

Making your financial processes run easily requires an element of simplicity within your finances. You should know how to quickly access any account, have accounts tied together as appropriate, and have as few accounts as possible to streamline processes. In particular, this element of simplicity means consolidating 401(k) accounts from prior employers by rolling all retirement funds into an IRA upon leaving a job (or into the 401(k) plan of your new employer). Having one IRA or 401(k) rather than five different 401(k) accounts with different employers makes tracking your progress towards retirement easier, and it likely saves you money on management fees since employer-sponsored plans tend to have more fees than an IRA holding index funds housed somewhere like Vanguard, Fidelity, or Schwab. Make your net worth easier to track and eventually use by simplifying it.

Nobody Cares About the Joneses

A minimalist does not care about keeping up with the Joneses because they take the exact opposite approach as the Joneses. While the Joneses are figuring out how to buy a new car, the minimalist is trying to figure out how to downsize to one car or no cars. Overconsumption is the antithesis of minimalism.

You do not have to take minimalism to its extreme to realize this beneficial quality for your financial situation. However, looking at overconsumption as a hindrance to prioritizing the important parts of life reduces the temptation to fall into consumerist traps. We all know that avoiding consumerist behavior will improve our finances, but recognizing that it hurts our enjoyment of life makes it easier to avoid these behaviors.

By avoiding overconsumption, you will find it easier to live within your means, making saving and investing easier. The simpler your life, the larger portion of your income you can save and invest. This makes building an emergency fund, paying off debt, investing for retirement, investing for children, or retiring early easier.

Minimalism Creates Opportunity

The simpler your happy life is, the less money you need to fund it. When you need less money to fund your happy life, you decrease your FI Number. Since reaching your FI Number early decreases risk, this fast track also decreases stress in your life, even if you have no aspiration to retire early.

Accumulating more wealth than you need to support your habits creates opportunity in general. It does not matter how you use that additional wealth, or even if you decide in a certain time frame. Having more wealth than you need to survive creates the opportunity of flexibility.

Flexibility is an important part of minimalism as well. Decluttering provides the flexibility to move more easily, seize opportunities as they arise, and change course when it becomes apparent that you should. By embracing this flexibility to your financial situation, you will experience the freedom of increased opportunities created from living simply.