Financial minimalism

Minimalism is often mistaken for a “lack of stuff”. But in fact, it means the exact opposite – having enough of everything we need for a truly happy life. And we definitely don’t need to spend a ton of money on that.

Lucia Šimonová | Personal finance | 10. December 2021

“We often buy things we don’t need with money we don’t have to impress people we don’t like.“ Dave Ramsey

What is minimalism

The objective of minimalism is to achieve maximum joy and satisfaction in life. In order to be happy, we need to create enough space for things, people, and activities that fulfill us.

All the resources we need – time, energy, and money are considerably limited in life. Therefore, the first step is to give it some serious thought and sort out everything that takes away these valuable resources. However, if you think it’s only about the material stuff, you are far from the truth.

Minimalists, for example, put their relationships in order and avoid those that are toxic. They are ready to change their job, which takes away their energy, possibly forcing them to spend a lot of time commuting. They devote a big part of their efforts to care for their health, order in finance and, of course, order in material matters.

From this point on, each person forms their own detailed idea of minimalism. What for one person may be a source of inner fulfillment, may be a source of enslavement for another.

Money and materialism

Order in personal finances can relieve people of stress and help them make more radical life decisions, such as changing jobs or housing.

However, we are caught up in the consumerism culture with marketing constantly encouraging us to desire new things. On the TV, they keep drumming into out heads that our happiness depends on a huge house with a pool.

Kids learn from their peers that if they want to fit in, they need an iPhone, electric scooter, and designer clothing. Explaining to them that’s not the case can be almost impossible. We can only lead them by our own example.

As a result of comparing ourselves with the others, the stuff on the wishlist piles on faster than we would like. We throw stuff away before it’s worn out, or we store it like elderly do because “it might come in handy again”.

Don’t get me wrong. It’s not wrong to own stuff, especially if it serves us well. However, if it remains unused or the maintenance costs us more energy than it benefits us, we become slaves who must constantly move it, do repairs, clean it, charge it, look for it...

Logically then, the less stuff we have, the:

less time we kill by shopping,
less money we spend,
less energy we need to take care of the purchased items,
quicker we clean up the house/apartment,
faster we get packed on a holiday,
the better overview we have,
less is going to get broken,
fewer items are losing value,
the less waste we produce.

We buy stuff with our time spent at work

Would you really buy all the things you have around you, if you had stopped to think before the purchase, how much time did you have to, or will have to, spend at work to buy them? While you may enjoy your work, wouldn’t you prefer to spend this time with your family, friends, travelling, doing sports, your hobbies, helping others or starting your own business?

If you look into all the rooms in your house or apartment, how much time did you have to spend at work to buy all the stuff there? Was it all worth it? How much time would you get back if you got rid of all the unnecessary stuff?

Picture: Price tags show the number of days spent at work (considering a net income of 1 000 €).

Financial minimalism

And what about more expensive purchases? We often look for arguments why to indulge in a new car. Birth of a child, new job, promotion... However, by the purchase we only set ourselves for more time spent at work. But what is the difference between an expensive care compared to a cheaper, although possibly used, car? Which will bring you more satisfaction and less stress?

Car price: 50 000 Euros -> 4.2 years at work
Car price: 20 000 Euros -> 1.7 years at work
Car price: 7 000 Euros -> 0.6 years at work

How much of this time would you rather devote to a different activity?

Similarly, this applies to housing:

Price of the property: 300 000 Euros -> 25 years
Price of the property: 200 000 Euros -> 16.7 years at work
Price of the property: 100 000 Euros -> 8.3 years at work

In all the examples, we operate with the fact that the salary does not cover any other expenses. No mortgage interests, lease, no food, travel, furniture... The actual time spent at work is therefore much longer.

How to avoid overconsumption?

Marketing has never used so much psychology in ads as it does nowadays. Moreover, credit card companies are conducting major psychological research to make the path to overconsumption even easier for us. However, the minimalists are immune to this, becasue:

They have a perfect overview of their income and expenses which they use exclusively for the stuff that makes them happy,
They have a large emergency fund which allows them to make big life changes while keeping their cool,
They invest to create more financial resources for their favorite activities,
Before shopping, they make a list of what they really need and stick to it,
They always consider whether the purchase will bring them joy and not headaches.

How to clean up your life?

Step 1: Make a list of 10 things that bring you the most joy in life. If you’ve been excited about FIRE, your list is probably already finished. Example of a list:

Family barbecue
Preparing non-traditional dishes
Hiking in the mountains
Beer with friends
Walking the dog
Learning a foreign language
...

Step 2: Make a list of everything you own (ideally every trifle, although it takes a little effort). Estimate how much each of the things cost you. Compare this list with the list of what makes you happy.

Step 3: Be honest with yourself and get rid of the stuff that costs you time, energy or money and doesn’t bring you any benefit or joy.

Taking this step is certainly difficult. Some of the stuff is connected to our memories, such as the clothes your children have grown out of. However, these things might be holding you back from fully enjoying the present.

So you don’t need to get rid of everything right away. Feel free to keep something for the next round of cleaning up.

What has minimalism allowed me?

I began to apply minimalism in my life four years ago. Gradually, I was able to cut my monthly expenses to half and invest the rest of the money. This way, I have shortened my path to financial independence by more than 20 years. I currently expect to to achieve it at 45 but I believe that I will still be able to reduce this figure.

Furthermore, it has allowed me to work on my own projects and keep growing. I am wondering, to what extent will it allow me to improve my life even more.