WHEN IT COMES TO HER lifestyle, Chelsea Ricketson finds that practicing minimalism doesn’t just help her mentally or spiritually – it helps her financially.
“When you become an entrepreneur, you get quickly creative about: What do I need to spend money on and what don’t I?” says Ricketson, 30, who runs a CrossFit gym in San Antonio. “Minimalism applied to finance is just good budgeting,” she adds.
For Ricketson, using minimalism to budget involves making tough decisions about what expenses are necessary at home and at her business. It includes thinking twice about new purchases and setting aside enough money to weather a dry spell in membership at her gym.
“It helps to clarify for me what are needed expenses and what aren’t,” Ricketson says.
What Is Minimalism?
For the uninitiated, minimalism is a lifestyle in which participants think carefully about the items that bring value to their lives and eschew those that don’t. It can take many forms. Some people use it as a way to travel the world, owning solely the belongings in their backpacks, while others use it to scale back on unnecessary purchases or lead a more environmentally friendly lifestyle.
While the concept of minimalism has been around for years, it became increasingly popular after the Great Recession. More recently, it has seen a renewed interest with Netflix’s “Tidying Up With Marie Kondo,” in which a well-known Japanese decluttering expert encourages participants to keep items that “spark joy” while donating or trashing unloved belongings.
When it comes to relating minimalism to personal finance, financial experts note that there’s a relationship between the two. But many suggest leading a minimalist lifestyle in conjunction with practicing other good money-management skills to extract the greatest benefit.
“The idea of only focusing on that which brings you value is completely aligned with how you should be spending, saving and investing,” says Erin Lowry, author of “Broke Millennial Takes on Investing,” via email. “It’s important to identify mindless spending behaviors and make sure your financial habits truly align with your values and goals.”
For example, ditching an unneeded extra car as part of a minimalist lifestyle can have powerful financial benefits. Not only do you nix auto loan payments and insurance bills, but you slash maintenance, repair and storage costs.
But don’t forget that you can be a minimalist without being frugal. After all, if you only own one car – but it’s a $200,000 Lamborghini – then you aren’t necessarily saving money.
“It’s very easy to get caught up on what you’re doing and lose sight of why you’re doing it,” says Douglas Boneparth, president of Bone Fide Wealth in New York City and co-author of “The Millennial Money Fix.” “When the means starts to distract you from the ends, it doesn’t matter how justified they are.”
Can Minimalism Improve My Financial Health?
While minimalism and good budgeting overlap in many ways, experts note that minimalism isn’t a replacement for mindful money management. Here’s what to know.
Use it in concert with good budgeting strategies. You can use minimalism – and more mindful shopping habits – to improve your budget. But practicing minimalism doesn’t replace good budgeting techniques. Ask yourself whether you have enough control over spending, Boneparth says. Have you actually mastered your cash flow? Do you know where your money is going each month? These are essential questions to answer when improving your budget.
Lowry recommends taking a month to track every penny spent, including writing down how much you spent and the products you bought. After that exercise, do an audit of those regular expenses and nix unnecessary regular expenditures. “You should be looking for any consistent spending habits that you feel are either mindless or not actually providing you value or utility,” she says.
Align minimalism with your long-term goals. Look at the big picture, says Shannah Compton Game, certified financial planner and host of the podcast “Millennial Money.” “You want to make sure you’re also saving money for your goals,” she says. “Make sure that your money is going places (where it’s) helping you grow your wealth or get closer to your particular goals.”
That means that, in addition to tamping down on spending, you should be redirecting cash to savvy savings and investment accounts that are aligned with long- and midterm goals. For example, if all that unspent money is sitting in a no-yield checking account, think about moving it to a high-yield savings account, certificate of deposit or low-fee mutual fund, depending on your financial goals.
Be mindful – but not terrified – of debt. Some minimalists preach absolute aversion to debt, including mortgage debt and student loans. But financial experts caution that there can be room for savvy debt management in your budget.
Yes, you should absolutely pay down high-interest credit card debt and think twice before taking on new debt. But “the concept of leveraging money can be a really smart way to build your wealth,” Game says. “You just have to do it correctly and with the right kind of debt.”
For example, taking on a reasonable amount in student loans – the common rule of thumb is no more than your anticipated first year’s salary – might be an important investment in your future career and earnings. Aggressively paying down a relatively low-interest mortgage may not make sense if you have more pressing financial goals, such as funding your retirement savings account.
So think twice before eschewing all debt. People who can manage it effectively may find it to be a powerful tool.
Practice that same level of mindfulness in your financial life. As you reassess your belongings to determine whether they bring you joy and are worth carrying with you into the future, try the same exercise with your financial accounts.
Do your retirement accounts still carry relevance to your life, or should they be rebalanced in light of economic and personal changes? Does your savings account still meet your needs? Are you happy with your bank and your financial advisor? Take a moment to reconsider and reexamine the financial vehicles on which you rely in order to make your financial future brighter.