Have you ever heard of minimalist money? How about financial minimalism or financial minimalists?
The word minimalism is often associated with simplifying and decluttering our possessions, but minimalism isn’t limited to our physical environment. Minimalism can help us streamline every aspect of our lives, including our finances.
What is Financial Minimalism?
Minimalism means doing more with less. Minimalists declutter to spend less time managing and maintaining their possessions. Financial minimalists declutter their financial lives to spend less time managing their money and investments.
Money doesn’t have to be messy or complicated. Financial minimalists aim to simplify their financial transactions and record-keeping. You don’t need to pour over spreadsheets every month or track every penny for the rest of your life.
After decluttering my physical environment and embracing a minimalist lifestyle, I chose to reduce my financial management activities, credit cards, and bank accounts.
Steps to Become a Financial Minimalist
Below, you’ll find ten ways to become a financial minimalist. If you want to practice financial minimalism, check out the list.
1 – Simplify Your Banking: Minimalist Banking
Minimalist banking reduces the number of banks you use. Pick the bank with the highest interest rate and lowest fees. Move your money into accounts at this bank and close the others.
Why? Because banks often change their requirements for daily and monthly minimums. If you aren’t keeping an eye on your money, you won’t know when those rules change. If you have money in many different banks, it’s tough to keep track of the changes.
Consolidating accounts allows you to quickly and easily monitor your money. With most of your money in one place, you don’t have to log in to multiple sites or use third-party software to see the big picture.
Do you use Mint or Personal Capital to track your accounts? I don’t. I log in to my bank account and view my bank balances without third-party software.
If you can’t resist opening accounts for bonuses, collect the reward. Then move your money back into a consolidated account as soon as you can.
Make sure you move all of your money when consolidating. You may incur additional fees if you leave just a little bit behind or don’t close the account entirely.
2 – Reduce the Number of Bank Accounts You Manage
Next, reduce the number of bank accounts you maintain. Some people like to manage their savings goals by using various accounts.
I understand this desire, but it can complicate things. To simplify matters, use minimalist banking to maintain fewer bank accounts. My husband and I choose to dump our money into one savings account rather than divvy the money up for specific financial goals.
There is one caveat to this rule. Suppose you hold more than $250,000 in savings accounts, checking accounts, Negotiable Order of Withdrawal (NOW) accounts, money market deposit accounts (MMDA), or CDs. In that case, you may want to use multiple accounts spread across various banks.
FDIC insurance only covers up to $250,000. If you hold more than that amount you might want to divide the total across a couple of FDIC-insured institutions.
Remember that FDIC insurance does not cover stocks, bonds, mutual funds, or other investment vehicles. So don’t worry about merging your investment accounts. It’s okay to maintain only one.
3 – Roll Over Your Old 401ks and HSAs
Do you own multiple 401k accounts or HSAs from old employers? If so, it’s time to combine them.
Before moving your money, figure out which banks offer the lowest fees.
Ask your 401k management company to transfer your money into your current 401k or perform a direct rollover to your IRA. Make sure you reach out to your bank and understand the process to avoid penalties or fees.
You can’t consolidate IRAs, HSAs, 529s, and 401ks with one another, but you can combine all accounts of the same type. To become a financial minimalist, you’ll want to consolidate all of your HSA money into one place and then do the same for your IRAs and 401ks.
Old accounts can rack up high fees after you switch employers, so dig up the details of your old accounts and move the money before you pay penalties.
4 – Reduce the Number of Credit Cards You Use
With steps one through three complete, it’s time to tackle your credit cards. Financial minimalists don’t walk around with a wad of credit cards in their wallets. Instead, they choose one or two.
Practicing financial minimalism may seem counterintuitive to those who make the most of their credit card rewards. I can hear the credit card churners screaming in agony, “Use one or two credit cards! That’s blasphemy! What about points? What about perks?”
While opening credit cards can earn you fabulous benefits, managing those cards and rewards is also a lot of work. You have to keep track of how much you’ve spent and how many days until the bonus period expires.
You won’t reap the reward if you don’t meet the spending requirements. Worse yet, you might pay an annual fee for a card that didn’t earn you a bonus.
You also run a greater risk of identity fraud and fraudulent transactions. Rather than holding a load full of cards in your wallet, choose one or two that provide the best cash back or travel benefits.
Cash back credit cards are helpful, but keeping track of which credit cards to use for groceries and which to use for travel can be a real pain. So pick one, two, or even three credit cards that provide all the perks and benefits you need.
If your other credit cards don’t charge annual fees, place them in a safe place and stop using them. If they charge a fee, consider closing the account. Be aware that closing too many credit cards at once can damage your credit score.
Make sure to use your points or bonuses before closing your cards, and if you keep your cards, don’t let the points sit in your accounts for too long. Credit card companies can change their rules at any time.
5 – Automate Your Transactions
To become a financial minimalist, reduce the number of financial transactions you spend energy completing. What’s the best way to do that? Automate as much as you can.
Removing physical clutter frees up your time. Automating your bills does the same thing! After signing up for autopay, you are less likely to incur late fees or other financial errors.
6 – Invest in Index Funds
As a financial minimalist, I don’t spend time picking individual stocks or tracking the stock market. Instead, I dump my money into three separate index funds and go about my day.
Some people will question this logic and say I’m missing out on significant gains.
Why don’t I pick individual stocks? What if I miss out on the returns of Tesla, Apple, or Amazon?
I don’t care. As a financial minimalist, I don’t try to time the market, and I don’t handpick stocks either. I take a simple approach to invest and stick with my investments over the long haul.
Some people like to handpick stocks, but I’m not one of them. I don’t want to spend my time sitting beside a computer working on my investment strategies.
I don’t want to wonder if it’s time to sell one company or buy another. Instead, I want to pick my investments and forget about them. Investing in index funds allows me to select my financial goals and set a hands-off approach to achieve them.
7 – Reinvest My Dividends
When dividends arrive from my investments each year, I automatically invest them. By automating our transactions, I spend less time thinking about them.
This strategy limits the amount of cash we keep on hand and ensures our money makes its way back into the market. The sooner it’s reinvested, the faster it can multiply.
8 – Reduce Unnecessary Consumption
Minimalists focus on debt reduction and reducing overconsumption. If you can stop buying stuff you don’t need, you’ll free up money for more joyful endeavors. As anyone who lives a minimalist lifestyle knows, you need less than you ever could’ve imagined.
Stop buying new clothes and ditch your gym membership if you don’t use it. You’ll save money and live a more meaningful life by owning less.
Of course, this is a tenant of minimalism as a whole, but it’s still an important one to mention. Learn to live intentionally and well below your means. It’ll improve your physical environment and your finances.
Financial success comes to those who can ditch impulse spending.
9 – Reduce Financial Paperwork
Like all minimalists, financial minimalists want to reduce clutter. To cut down on unnecessary paperwork, scan financial documents as soon as they arrive in the mail. Then convert your utilities and credit card bills to paperless billing.
Figure out a way to store your information and back it up before shredding paper copies. Also, hold on to tax filings and related paperwork for up to seven years.
10 – Reduce Your Subscriptions
To become a financial minimalist, you’ll want to track your expenses and cut unwanted subscriptions mercilessly.
Cut off the trickle of recurrent purchases that don’t add meaning or joy to your life. Slash them in favor of other meaningful and essential expenses.
Becoming a Financial Minimalist
Becoming a financial minimalist didn’t happen overnight. First, I reduced the number of bank accounts and credit cards I use regularly. Then, I stopped chasing deals. Now, I willingly miss out on perks for the sake of simplicity. I might not make money on sign-up bonuses, but I eliminated the worry of unnecessary financial mistakes.
Do I miss out on ways to earn extra money? Yes. But I don’t let it bother me. I’m more interested in simplifying my finances than complicating them to save a few extra bucks.
Managing our finances is messy and time-consuming, and I don’t want to waste the hours of my day staring at spreadsheets.
Throughout my journey to achieve financial freedom, I spent a lot of time unnecessarily complicating my financial life.
Thanks to financial minimalism, I removed those complications and now spend less time than ever managing our financial transactions and investments. I’ve created a balanced lifestyle using these ten simple steps while eliminating needless financial stress.
What about you? Are you a financial minimalist, or do you love picking stocks and churning credit cards? Are you willing to complicate your finances to earn more money?