Minimalism is a lifestyle choice that centers on embracing simplicity and eliminating physical, mental, or emotional clutter. Financial minimalism is an extension of that idea. It advocates for spending less on material items and investing your time, money, and energy into experiences that enrich your life in some way.
Becoming a financial minimalist can help you to improve your money situation if you’re able to pay down debt, grow savings, and invest to build wealth while still enjoying life. Adopting a minimalist finance approach can take some getting used to but can have a significant payoff and lower your financial stress too.
Read on to learn:
• What financial minimalism means
• What the benefits of financial minimalism are
• How to practice financial minimalism.
What Is Financial Minimalism?
There’s no set definition of financial minimalism or what it means to be a financial minimalist. Broadly speaking, financial minimalism is about taking a “less is more” point of view when it comes to spending on unnecessary things and focusing more of your attention, money, and energy on experiences and purchases that add value to your life.
Minimalist finance emphasizes being intentional about how you use your money. Rather than spending money impulsively or mindlessly, you’re considerate of whether a particular purchase might offer any lasting benefit.
Instead of clearing out the junk in your home, you’re clearing out the clutter in your financial life.
In this way, becoming a financial minimalist can alleviate some money stress. You have guardrails in place for spending, you likely make fewer purchases, and you hopefully have less debt to worry about as well.
How Does Financial Minimalism Work?
Financial minimalism works by requiring you to be conscious of how you spend money. Becoming a minimalist with money doesn’t mean you live a deprived lifestyle. Instead, you choose to include only those things in your life that are meaningful to you and align with your values and minimalist belief.
Here’s what financial minimalists don’t do:
• Spend money aimlessly, without thought to what they’re spending it on
• Rack up high-interest credit card debt for unnecessary purchases
• Live above their means and spend more than they earn
• Forget about planning for the future and their long-term goals
• Neglect saving and investing.
Because financial minimalists don’t do these things, they also don’t worry as much about money, as mentioned above.
Sixty percent of Americans say they feel anxious when thinking about their personal finances, and 50% of Americans say thinking about money in general makes them feel stressed, according to joint research from the Global Financial Literacy Excellence Center at George Washington University and the FINRA Investor Education Foundation. Adhering to a minimalist finance strategy could help you to overcome the money stress in your life.
Benefits of Financial Minimalism
The exact benefits financial minimalism can deliver will depend on how you apply it. But generally, financial minimalism can benefit you in the following ways:
• Minimalist finance can help you reduce or eliminate unnecessary spending from your budget.
• Spending less allows you to save more or use extra money in your budget to pay off debt more quickly.
• You may be less likely to run up new debts if you’re living within or below your means.
• Minimalism can help you clarify and prioritize needs vs. wants in your budget.
• Being intentional with spending can help you to plan out your financial goals and direct money toward the things that matter most to you.
• Your home is likely to be less cluttered with “stuff,” since you’re cutting back on unnecessary spending.
• Your mind may feel less cluttered as well if you’re not constantly worrying about how much debt you have or how to stretch your budget and bank account until your next payday.
Those are all good reasons to consider minimalism. It can be an especially wise path if you’re interested in how to gain financial freedom for yourself and your family.
Tips for Achieving Financial Minimalism
Ready to give financial minimalism a try? These tips can help you create a personal financial plan for embracing a minimalist lifestyle.
1. Removing Monthly Subscriptions
Streaming and subscription services can seem like a money-saver. After all, spending $15 a month on Netflix is a bargain compared to spending $100 a month on cable. The problem is that many people end up paying for subscriptions they don’t use. That can include streaming services, gym memberships, subscriptions for apps or financial products like credit reporting, magazine subscriptions, and other recurring memberships.
Auditing your subscription services can help you find ones that you aren’t using and can afford to cut out. Even eliminating $25 or $50 a month in unnecessary subscriptions can free up money that you can use for something else.
2. Budgeting
A budget is essential for managing your money and pursuing a minimalist lifestyle. When you have a budget, you have a plan for how you’ll spend each month. If you don’t have a budget, it’s a good idea to make one (even a basic line-item budget) before tackling anything else on this list.
Here’s how you make a budget:
• Add up your monthly after-tax income
• Make a list of basic living expenses (your needs, including debt payments)
• Make a second list of everything else you spend money on (your wants)
• Subtract expenses from income
Ideally, you have money left over after doing the math. Those funds might go towards savings goals. If you don’t, you’ll need to go back to your expenses to see what you can reduce or eliminate in order to bring your budget in line.
3. Being Mindful of All Your Purchases
Financial minimalism is all about not spending money on things you don’t need. If you struggle with impulse spending, you might try imposing a 48-hour waiting period on purchases that you didn’t plan for in your budget. That cooling off period can give you time to decide if it’s something you really need.
You could also try a no-spend challenge where you challenge yourself not to spend money on anything for a set time period. No coffee to-go, movies on-demand, and so on. Some people pull this off as a 30-day no-spend challenge.
4. Cutting Eating Out and Focusing on Eating at Home
Eating out can kill your budget and sabotage your financial minimalist efforts. Planning meals at home and grocery shopping only for the items on your list can be an easy way to get food spending under control.
If you’d still like to eat out occasionally, you can set up what’s known as a sinking fund just for dining out and add a little money to it every payday. For example, you could save $20 per month in the fund, then once you hit $100 you could treat yourself to a meal out. That way, you still get a reward while being disciplined about saving and planned spending.
5. Not Showing Off for Social Media
FOMO or fear of missing out can lead you to make poor financial decisions in order to keep up with what everyone on Instagram is doing. If you’re tempted to show off on social media and purchase things to do so, consider a social media fast. Taking a break from your social accounts can be a good way to put what matters to you into perspective. You may well feel less pressured to spend money projecting a certain lifestyle online.
6. Reducing Debt If Possible
Getting rid of debt can allow you to reduce your monthly expenses and stretch your money further. If you have credit cards, student loans, or other debts, consider which ones you’d like to pay off first. Then formulate a plan for paying down the balances. There are ways to pay off debt without using savings.
You might also seek guidance from a nonprofit like the National Foundation for Credit Counseling, or NFCC.
7. Cutting Out Unnecessary Expenses
Anything you don’t need to live is technically an unnecessary expense. You might try minimizing purchases by avoiding those things that aren’t vital. Depending on what your budget looks like, that might include new clothes, electronics, online shopping, or anything else that doesn’t add positive value to your life in some way.
The more unnecessary expenses you can cut out, the better when aiming for financial minimalism.
8. Living Below Your Means
Those who are thinking about “how to improve my life financially,” take note of this idea. Living below your means simply means that you don’t spend more than you earn. If you’ve done your budget and your expenses are higher than your income, you’ll either need to find ways to cut spending down or earn more money. The wider the gap between what you spend and what you earn, the more money you’ll have to fund the financial goals that are important to you.
Recommended: Guide to Financially Downsizing Your Life and Saving Money
9. Getting Rid of Items You No Longer Need
Extra stuff around the house can make your home feel cluttered and disorganized. Ditching things you no longer need or use can make it easier to breathe and reinforce your commitment to living simply. As you sort through your things, consider what you can donate or give away, what should be trashed, what can be recycled, and what you might be able to sell for a little extra cash. Whether you try a Freecycle site, post things on eBay, or give your excess stuff to a local charity, your loss can be someone else’s gain.
10. Investing If Possible
Saving money is important, but investing it can be the best way to build wealth. If you’ve pared down your budget and have money to save and invest, consider putting some of it into the market for long-term goals. While there is risk involved, historically you can reap the best rewards this way. Following advice about investing for beginners can help you get started.
(Have a shorter-term goal in mind? or a high-yield savings account, where it can benefit from the power of compounding interest.)
11. Embracing Free Time
When financial minimalism is the goal, you sometimes have to be creative about how you spend your time. Rather than going out for a pricey dinner with friends, for example, you may be spending more time at home instead. Hosting a potluck or taking a walk with a friend can be an inexpensive way to socialize.
Finding ways to embrace your free time can be a good reminder of why you’ve chosen to pursue minimalism. Some of the ways you can do that include exploring free (or low-cost) hobbies, getting into an exercise or meditation routine, or contemplating your financial goals and your next steps along the minimalist path.
12. Separating Money for Yourself First
“Pay yourself first” is an oft-repeated piece of financial advice and it simply means that before you pay any other bills or expenses, you set aside something in savings. How much you should save a month will vary person to person, and where the money goes may differ.
It could mean depositing $50 to start an emergency fund whenever you are paid or contributing 10% of your annual salary to a 401k at work. Automatic transfers on payday can help whisk the money to where you want it, rather than have it hit your checking account and tempt you to spend it.
Managing Your Finances With SoFi
If you want to spend less, save more, and lower your money stress, giving financial minimalism a try could help. Becoming a financial minimalist can help you really take control of your money and grow it.
Keeping your money in the right place can give you a boost, too. With SoFi, you can get checking and savings in one convenient place, with no hidden fees. When you open a bank account online with direct deposit, you can earn a competitive APY on balances, which means your money may grow faster. Eligible accounts can also access their paycheck up to two days early.
FAQ
Can minimalism cause financial freedom?
Minimalism can help you to achieve financial freedom if you’re committed to paying down debt, cutting out unnecessary spending, saving, and investing. If you follow minimalist principles, it’s possible to live well on less, build wealth, and perhaps even retire early.
Can minimalism hurt financial freedom?
Minimalism won’t necessarily hurt financial freedom, though it may take some getting used to in the beginning if you feel deprived because you’re spending less. Implementing one or two steps toward financial minimalism at a time can make it easier to transition to this kind of lifestyle gradually.
Is it OK if I am not a financial minimalist?
Financial minimalism may not be right for everyone and that’s perfectly acceptable. You can, however, apply some of the principles of financial minimalism to improve your money situation. For example, making a budget and dropping a subscription or two can be relatively easy ways to help rein in overspending and avoid debt.
Photo credit: iStock/mphillips007
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SOBK0622027
