Our journey to Financial Independence

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Financial Minimalism Builds Wealth Simply

Money doesn’t need to be complicated. Actually, it’s one of the key reasons people are scared to embark on their financial journey… it just feels too hard. Between the overwhelming amount of well-meaning misguided advice and scammers. Differentiating right and wrong can feel impossible. 

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Photo by Laker on Pexels.com

Yet, whether you are a beginner or advanced streamlining your finances is liberating. Not only do you gain a clear understanding of your Net Worth but budgeting and tracking become easier. The idea behind Financial Minimalism is to identify what you truly need and cut the superfluous stuff. 

What is Financial Minimalism?

To answer that question, I looked into what Minimalism itself is. The definition from the Oxford Dictionary is: “an artist, a musician, etc. who uses very simple ideas or a very small number of simple things in their work”. Just like beauty can come from simplicity wealth doesn’t need to be complex.

Minimalism has gained popularity as a lifestyle. Stereotypically we picture it as wearing the same thing every day and living in a tiny house. Yet, one of my favorite creators Matt D’Avella shares shows through his YouTube channel that there is more to it. Finding the most efficient and simple way to lead your life. It allows you to focus on the parts of daily life you value. 

Doesn’t sound so bad, does it?

Financial Minimalism in simply put terms is using a small number of tools to power your wealth journey. As it’s key to remember that simplicity doesn’t mean easy or bad. It’s quite simply the idea of streamlining your processes. Making your money management an efficient afterthought instead of a constant struggle. Radical Fire shares great insights into saving rates with a simplified look into them here.

What do minimalist finances look like?

As I started my journey into personal finance, I decided I wanted it to remain manageable. It’s the main reason I invest but don’t trade. Instead of looking for small advantages every day – my money is in it for the long run. 

So it led me onto focusing on 3 key points:

  1. Consolidation
  2. Optimization
  3. Automatization

Consolidation

The first step of my minimalistic journey was identifying all the different accounts, brokers, pensions, and more I was “using”. 

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Oh my gosh… there were so many. On the plus side, I was able to increase my net worth by 1.5% by finding accounts I forgot about. A financial spring cleaning if you will. Thankfully I didn’t find any new debt. Since then I have decided to limit myself. I know have:

  1. Joint Account
  2. Current/Checking Account
  3. AMEX Platinum Everyday Cashback
  4. Pension Pot
  5. Vanguard Stocks & Share ISA
  6. Trading 212 General Investment Account

Ok, it’s still quite a list… But you should have seen it before. All accounts now have a clear purpose and use. My biggest decrease was taking my credit cards from 3 to 1. I was always hunting for the best reward program. Until I realized I don’t spend enough for it to be worth it. The conclusion of my research was the AMEX platinum as it gives me 0.5% cashback. 

Additionally, a joint accounted with my partner makes bookkeeping for our flat and relationship much easier. I keep my money in a current account with Virgin Money as they have generous interest rates at 2% for the first £1000 and 0.5% for the balance of the account. I avoid changing bank account regularly as going from 0.5% to 0.6% interest rate isn’t worth the admin. 

Instead of relying on abysmal bank account interest rates I’ve consolidated my investments into my Stocks & Share ISA with Vanguard and hold about 10% of my NW in individual stocks with Trading 212. You can learn more about investing styles with my article “Trading 212 or Vanguard, which investor are you?”.

Streamlining my accounts simply helps me keep track and answer my own questions rapidly. No longer do I wonder how much I have in X obscure brokerage account. A straightforward account structure makes it easier to seize investment opportunities when they present themselves.

Optimization

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Photo by Karolina Grabowska

Great you’ve now streamlined your accounts and feel 2 tons lighters. Does it stop here? Of course not, we can go deeper. I know this whole minimalism thing is feeling like a lot of work right now. Yet, it’s momentary pain for long-term gratification.

So what do I mean by optimization?

It’s simply the B-word… time for a good old budget. Although the way I like to approach it is to track my expenses and identify my spending patterns. This way I get to know myself and my habits. Following the trail my money left allowed me to find subscriptions I forgot about and sneaky platform fees. 

It also gave me a lens in how much I save without trying. I quickly realized I was consistently saving 25% of my income with close to no effort. Since then and by optimizing my expenses and increasing my income it has climbed up to 40% every month.

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Photo by energepic.com

By cutting superfluous expenses and optimizing my overall expenses I have been able to increase my monthly investments.

Automation

The hard work is behind you! Now that you have identified how much you can consistently invest and save monthly time to automate it. Using financial gurus favorite saying “pay yourself first”. I have a direct debit set to send 70% of my projected savings to my Stocks & Share ISA. The other 30% goes to my high yield saving account. 

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Photo by Luis J.

To become true to financial minimalism you want to have the less work possible. By automating every possible transaction you cover yourself from “forgetting”.

I used it first to build my emergency fund and now am saving to build my prospective house deposit. I was lucky enough to never have debt. If it’s your case focus on reimbursing your loans first whether they are credit cards or car payments. You can learn more about going debt-free with this article.

Once you have achieved a debt-free lifestyle it’s time to build your emergency fund! It might feel like you will never get to investing but having a strong financial foundation is the key to any strategy! Learn more about emergency funds here.

Are you a financial minimalist?

If you are reading this article you probably are. Yet there is always more we can do to simplify our finances. If there is one thing I want you to remember it’s that complex doesn’t mean good. 

Simply investing in an ETF tracking the S&P500 will outperform most complex portfolios. You might beat the market in 1 day but it’s highly unlikely in the long term. How have you simplified your finances?

It’s time to embark on your financial minimalism journey!

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1 Comment

  1. Yes minimalism is the answer. Simplify your life with automation, less accounts, and a simple strategy for investing like a low-cost index fund.

    I try to keep my financies quite minimalistic. I am a fan of the 3-Fund portfolio. My allocation is much more simpler than the 3-Fund portfolio. I have about 90% in VTI, 8% in VXUS, and 2% in BND. 98% in stocks and 2% in bonds. Buying and holding for long term creates less stress as in you are not looking at your account everyday.

    Financial minimalism seems like what my life is all about. I did not find the term until you wrote about it. Thank you Lionel.

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