Many of us understand that personal finances are much more than income and expenses. Our spending habits, which directly impact our personal bottom line, are also affected by our emotions, values, and desires. This is known as the “psychology of spending.” Spending money, as opposed to saving, provides an instant feeling of gratification and control. We may spend to fill perceived voids in our lives, to please others, feel “better than” others, or a whole host of other emotionally-driven reasons. We get stuck trying to maximize our social standing, happiness, or clout. In contrast, maximizing our savings does not provide that immediate emotional fulfillment (even if it would logically allow us to have more of those things that we emotionally desire).
While we may understand this emotional complexity around spending, many of us have a more difficult time figuring out how to control these emotions. Many different psychology-based approaches exist, and the newest is the minimalist approach to finances. This movement is based around the minimalist philosophy that less is more. Traditionally, minimalist approaches apply to cutting down the clutter from our homes, personal lives, and diets. It is no surprise then that the minimalist movement would carry over into finances. This minimalist approach to finances lets you clear away the “junk” in your budget so you can clearly see where your money is going. Such insight is integral for setting and reaching financial goals.
Get to Know Your Goals
The first step in creating a minimalist financial plan is to fully understand your personal values and goals. The key is to simplify your financial goals so that they are concrete and concise. Rather than having 10 different saving goals, you can reframe those goals with a specific dollar amount that covers all categories. For example, a person may be saving for a down payment on a car ($4,000.00), a new phone ($800) and a vacation ($2,000.00) during the year. Rather than trying to track and prioritize three separate goals, instead, she could simply set one goal of saving $6,800.00. This makes it easier to save and keep on track.
Study Your Spending Habits & Make a Plan
Next on the list for creating a minimalist financial plan budget is to evaluate where you spend your money, and more importantly, why. This evaluation is more than simply listing out general budget categories, such as beauty services or clothing. Instead, you look at each specific purchase, and then figure out if those expenses further your financial goals. For example, if a person spends $500 a month on clothing, he would ask if these purchases put him closer to his financial goals or are satisfying a personal desire. Perhaps the $500 is necessary for work attire, or perhaps he could find a less expensive clothing supplier to purchase from, or even just cut the expense in half or more. This helps weed out superfluous purchases from the necessary.
Keep Your Banking Simple
The final step in creating a minimalist financial plan is to consolidate accounts as much as possible. A minimalist budgeter typically has one checking account, one savings account, one credit card that is only used in case of emergency, and a simplified investment/retirement plan. This again helps keep track of spending and saving, which makes it easier to stay on track financially and ease the stress of monitoring multiple accounts.
A minimalist approach to spending may not be right to everyone, but it can shift the focus on spending from emotions to necessities. It allows consumers to spend intentionally and learn to live on less (in order to meet long-term financial goals). Do you think a minimalist financial plan can work for you?