How Financial Minimalism Can Help You To Retire Early

I’m confident in saying that if it weren’t for financial minimalism, Amon and I would not be millionaires today. And if you’re striving to achieve financial independence, I highly recommend you practice it too.

But what is financial minimalism? Well, it starts with minimalism - the concept of only focusing on what is absolutely essential to your life. Anything else can be thrown away. And when you apply that philosophy to money, you have financial minimalism!

Basically, it means not spending money on what you don’t need. But it also means simplifying and prioritizing your finances. It can be a very powerful tool as it allows you to save more and invest more, which is crucial when you’re trying to achieve financial independence. Today I’m going to share tips on how you can achieve financial minimalism too!

Think of Debt as a Form of Clutter

Being surrounded by clutter can make it hard to think straight. Try to think of debt as a form of clutter - your goal should be to minimize it as much as possible! That leaves you with more mental space to focus on growing your wealth.

Just like how clutter can make it hard for you to move around in a room, debt can make it harder to move around in life. It restricts you from saving and investing more and makes it harder for you to pursue new ways of making money. Debt is one of the biggest obstacles to reaching financial independence, so it should be your goal to get rid of it as quickly as you can.

Minimize How Much You Spend on a Home

Honestly, most people too much on their homes without even realizing it. Usually, they buy a house that is way too big because they want a man cave, a giant foyer, a second lounge, etc. But at the end of the day, they don’t actually utilize all that space. And that underutilized space equals wasted money.

Financial minimalism is all about spending money on what you really need. If you purchase a home that exceeds those needs, you aren’t spending your money wisely. Only buy a house that you will fully utilize!

Create A Simplified Investment Plan

Amon and I invest in low-cost index funds that capture a little bit of the entire stock market. On the other hand, we know people who own 30 or 40 individual stocks. And we ask ourselves, how do they keep up? When you own stock in a company you should be keeping up to date with every movement those companies make - their annual reports, their annual meetings, related news - everything! It sounds impossible, and more effort than it's worth.

For financial minimalists, your investment strategy should be focused on getting maximum returns for minimal effort. And when it comes to personal investing, index fund investors will beat individual stock investors nine times out of 10.

Automate Your Investments

As mentioned, financial minimalism tries to take as much of the effort out of investing as possible. Automated investments allow you to continue to invest and grow your money without you focusing on it every day. You can continue with the rest of your life while your money makes moves in the background! Automated investments take so much effort and emotion out of the process, which is going to make financial minimalism much easier.

Understand Your Wants Vs Your Needs

According to one study, the top five most wasteful spending habits of the average American are: throwing away food, buying fast food, buying overpriced drinks, impulse buying, and eating out at restaurants. The average American also wastes around $139 a month.

Convenience, and the desire to feel good, were the two main drivers of these wasteful spending habits. So in order to avoid wasteful spending, you need to nullify those two factors. You can do this through careful pre-planning that eliminates the element of convenience, and by figuring out ways to get those “good feelings” (i.e, happiness) without spending those extra dollars.

Do you really need to buy a latte every day? Will that $1000 handbag really make you feel good? Understanding how to find that happiness and avoid being inconvenienced are two key ways to lower unnecessary spending.

Keep Your Accounts Minimal

Having multiple emergency funds, three different checking accounts, and a ton of brokerage accounts is not going to help you to simplify your financial situation. In fact, it’s more likely to cause you unnecessary stress. Keeping a minimal number of accounts makes it easier for you to track everything and avoid additional fees that might come with those extra accounts.

Fewer Subscription Services

It is so, so easy to lose track of your automated subscriptions, which is why some people spend years paying for subscription services they’ve long stopped using. It may not seem like much initially, but a $15 monthly fee over three years? That’s hundreds of dollars you could have invested. If you’re only subscribed to 2 or 3 of your favorite services (think Spotify, Netflix, HBO) you’ll know exactly where your money is going, without risking years worth of forgotten fees.

Be Careful When Buying A Car

A car can be a really unexpected money pit if you don’t choose wisely. If you absolutely need to buy one, don’t finance it, and only buy what you need.

For example, Amon and I used to drive an $800 used minivan - it wasn’t fancy, but it got us where we needed to go and we were able to pay cash. Once we moved to Lisbon, we relied on public transport and waited a long time to buy a car. That meant no insurance, taxes, license fees, and fuel costs.

If you really need a car, make sure to buy within your means and avoid being staggered with a $30k+ car loan (it’s more common than you think). The whole point of financial minimalism is to only buy what you need. In the case of a vehicle, that’s whatever gets you from A to Z.

As a principal, financial minimalism really does work! We’ve been practicing it throughout our financial independence journey, and we wouldn’t be where we are today without it. Even after achieving FIRE, I still swear by it. If you’re looking to retire early, adopting financial minimalism is a must. I promise you won’t regret it, and your bank account will thank you.