If you want to know what someone really values in life, look no further than their bank statement. I’m not sure who first said that, but it’s true. We invest in what we care about the most. We may say we care about this or that, but if it isn’t reflected in our lifestyle (thus, our spending) those words carry no weight.
Finances and minimalism are inherently connected in many ways. Minimalism influences how much and how often we spend. I’ve enjoyed watching Graham Stephan critique people’s budgets on Youtube. If you need some inspiration to stay on track, this is it. You can’t exactly nod and chuckle at other people’s unnecessary spending, and then go on a spontaneous shopping spree. No, you’ll want to get your act together!
If you don’t already know me, I believe in simple living and minimalism. Some call this type of living frugality, but I’m definitely not the most frugal person out there! I believe in saving money where it doesn’t matter so I can invest in things that do matter. I believe in cutting down waste of all kinds, minimizing my life of the chaos that overconsumption can bring. This kind of living is easier on your wallet and easier on the earth as well.
So today I wanted to talk about some of the most common money mistakes I’ve been seeing, and some helpful tips to correct these mistakes. If you actually do just one or two of these, you’ll be in better financial shape. Keep in mind: This isn’t about denying yourself – it’s about changing your daily habits. It is the daily habits that will make a big difference in your money and your life. Don’t be too hard on yourself…but don’t be too easy on yourself either!
Track Your Expenses
Tracking your spending is now easier than ever with apps like Mint. But many people have no idea where their money is going. Even those who do have a budget, rarely know where all their money goes. Every budget has some money that is mysteriously unaccounted for. Just like there is “phantom drain” on your batteries, Graham calls this “phantom drain on your budget.” This comes from not paying close attention and not actually tracking our expenses – just roughly guessing based on our bills. Maybe we’re afraid or even embarrassed to know what our discretionary spending looks like every month. We figure what we don’t know can’t hurt us. Let me assure you: it can hurt your finances. Even if you don’t want to change the amount you’re spending, you should at least be tracking. If you’re even slightly interested in minimalism, this is important. Minimalists keep track of what enters their homes. They should also keep track of the money that leaves their accounts. Get an app. Track your spending. It will make you to own up to it. Which brings me to the next point:
Don’t Be Defensive
People can “justify” just about anything. It’s easy to feel defensive about our spending. To feel like we need to explain ourselves to our spouse or even the cashier when we checkout. Odds are, if you’re defending your purchases, it’s because you feel guilt. If you feel guilt, it’s probably because you know you’re doing something unnecessary and spur-of-the-moment. “At least I’m not as bad as so-and-so.” “I needed to celebrate.” “So-and-so made me buy it.” These are not legitimate excuses. Don’t pass the blame. Don’t compare yourself to others – trust me, there will always be someone worse than you, no matter the situation. Be honest with yourself and with others. You shouldn’t need to defend a well-thought-out purchase.
Take Your Time
A lot of spending is a “feel-good” addiction. I wrote about this in detail here. Don’t use shopping as a crutch to mask larger issues. Take it seriously. Find a therapist to talk to. Unearth the truth behind your addictive behavior. Break those spending patterns before they get worse (left unchecked, they will get worse!) The interesting thing is that most of the dopamine we experience when shopping is triggered by the anticipation of a purchase, not the purchase itself. A good hack might be to plan your purchases for a long time. This is a good idea anyway, and it could optimize the feel-good part of shopping without overdoing it. Do research. Compare different models and brands. Read reviews. Go to different stores. Scour the used market. All this anticipation will make the purchase a smarter one, and a happier one!
Take a Look at Your Drinking Habits
Almost everyone has an expensive beverage addiction. Okay, not everyone…my husband drinks only water! But many of us do. For some of us it’s our budget and our health that is being compromised. Whether it’s coffee out everyday, a glass of wine (or two) in the evening, craft beer, Hansen’s soda, cocktails with friends, Diet Coke. I used to drink a lot more alcohol than I do now – I would “unwind” at least a couple times a week. Then I realized that it wasn’t the alcohol I liked, but the feeling of “specialness” that the alcohol brought to the occasion. I realized I could swap beers out for sparkling water or tea for a fraction of the empty calories and price. Win / win! I still enjoy a glass of wine or a beer here and there, but it’s a much rarer occasion. Remember, it’s the daily habits that make a difference, not the occasional indulgences. Don’t beat yourself up, but do take a look at your daily and weekly drinking habits. And I’m not just talking about alcohol. We all have different vices. Different habits. Maybe yours is something else altogether. How can you maximize some little changes to make a difference in your savings and in your body? Minimalism applies to so much more than just physical things. Minimalists are willing to cut things out of their lives that are no longer healthy or no longer serving them. Here’s a great post by a minimalist blogger Courtney Carver about why she ultimately decided to stop drinking.
Streamline Your Main Expenses – And Your Debt
Now is a fabulous time to take a look at the big line items on your budget. This is where you will see the most bang for your buck – if you’re willing to put forth a little research and effort. Early retiree, Mr. Money Mustache wrote a great article on this: How to Make a Thousand Bucks an Hour. It isn’t a gimmick. He helped a friend look at her budget and switch over some insurance and refinance two loans.
My friend just did two hours of work in total while drinking a glass of wine, and dropped her annual expenses by over $500 per month, or six thousand dollars per year. And she will of course invest these savings, which will then compound to about to about $86,000 every ten years.
Even if she has to do this annual round of phone calls and websites once per year to maintain the best rates on everything, she will be earning about $3150 per hour for this work. Hence the bold title of this article, which you can now see is very conservative.
-Mr. Money Mustache
You have the ability to do the same thing. (Talk about balance – did you notice she’s drinking a glass of wine?!) Call on your network of friends, and find out what they do for cheap insurance, phone, car repairs, groceries. The three largest lines on most budgets are housing, food, and transportation. These are typically followed by insurance and utilities. If you can get these items down, it will make a huge difference. It might not be your idea of fun, but it is time well-spent. Trust me!
If you have high-interest debt, see if you can refinance at a lower interest rate. Don’t pay more in interest than you need to. And then see what you can do to knock out that high-interest debt altogether. Make it a priority and come up with a plan ASAP.
Put Your Money to Work
Once you’ve figured out how to save on your recurring monthly expenses, and you’ve cut down on your most expensive daily habits, don’t just let that extra cash sit there. Put that money to work! First and foremost, find out if your employer matches 401K contributions. If they do, that’s basically free money! Even if you can’t afford to max out your 401K, definitely contribute the percentage that they will match.
After that, if you don’t already have a high yield savings account, what are you waiting for? We use Barclays, which is an online bank with an interest rate around 2%. Use this for the money that you want to earn interest but to which you still want quick access – an Emergency Fund as Dave Ramsey would call it.
If you’re contributing to your 401K, you have an Emergency Fund earning interest, you’ve paid off your high interest debt, and you still have money leftover, congratulations! Time to think about your bigger goals. This is where you really get to put your money where your mission is. What truly matters to you and your family? How can your spending / saving / donating reflect those values? Maybe it looks like donating to help with the refugee crisis. Maybe it looks like working a little less so you can volunteer at the hospital. Maybe it looks like saving up for a low emission vehicle or solar panels. It’s entirely up to you, but do pause and put some thought into it. If you’ve made it to this point, you’re in an incredible, privileged position to make a real difference. Don’t take it too lightly.
If you have long-term big things you want to save up for besides retirement – large purchases, large donations, early retirement – consider looking at high-yield investments as well. Open a Vanguard account if you want a fairly simple way to buy index funds. You don’t need to pay an investment advisor to do this, but you should do some research before you take the leap for the first time. I’ll refer you to Mr. Money Mustache for more wisdom regarding this.
I hope this post encourages and inspires you to take the next steps on your simple, frugal, minimalist journey – whatever those steps may be. I don’t know your situation, but I hope you’re able to gain control over your spending if you feel like you’ve lost it. I hope you’re able to make some wise changes and know where your money is going. I hope you’re able to free up the finances to help others and truly live your values on a daily basis.
Photography: Sharon McCutcheon
I’m not hard-core frugal, but moderately frugal. And I definitely agree that changes with your daily spending habits is key. Another great post!
Thank you! A lot of what I write is to encourage myself to stay the path. I’m human and I mess up quite a bit but I do try to live and spend according to my values, not my impulses.