Financial Minimalism is a stress reliever
1 in 5 American workers have left behind a 401k which now sits dormant. There are millions of millions of dollars that people have lost track of and sits idle. We have accounts for student loans, brokerage, mortgage, credit card, checking, saving, 401k’s, IRA’s, and the list goes on and on.
We have individual stocks to keep track of and recurring payments are growing in number. The subscription services market is set to grow to $1.5 trillion by 2025. There is too much for an individual, who is not a spreadsheet maniac to follow.
The core of financial minimalism is reducing the amount of stress that money plays in your life
If this sounds like you and you are struggling to keep track of your payments and accounts it might be wise to pursue financial minimalism. Financial Minimalism is the act of adding simplicity to your finances. With a little effort before hand it is possible to make your finances something that needs minimal work and will grow without you doing anything. Finances move slowly and keeping too watchful of an eye will stress you out more.
The core of financial minimalism is reducing the amount of stress that money plays in your life, even if something is not optimal, it is best to understand personal finance is personal for a reason. If it makes you happy to have 2 years of expenses in an emergency fund rather than 3 months, then do it, it won’t net you the most amount of money, but peace of mind its worth its weight in gold.
Step 1: Audit
This is the most important step. Get all of your accounts, recurring payments including subscriptions, bills, mortgage, rent, insurance, and more and more in one place. If you have a 401k account from an old employer, figure out the login. Get all of your investments, retirement, debt, credit card, savings, and all others in one place.
Once you have all of this information you can now add up the accounts and find your net worth ((investments + savings) - debt) = net worth. Then find all of your recurring payments, you can now add them up and find your monthly fixed costs. If your fixed costs are above 50%-60% of your take home, then this likely needs to be reduced. Luckily, for most people, when they audit they will find things that they forgot they are paying for.
Step 2: Reduce
If you have multiple savings, 401k’s, IRA’s and credit cards, you can probably reduce the amount of accounts you need. Start that rollover of the old 401k, close down a credit card that you do not use often. It is best to try and reduce the amount of logins that you need to find your money. Find your fixed costs and really think about which ones to cut, especially if some of them are recurring payments for expensive subscriptions. Having my fixed costs at 30% or below of my take home has opened ,y money to so many more opportunities. For more information about fixed costs Ramit Sethi talks about this often.
For me this is what I have done, all retirement accounts in one place. One brokerage account, one credit card, one debit, one HYSA savings account. I know having multiple credit cards can be useful for people that have the bandwidth to track that, but for me, it is not worth the space in my mind. Some people find it useful with their savings to have multiple accounts for emergency, and separate ones for bigger more immediate purchases. My suggestions is to open all savings accounts in the same place so it is one login and rename them to their purpose. Remember to close them down when you buy that car, or go on that vacation.
You should be able to calculate your net worth in 5 minutes or less
Part of reducing the stress of money and being financially minimalist is to stop looking at your accounts everyday, stop looking at the stock market everyday. Over time the market goes up but if you look at everyday you will feel the daily stress of moves. Reduce your obsession and let your accounts breathe. For me, I check at the 1st day of every month and add it to a simple spreadsheet. As long as it goes up overtime, everything is alright.
Step 3: Automate
If you have a w2 job and know when you will be paid, automate where that money goes. Send a percentage to retirement accounts, brokerage, savings and clear out your credit card. Start small. You will be surprised how much $50 dollars a week can add up overtime in the market. The point is to create a habit and understand that you pay yourself first. Pay off your bills and put money in the market and savings, then whatever is left over is your money.
There is nothing more powerful for financial minimalism than a credit card at $0
This above has been my strategy for employing financial minimalism in my life, but for everyone it will be different. Some people need intense budgets and apps to track all of their different accounts, but for me the best strategy has been just to reduce the amount I need to track. I keep it simple and all in one place, I avoid debt and pay attention to the long term. By employing financial minimalism you might be able to leave that net worth tracker and reduce another fixed cost, just an idea.