The Minimalist Budget: A Simplified Money System That Actually Works
I’m kind of obsessed with minimalist budgeting because you can prioritize your financial goals while simplifying the process at the same time (aka it makes life easier). The minimalist budget is a system that simplifies your finances while helping you achieve your financial goals. But what does minimalism have to do with your money? In general, minimalism means prioritizing what’s valuable to you, while intentionally reducing clutter in other areas. While most people focus on decluttering material items when they adopt minimalism (think wardrobe or home décor), minimalism can be adopted in your financial life, too.
A minimalist budget will give you clarity with your money by decluttering your finances and prioritizing your financial goals. One caveat I want to mention here is that a minimalist budget doesn’t necessarily mean you’ll spend less money. You can simplify your finances while still spending a lot of money on a few items. Read this post about the difference between minimalism and frugal living to get a better understanding of what I’m talking about. The two concepts are very different. However, when you reduce confusion and clutter in your financial life, you’ll become acutely aware of how you’re spending your money. This alone will increase the likelihood that you’ll at least be very aware of excessive spending. And awareness is the first step to change. I’m much more minimalist than I am frugal. I would rather have a few, high-quality items than 10 items that I bought on sale for lower quality. The same is true for my financial life. I choose to keep it simple and that makes my finances really easy. I have one checking account, one savings account, and my retirement accounts (and I have zero credit cards because I’ve never had a credit card).
What The Minimalist Budget Is Not
The minimalist budget system will not allow you to maximize credit card reward hacks, coupons, deals, or other consumer freebies that require opening multiple accounts and working the system to your benefit. The minimalist budget system won’t save you the most dollars or make you the most frugal person. However, the minimalist budget will help you simplify your finances so you have an easier system that helps you achieve your financial goals. I see this distinction in my own life. I’ve never had a credit card. This makes my life super easy. I don’t spend more than I have. I only use my debit card (and I use it for everything). But I give up on the perks, points, and deals that credit cards offer. I do this in the name of reducing clutter and temptation. It’s perfect for me. I prefer fewer things in the name of simplicity and value.
How To Start a Minimalist Budget
1. Change your money mindset from borrowing/payments to owning
Generally, I hear broke people talk about owning things in terms of payments. They’ll say things like “I bought this car because I got a great deal on the lease — the payments are only $200 per month.” The goal is to stretch their finances out as far as possible, making sure they have the lowest payments, so they can live beyond their means in a lifestyle they feel entitled to but can’t afford. The minimalist budget requires you to flip this mentality upside down. Instead of thinking in terms of payments, you need to think in terms of ownership. Don’t ask what the monthly payment is, ask what the cost is to buy the item outright. How do I do this? I don’t have a credit card, I’m not frugal, and I believe my income potential is limitless. After learning about money over the years, this is what I’ve adopted and truly believe.
2. Define your financial values and establish your financial priorities
In order to cut unnecessary things from your life, you need to know what is necessary and valuable to you. Once you know what your values are, you can establish financial priorities. Examples of financial values:
- Live a debt free life
- Save 20% of your income
- Have 30% of a buffer between your income and expenses
- Donate 10% to your church
- Retire at age 55
Once you are clear about what your financial values are, you can establish your financial priorities. Your financial priorities are basically your financial goals. They’re your plan from getting from where you are now to where you want to be. They will vary depending on your current financial circumstances. Examples of financial priorities are:
- Pay off all your debt in 3 years (credit cards, student loans, auto loans, etc.)
- After all debt is repaid, begin saving 20% of your income
- Start donating 10% of your income to church now
- Make 20% more income by starting a side job (here are 45 ways to make extra money)
- Create a long-term financial plan that allows you to retire at age 55
These are just examples. There are so many different ways you can go with creating your own financial priorities. If you are in a position where you really don’t know what your financial values are or what priorities to set, consider the 50/20/30 budget. Under this budget, you allocate 50% of your income on your needs, 20% of your income on your savings and debts, and 30% of your income on wants. Another point to consider is the value of experiences compared to things. What the research shows is that you will be happier spending money on experiences compared to spending money on things more on that here. It can feel like buying things is the key to happiness (especially in American culture). However, that may not be the case. It’s super duper important that you establish your financial values and define your financial priorities in order to create a minimalist budget. The foundation of minimalism is prioritizing what’s important and forgetting the rest. In order to do this, you have to decide what is important to you.
3. Create a list of your spending habits and evaluate your consumption
Create a list of all the things you spend money on. The more detailed you can make the list, the better. Once you have written down a list of your spending, evaluate each line item. Ask yourself if each line item is something meaningful to your life. Does it serve your financial values and priorities? If you say yes to something that doesn’t serve you, you’re saying no to you. If you find that you’re spending money on things that don’t fall in line with your financial values and priorities, then you should cut these expenses from your minimalist budget.
4. Simplify your accounts and credit cards
A minimalist budget is one that likely has one main checking account and one main savings account. The checking account should be used for all your discretionary (entertainment) and non-discretionary (housing, debt, bills) expenses. Your savings account should be used for your emergency fund. In the same way, only have one credit card (if you have to have a credit card at all). You’ll be giving up some rewards, but you’ll be simplifying your life and making it easier for you to stay organized and on top of tracking your spending.
This is a big area I see mistakes in. I see people having 7+ checking and savings accounts — one for vacations, one of taxes, one of down payment savings, one of an emergency fund, and on and on. It’s messy and typically, I see people borrowing from one account to fund the other. It’s also something I see a lot with people who are stuck in payment mode. They have payments going to several places and they’re saving barely anything in multiple accounts. How do I manage this? I have one checking account and one savings account. I have retirement accounts, like a 401(k) and a Rollover IRA, but those are necessary for my retirement savings. I don’t have any additional accounts spread out. It keeps my finances super simple, makes saving easy, and gives me clarity and organization. I really can’t imagine having multiple accounts all over the place (makes me crazy thinking about it)!
5. Create a spending plan with your income and expenses
While this post as a whole is about creating a minimalist budget, this step is about listing out the specific line items of your expenses against your income. In the other steps, I talked about simplifying, setting goals, and adopting a minimalist mindset. This is the step where you need to break down your income and expenses and decide where you want each dollar to go (i.e.: create your actual budget). You can use my Budget Spreadsheet Bundle or create your own.
An example of expenses in a simple, minimalist budget are:
- Personal Care
- Professional services
Whatever you decide on for your expenses, remember that keeping it simple is key to implementing a minimalist budget.
6. Automate your payments
Because minimalism embraces a simplified way of organizing your finances, it makes sense that you should automate as many of your payments under this budget. Automate your savings (e.g.: direct deposit into retirement accounts), debt payments (e.g.: auto debit your payment on the first of the month), and bill pay. The easier you can make your finances under this budget, the better.
7. Question all future purchases
With a minimalist budget, you should question all the purchases you make. Ask yourself if the purchase is necessary. Keep in mind it takes time to earn money, so every purchase you make ought to be worth the time you spent earning the money.
8. Schedule financial meetings to review your progress
It’s one thing to get organized and have a plan — it’s an entirely different thing to implement it over time. Things will change in your life that will make your once perfect plan completely unworkable. Constantly review, evaluate, and revise your budget so it keeps working for you by setting up monthly financial meetings with yourself (and your partner if you one have one). This will give you the chance to implement and change your budget as needed.
9. Get comfortable with feeling like a weirdo
People may think you’re a complete weirdo for living on less. Get used to it! It’s a good thing. It means you’re living intentionally, have a plan for your money, and are designing a life you love. A lot of people don’t do this. And if those people judge you, it’s only because they don’t understand you. Thankfully, we have the wonderful world of the internet so you don’t have to feel so weird. Just come hang out in my Facebook Community or on some other blog, and you’ll find there are lots of minimalist budgeters!
The minimalist budget is a budgeting system that simplifies your finances by cutting out what you don’t value and what doesn’t have a purpose — and prioritizing your true financial values. This budget may not give you the maximum credit card rewards, coupon hacks, or freebies, but you will have financial clarity and peace with a simplified system focused on your financial goals A minimalist budget is my fave because it makes life easier while moving me toward my financial goals. Cheers to better budgeting!
Natalie Bacon is an online entrepreneur. Prior to this, Natalie practiced as a certified financial planner, at a firm that managed over $1B in assets under management. Before her financial planning career, Natalie practiced as a business attorney. Natalie has been featured in CNBC, Forbes, and other publications. Natalie is most passionate about helping young, professional women design their dream lives. Read Natalie‘s full story here.
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