Financial minimalism (part 1 of 2)

Applying a simplicity mindset to your money.

Source

This topic might seem a little far afield from home organizing, but to me it’s just another flavor of the same exact thing. It’s hard to feel like you have a smoothly running house machine if your finances are a jumbled mystery. Simplifying my finances has given me as much peace as any decluttered closet can. There is much to cover so I split it, with part 2 hitting your inboxes next week (now live!).

In my mind, financial minimalism means your finances are simple enough you can wrap your head around every aspect of them. You know where your money is, what your goals are, and whether you are on track or not. You make decisions with confidence. You don’t feel overwhelmed or stressed when you think about money, even if you don’t have a lot of it. I hope for this sort of peace for all of us.

My journey to financial minimalism started when I got divorced several years ago. Up till then I’d relied on my husband to be in charge of our financial plan. I wasn’t totally in the dark, but I was very glad he was there to make the Big Decisions.

Post-divorce, on my own with a kid to support, it was time to take control myself. I learned pretty quickly how to work the BBQ grill, the power washer, and the electric drill. The financial part took a little bit longer.

To add to the complexity, I worked at a tech company where most of my compensation was weird imaginary letters rather than a paycheck (ISO/NSO/RSU…wth?!?), and at the same time I ran a small side business with its own P&L to manage. And then my dad passed away suddenly, leaving a ton of decisions on my plate. It was do or die time.

I started educating myself, reading books and talking with financial experts. It has taken years to get to this point, but I feel like I’ve finally achieved maximum minimalism.

Disclaimer:

I’m absolutely not any sort of finance expert, so my goal with this series is to just share some principles and tools that have helped me. I did, however, ask a finance professional to sanity check all this. Thank you to Maddie Burton, former CFP and author of the thoughtful newsletter

Your Five-Year Plan

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Be sure to do your own research as only you know your specific situation.

Today’s newsletter will focus on saving, spending and planning (and feelings), and next week’s will tackle investing (and feelings too…they actually run our financial lives more than we realize).

Let’s get into some tools and techniques that helped me achieve my version of financial minimalism:

1. Identify and process emotional programming — but don’t get stuck on this step!

We all have emotional connections to money, and our feelings drive our decisions whether we like it or not. It’s vital to understand what these feelings are and where they come from so you can make decisions that support your goals. This is a helpful overview from a financial therapist (how great they exist!).

Michelle Ogundehin

is doing a money series right now, starting with an exploration of the emotional side, including lots of further reading.

In my case, we had a lot of scarcity when I was growing up, so as an adult I became very focused on creating security for myself and my family. That’s not a bad thing, but it could easily tip into fear-based decisions, or turn into workaholism or “never-enough-ism.” I spent years working through this and trying my best to see the world as it is, rather than through the lens of my fear. It’s been a worthy undertaking.

Just don’t get stuck on this step, thinking you need to “solve” it before you do anything else. If anything, doing the work of organizing your finances will help you unearth blocked emotions, so press on but be aware of the feelings coming up as you do.

2. Have an uncluttered view into your monthly spending & earning

Starting at the most basic level, it’s important to understand monthly cashflow—what you’re earning vs spending. In recent years, the size of my credit card bill at the end of the month was a surprise more often than not, I’m sorry to report.

To rein this in, I started hunting for a replacement for Mint (RIP!) which I used to love, and I’ve been really happy lately with Monarch. They charge a small monthly fee, but they deliver a ton of value in exchange. Once you connect your bank accounts and credit cards, it categorizes your transactions and offers monthly summaries. It’s easy to edit transactions and create rules for how they’re bucketed. You can also track net worth and investments, but I don’t use these features (next week I’ll explain why this could hurt your investment returns, surprisingly).

If you want to try Monarch, use this link to get an extended free trial period (affiliate link — I’d never recommend something I don’t use and love).

YNAB is another classic tool people swear by, with similar pricing. Maddie, my fearless reviewer, loves it: “It functions as a second brain of sorts—‘remembering’ everything about my financial life so that I don't have to.”

[Note: While it’s important to have a handle on spending, there’s a flip side when it goes too far and becomes self-restriction. For some fascinating food for thought,

Healthy Rich

covered the insidiousness of Budget Culture. Keep an eye on yourself, and if you find budget tracking becomes obsessive for you, slow down.]

3. Cover all areas of your life with insurance to alleviate worry

Even when you’re rolling along covering your expenses and feeling good, a disaster can totally wipe you out. Scary! But that’s why insurance exists, so let’s take advantage of it.

• I did a thorough review of my health, home, and car insurance with an expert (more next week on who this was). Umbrella insurance is worth considering too if you want extra protection for non-insurable assets. I’ve had a condo catch fire and various car problems, and each time felt so grateful for my insurance, which in these cases was bare-bones but adequate enough.

• Understand what benefits your employer offers and be sure you take advantage to the max. Open enrollment always stresses me out (analysis paralysis!), but it’s a great time to beef up benefits. Long-term disability insurance, for instance, is a really important benefit for young people with many income-earning years ahead of them.

• If you rent, please please please have renters insurance. This is possibly the thing that gives me sweaty palms most often. Many renters don’t realize their landlord’s property insurance will not cover their belongings. Renters insurance even covers your things when you’re away from home, like if your laptop gets stolen on a trip. And best of all it’s very inexpensive.

  Ask your car insurance company or do a Google search to get started. Be sure to ask exactly what’s covered as insurance logic can be wonky (damage from a pipe leak might be covered but damage from a flood may not be, for example).

We recently had a week of crazy snow and ice storms in Portland, and I read about an apartment building where frozen pipes burst, destroying the contents 50 apartments. FIFTY! My first instinct as I clutched my pearls, looking at the photos, was to pray the occupants had renters insurance.

When my condo was in the aforementioned fire years ago, renters were there and the smoke destroyed everything they had with them (it was a furnished rental so luckily it wasn’t all their belongings). They very sadly didn’t have renters insurance, and I was beside myself that I as landlord hadn’t required them to get this insurance.

As penance, I lecture every renter I know about this (as we’ve established by now, I am not a “fun” person). Truly though, I lecture because I care.

Soot-covered spiderweb in the aftermath of a fire. Turns out smoke and water can do a lot of damage in a fire, even if the flames never reach your space.

4. Plan for the certainty of death (sorry not sorry, it’s gonna happen!)

As much as we hope we and our loved ones live long lives, it isn’t always in the cards. I’ve had close relatives die suddenly, which was a strong wake-up call about the certainty of death and the uncertainty of its timing. Enter: estate planning. As hard as it is to get started, it’s important to do the work now — right now! — to care for the people remaining when you or someone close to you passes away.

• Create an estate plan. I did a bare bones internet-based plan for years, and finally last year hired a lawyer to do it properly. I’m so glad I did! She pointed out tons of errors in my internet plan, and helped me think through my strategy. If you need motivation, Suze Orman is great at explaining why we need to take care of this stuff and recommends some specific resources. An estate plan can save your loved ones years of torment after you go — it’s a very loving thing to create.

• Consider term life insurance if anyone depends on you, financially or otherwise (another top palm sweater for me). This includes if you are a stay at home parent: your labor is valuable and replacing it would be expensive. Consider if you or your partner died suddenly, how would the survivor(s) carry on with everyday life? Would a big pile of cash make things easier for them? I’d wager it would.

  Many employers offer it automatically, but take a look at the benefit level (usually a multiple of your salary) and consider if you need more on top of this. Bonus: term life insurance is cheap if you need to buy it yourself.

5. Other smart things to have squared away

• Freeze your credit reports. This is an easy and free way to protect yourself from identity theft. It prevents anyone from opening accounts under your name. You can temporarily lift the freeze anytime you need to apply for a loan or credit card. Here are handy links so you can do this right now (and then report back in the comments): Experian, Transunion, Equifax.

• Have an emergency savings account equal to 6 (or more) months of living expenses (Suze Orman also harps on this — she’s the best!). I have to admit, I didn’t do this until recently — but I feel so much better now that it’s there. If anything happens, my family has a cushion on hand. It can be intimidating to think of saving this much, I realize, but it’s a worthy goal.

Side note: I prefer to put my savings somewhere it can earn interest, and the highest rate I’ve found with no cap is with Wealthfront. If you use this link to open an account you get an even higher initial rate—5.5% APY as of Jan 2024 [affiliate link]. But your local bank is also a fine option — the most important thing is that this account *exist* at all.

My dad always said, “hope for the best but prepare for the worst.” I try to live by this.

To summarize, here’s your to-do list (skip items that aren’t applicable to you):

1. Get a handle on your emotions around money

2. Use some kind of budgeting tool to track spending

3. Be sure you have adequate health, auto, home, disability, and renters insurance

4. Create an estate plan and get term life insurance

5. Freeze your credit reports and fund an emergency savings account

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Is that enough stress for you? While it may feel complicated to look into all these different things, doing this work is really the financial equivalent of taking all the jumbled linens out of the closet, organizing them by size, getting rid of what you don’t need, cleaning and nicely folding what’s left, and putting them back on labeled shelves. You will feel great triumph and relief once it’s done.

Hopefully this post is the kick in the pants you needed to finally get that estate plan done, or the budget worked out. You can do this!

Stay tuned next week for a somewhat more optimistic topic — investing. This is the part of my financial life that has benefited most from simplification and I no longer feel terrified of it. I’ll share all I learned.

In the meantime, let me know how this is landing. How did you learn about this stuff in your life? It will make my week if someone tells me they got renter’s insurance after reading this newsletter!

Read on for Part 2 all about investing:

Financial minimalism (part 2/2)