How To Simplify Your Finances For Peace Of Mind

If you're feeling overwhelmed by your finances, it might be time to consider the minimalist approach. As a blend of simple living and financial responsibility, financial minimalism might just be the strategy you need to unlock peace of mind regardless of your budget.

In this guide, we'll walk you through what financial minimalism is and tell you about the steps you need to take to help achieve a simpler, less stressful financial minimalist lifestyle.

What Is Financial Minimalism?

Financial minimalism is a way of managing money that's rooted in the principles of simplicity and intentionality, much like minimalism in other areas of your life. It's about finding contentment with "enough" rather than striving for more regardless of what you actually need or want.

Just as the minimalist approach to decluttering your home can bring about a sense of calm, minimalism in personal finance can lead to greater stability and reduced stress.

Unlike traditional minimalism, which focuses solely on physical objects, financial minimalism seeks to reduce the number of financial "obligations" you have. This might mean cutting down on unnecessary expenses, downsizing the number of bank accounts you have, and, most importantly, changing your entire mindset around wealth.

Ultimately, financial minimalism is not about sacrificing all of life's pleasures. Instead, it's about recalibrating your relationship with money and aligning your spending with your priorities. It involves setting a budget that reflects your needs and values – then adhering to that budget.

The Benefits Of Financial Minimalism

The benefits of adopting a minimalist lifestyle extend far beyond saving a few dollars. Here are a few key advantages of switching to minimalist finances.

Reduced Financial Stress

By simplifying your financial commitments and living more frugally, you can let go of the constant worry that your spending is outpacing your earnings.

Financial minimalism can help lessen the anxiety of debt and the pressure to live extravagantly.

Enhanced Savings And Investments

When you cut out the unnecessary expenses, you're left with more money to save and invest. Financial minimalism can accelerate your journey toward your financial goals, whether that's an emergency fund, a vacation or early retirement.

Improved Focus On What Truly Matters

In general, minimalism encourages a more concentrated focus on what truly adds value to our lives. Financial minimalism reinforces this by helping you align your spending with your values, so you're not wasting money on things that don't make you happy or support your life goals.

A Greener And More Sustainable Lifestyle

Minimalists often find that they are able to minimize their environmental footprint. By consuming less, you're reducing the carbon footprint associated with producing and disposing of goods. As it relates to your personal finances, this translates into being mindful of where your money is going, supporting companies that reflect your values and choosing sustainable investments.

How To Become A Financial Minimalist

Ready to shift to a more minimalistic financial lifestyle but not sure how to begin? Here's a step-by-step guide for decluttering and streamlining your financial world.

Create A Minimalist Budget

At the heart of financial minimalism is a practical and clear budget. A budget helps you understand where your money goes and empowers you to make conscious spending choices.

Start by creating a list of all your income sources and fixed expenses, such as rent, utilities and debt payments. After that, allocate a portion to savings and invest the rest. You can also use an app like Rocket Money^SM to automatically inventory all your transactions in one place.

For the most part, creating a minimalist budget is no different than creating any other kind of budget. The end goal is to focus on spending less than you earn to allow for financial freedom and peace of mind. When you're creating your budget, focus on realistic spending limits and prioritize expenses with lasting value over those that will have only fleeting significance.

Cut Out Unnecessary Expenses

The next – and perhaps most important – step as you begin your journey as a financial minimalist is to eliminate any unnecessary expenses.

This can include unused gym memberships, streaming services you barely watch, dining out frequently and other costs that drain your finances rather than add value to your life. Consider if the item or service aligns with your values and if there's a more cost-effective way to meet that need.

A common area that financial minimalists will target in their quest for simplicity is subscriptions. In the age of subscription services, it's easy to forget what you're paying for and how much.

Audit your subscriptions on a regular basis and cancel the ones you're not using. Doing this once every couple of months can save money over time and streamline your expenses.

Stop Worrying About The Fear Of Missing Out

"Keeping up with the Joneses," “FOMO,” or whatever you wish to call the societal pressure to spend is the antithesis of minimalism. Avoid the trap of social media and status symbols driving your spending. It’s exciting to see your friend post pictures of their new car, but that shouldn’t pressure you into purchasing a new one if your current vehicle works just fine.

Remember, it's your financial health and peace of mind at stake, not how your life appears to others.

Reduce Your Debt

Though you can certainly live a minimalist lifestyle and still be hanging on to some debt, carefully consider your borrowing habits and borrow only what you actually need. Avoid making purchases on credit cards that aren't necessary and you can't afford.

Make a plan to reduce and eventually eliminate your high-interest debt, namely credit card debt. This is an important step in your journey to financial freedom.

Focus on the debt with the highest interest rate first (the debt avalanche) or the smallest balance (debt snowball) – whichever method motivates you more.

Live Below Your Means

Mindfulness is key when it comes to financial minimalism. Ask yourself whether a purchase is a necessity or a mere indulgence. Wait for a day or two before making nonessential purchases, especially those above a certain threshold. This will reduce impulse buys and ensure that your spending is intentional.

Here's an example. Let’s say you're scrolling on your phone one night and stumble upon an ad for new sneakers on Facebook. They look cool and you'd love to have them, but rather than blindly hitting "Add To Cart," wait a couple of days. Are you still thinking about them? Do you still want them? If you do, then consider the purchase and if it's in line with what your budget. If not, then it's not worth it in the moment.

Donate Or Sell Items You No Longer Need

As you declutter your physical space, sell or donate items that no longer bring you joy or serve a purpose in your life. The money you earn from selling items can be a great starting point for an emergency fund or a new investment.

Most thrift stores are happy to take donations, and you can sell unused items on platforms like eBay, Facebook Marketplace, Craigslist or Thredup.

Bundle Or Automate When Possible

Seek out ways to bundle services and purchases as a cost-saving (and life-simplifying) measure. This can be as simple as combining home and auto insurance or buying in bulk to reduce the per-unit cost.

Similarly, if you can simplify your payments by putting your bills on auto pay, do it. This will help you keep track of where your money is going and make it easier to manage your monthly expenses.

Think About When You Can Borrow Or Rent Instead Of Buying

Before rushing out to buy new, consider if you can borrow or rent the item from a friend or a service. This is especially useful for items you'll only need occasionally, like tools, vacation gear or formal attire.

Ask your friends if they have any items you can use, and offer them the same. Remember that places like the library are a treasure trove for finding books, movies and other entertainment to enjoy. Many libraries also offer non-media items such as laptops and sporting equipment for your use.

Invest Small Amounts

You don't need to be wealthy to start investing. Start saving small amounts, even if it's just in a high-interest savings account, rounding up your purchases and investing the spare change. Over time these small investments could grow into substantial sums.

Take Advantage Of Your Free Time

Utilize your free time to generate additional income. Side hustles, freelance work or pursuing hobbies that can be monetized are excellent ways to boost your earnings.

However, the ultimate goal of financial minimalism isn't necessarily to make more money, but to do more with what you already have. Rather than pursuing expensive hobbies that require costly equipment that takes up space in your home, consider those that are free or lower in cost.

For example, if you enjoy running for exercise, it’s cheaper to buy a good pair of running shoes and run outdoors rather than buying a treadmill or a gym membership. 

Pay Yourself First

Make savings a nonnegotiable part of your budget by paying yourself first. Treat your savings contribution like a bill that must be paid each month. Automatic transfers from your checking account to a savings or investment account can make this process seamless and effortless.

The Bottom Line: Small Steps Toward Financial Minimalism

Financial minimalism is a journey, so start with one small step and gradually incorporate more of these tips into your lifestyle. Remember that the ultimate goal of financial minimalism is to find peace and satisfaction through managing your money effectively and achieve better financial security. You shouldn’t expect total financial perfection, but with time and mindfulness you should be in a better spot than you were before.

If you're looking to simplify and automate your savings, consider tools like the Rocket Money^SM app to help manage expenses, set savings goals and track progress.