In the world of consumption we live in today, the thought of living by the mantra “less is more” is a far fetched idea. I mean, if you don’t own at least 3 more iPhones than your best friend then you’re a loser right? Well, let me tell you that it’s true that less can be more. For instance, less fights with your partner means more happiness in your relationship. Moreover, less fast food means more sexy glances from Becky at the gym. The same principle can be applied to your money and as such I want to share with you exactly how financial minimalism will make you wealthy!
What is financial minimalism?
So, first off, what is financial minimalism? While there is no official definition for this term, the word minimalism can be defined as a style of extreme simplicity and when taken in the financial sense it basically just means that your financial life revolves around what you need and cuts out what you don’t. For example, do you need to own a few shirts, yes. Do you need to own 50 designer shirts? Probably not.
Now, beyond cutting down the number of garments in your closet, what are some other ways that people employ financial minimalism in their lives? Good question. As I just mentioned, financial minimalism can be employed in the consumer goods you buy but it can also manifest in many other aspects of your daily financial life. In fact, whenever I talk about saving money, I discuss cutting down your big 3 expenses of housing, transportation and food and financial minimalism can be applied in these areas of your finances as well.
The Big 3
For example, when it comes to housing, do you really need that 2,500 square foot home for just you and your dog? I mean, last time I checked, a poodle didn’t need 3 bedrooms to itself. By identifying that a two bedroom apartment will do, you can easily save yourself hundreds of dollars a month while also still meeting all of your living needs.
Now, what about that fancy car of yours. Sure, it feels great to always have a brand new car in the driveway but is it necessary? After about the fifth drive in that car the new car smell will lose its flair but those massive monthly payments won’t cease to sting when the money leaves your account. In this instance, financial minimalism would indicate that a used vehicle will still get you from point A to point B without the hefty price tag and this is a fact that financial minimalists relish in.
Finally, let’s talk about food. Do people who want to live minimalistically eat? Yes. Do they let their eating habits take every penny from their wallet? Absolutely not. For financial minimalists, their eating style is more likely to come in the form of bulk food prep rather than Postmates and dinners out. Both options will fill you up but the cost of the two are vastly different.
Now, at this point you probably think that being a financial minimalist sounds extremely mundane. I mean, what’s the point of making money if you’re going to be living in a tiny box and only eating ramen noodles right? Well, first, not everyone takes financial minimalism to that extreme but secondly to those who have adopted financial minimalism, this way of living feels anything but restrictive and here’s why.
We live in a world where society places on us the expectation to own as many things as possible. Our possessions in effect equal our worth. This is why people who drive around exotic cars get more praise than Joe who drives a 10 year old Prius. Alternatively, buying the nicest house on your block will have your family and friends raving about your new place much more than that responsibly bought one bedroom apartment that would suit the financial minimalist lifestyle instead.
Unfortunately, this false sense of worth that most of us attach to our material goods is hurting us in many ways. First, it is making us strain ourselves to never miss a step on the consumer spin wheel. These days, over 50% of Millennials are working side hustle on top of their 9 to 5 jobs and while part of this effort is due to stagnating wages and significant rises in cost of living, it’s also due to people’s fascination with possessing every material good under the sun. This is why you see people still lining up to get the newest iPhone the day it’s released even though the new model is nearly identical to the one they already own.
However, for 99% of people, living this materialistic lifestyle is simply unsustainable. Even if you have a high-paying job and max out your credit cards, there will always be someone else with more spending power than you who will make your new Jaguar look like a lemon beside their 2021 Bugatti.
The financial minimalism advantage
It’s this realization right here that presents the first marker of why people who practice financial minimalism obtain wealth earlier than the average American consumer. Instead of playing a game they can’t win, they unplug from the consumer matrix and instead seek enjoyment from what they have and not what you hope to have in the future. For instance, a financial minimalist will be just as happy, if not more happy, with two plain t-shirts than Chad who owns 50 Gucci shirts and counting.
Now, I am not saying that as soon as you adopt the financial minimalist lifestyle that you will be wealthy. Doing so won’t drop $5 million into your bank account overnight. The first step towards wealth for those who adopt this practice is the attainment of feeling wealthy before their bank account supports this fact. For example, someone who can happily live off $20,000 with an income of $100,000 will feel significantly more wealthy than someone who earns $100,000 and spends $100,000.
Now, you may be saying to yourself, “but I don’t want to just be wealthy in my mind, I want more zeroes in my bank account as well” and this too can be achieved when financial minimalism is adopted.
As I pointed out earlier, when you adopt a financially minimalist lifestyle, you will naturally be living much more frugally. It’s pretty obvious that owning a mansion versus a one-bedroom apartment will have you paying two very different mortgage payments and these savings will appear in all aspects of your finances once you learn to live off less. However, one cost that many people overlook and that may be the most important for building monetary wealth is the opportunity cost that financial minimalists sidestep by adopting this particular way of living.
Now, if you’re unfamiliar, opportunity cost is the benefit given up when another alternative is chosen. For instance, staying out late and getting blackout drunk comes with the opportunity cost of having a productive morning the next day. In a more consumer-centric example, buying that $50,000 boat means giving up an opportunity to acquire another rental property. Unfortunately, in life you can’t have your cake and eat it too and opportunity cost is a great example of this being the case.
However, guess what happens when you stop living your life with the sole purpose of owning every material good ever made? That’s right you stop incurring these opportunity costs. For example, since you didn’t buy those designer shoes, you didn’t give up the chance to save money this month, spend money on a course or buy a shelf’s worth of new books. As you’re probably coming to realize, financial minimalism is simply about allocating your resources in a less consumer centric way and this is powerful when it comes to your wealth creation efforts.
As you can imagine, when you aren’t blowing every last penny you have on useless material items, you will have more money to save and invest. For most people, investing for the long-term is the only way they will ever achieve real levels of wealth and they can thank their friend compound interest for that pleasure. However, one often overlooked way that financial minimalism will contribute to your overall wealth is by giving you back time that you wouldn’t otherwise have if you were in a constant spending frenzy.
As I mentioned earlier, a ton of people these days are working two or more jobs and many of these circumstances are due to people trying to keep up with their poor spending habits. Fortunately, when you adopt financial minimalism, you unlock precious time that you would otherwise not have access to which is wealth in itself if you ask me. However, in a more practical sense, this time gained back is half of your wealth building pie. We just talked about having more cash as being a way to generate significant wealth through regular investing but you should be putting your abundance of time towards making more money as well. This means that instead of being forced to work more overtime at your dead-end job or working part-time for minimum wage, you can instead spend time on a side hustle or business that will allow you to take your income to the next level. Whether you realize it or not, those who become wealthy and those who don’t only have one thing in common: how they allocate their two most important resources of time and money. By adopting financial minimalism, you will instantly gain access to more of both which is why it is such a powerful wealth generation tool that anyone can employ.
Putting financial minimalism into action
So, now you know that financial minimalism can streamline your path to wealth right? You may even think that it sounds perfect in every single way but I can tell you it isn’t. Sure, being a financial minimalist will allow you to live more simply and have access to more money than you’ve probably ever had before but as the saying goes “without sacrifice there is no progress” and unfortunately many people take this idea of sacrifice a little too far.
We see this mistake being made all the time in the Financial Independence/Retire Early (FIRE) community where people are enticed to live off as little as they can in an attempt to retire at the earliest possible age. As such, they wear ragged clothes, once shower once a week and refuse to get around by any other means than on foot. Now, I am all for saving money but when I have to sacrifice my personal hygiene to get there, one must reconsider the cost of their actions and this is where the imperfections of financial minimalism come to light.
Many people who are striving to make the most financial progress in the shortest period of time often give up everything in their day to day life to get there. They cut out that coffee date with that cute girl at work or they push off a family vacation until they have at least $250,000 in the bank. Sadly, that girl isn’t going to wait around forever and your opportunities to vacation with your kids will only last so long which is why financial minimalism needs to be met with some sensibility. Should you still prioritize living simply? Yes but not at the cost of giving up all enjoyment in your day to day life.
So, the final question we need to answer here is how do you maximize financial minimalism to achieve all of your financial aspirations without ruining your lifestyle in the process? Here’s what I suggest.
First, gain an appreciation for what material goods in your life actually bring you value and which don’t. For me, having a home gym allows me to be self-reliant when it comes to meeting my health goals and saves me a ton of time commuting so this is a purchase that makes sense for me. However, buying an expensive car that would only cause me heart palpitations when I bring it to the dealership for repairs isn’t where I feel my money is best used. Taking some time to assess your own spending values will allow you to start to craft a spending plan that makes sense for you.
Then, once you cut out all of these unnecessary expenses, ideally you will have more access to the two core resources that are required for wealth generation: time and money. With your time you need to be using it to learn and grow. More specifically, since you should have saving down pat at this point you want to learn how to earn more money whether that’s getting ahead at your job, starting an online business or developing a skill you can use as a well-paid freelancer.
Then, when you continue to gain access to more money, the final step is to move as much of that money into assets that will grow your wealth over time. Assets like real estate, growth stocks, index funds are all vehicles for wealth creation that you must use to get ahead because saving alone simply won’t do.
At the end of the day, adopting the financial minimalism lifestyle is about two things. First, it’s about detaching from the consumerism mindset that plagues most people which in turn will naturally allow you to feel more financially abundant. Second, it’s about freeing up more cash to put towards your future wealth goals. Therefore, when done right, becoming a financial minimalist now will have you feeling wealthy now and being wealthy in a matter of time!