Here’s The Problem That I Have With Financial Minimalism

It can only take you so far

Financial minimalism is something that more and more people are interested in nowadays. This is the concept in which all expenses that don’t improve your well-being or enjoyment are cut out.

By choosing financial minimalism, you can focus your spending on things that actually matter and which improve the quality of your life.

This is something that I’ve been really interested in and I’ve applied myself during the past 3 years.

Oftentimes, I went out of my way to spend as little money as possible and to cut back on things I didn’t really need. I found this exercise to be quite entertaining, and obviously very economical at the same time.

Thanks to this concept I was able to save money without feeling like I was missing out.

So from this point of view, financial minimalism is great. It has helped me to learn about delaying gratification and being mindful of the type of spending and experiences that really add the most value to my life.

I also learned not to buy useless stuff.

However, I still believe that financial minimalism has a big flaw that should be addressed.

The truth is that simply living a frugal life and saving as much money as possible isn’t going to make you wealthy.

You probably won’t be able to build up your investments to the point where they cover the type of lifestyle you want to live by simply saving money.

The biggest problem with financial minimalism

Financial minimalism is simply taking a straightforward approach to your finances. This can help you live a financially flexible lifestyle while having fewer obligations and more freedom to pursue what makes you happy.

The end goal with this is making most of what you have right now, and then investing as much as possible. This should hopefully give you some sort of financial security to pursue what you truly want.

However, here’s the part that people don’t really want to talk about.

Living a frugal life and saving can only take you so far.

There’s obviously a limit to how much you can save. Then, at some point, you’re simply stuck.

So what should you do in that case? I’ll attempt to answer that question in this article.

Saving money

Let’s start with the savings. To be financially independent, you must know how much you spend every year, as well as how much money you’re going to need to cover that kind of lifestyle.

Financial minimalism helps you a lot with this. The less money you spend, the less money you’ll need and you’ll also get to the point where your investments cover your lifestyle quicker.

There are obviously several important benefits to saving more money.

Benefits to saving money

If you save $1, that is actually worth about $1.30 before taxes, if you had to work for it.

So if you think about it, every time you save money it’s almost like you get a 30% bonus, simply because you won’t need to pay more tax on that money just to keep it.

I like to think about it using the fast-food example. If you want to eat a pizza, you’ll need to spend a few hours working out just to burn off those extra calories.

Or instead you can simply choose a healthier option, one that has fewer calories.

If you choose the fast food option, that’s fine. But personally, I’d definitely go for the healthier option to avoid working extra just for a little bit more.

At the end of the day, if you save you’ll need less money to be financially independent. Most people calculate how much money they will need to retire by multiplying their annual spending by 30.

So if you’re 25 years old and you spend $50,000 a year, multiply that by 30. You’ll need $1.5 million invested to safely generate an income of $50,000 a year that you could spend indefinitely without ever worrying about running out of money.

This also means that for every $1 you spend, you’ll need about $30 invested to be able to cover it.

So what if you’re eating out? Let’s say you spend $100 each month on this. This means that you’re spending $1,200 a year eating out. To be able to cover this expense indefinitely, you’ll need an extra $36,000 invested.

Cutting back just a little bit will have a big impact on how much money you’ll need in the future.

For the majority of people, cutting back and saving money will have the most immediate impact on their finances over anything else.

This is the one area that everyone has the most control over.

If you want to take action right away, go through your spending, start cutting back and start saving money. This is going to have the best return on investment.

Although it may be hard to believe, there are downsides to saving as well, just like I’ve mentioned before. The truth is that just saving money can only take you so far. If you’re making $30,000 a year, even saving half of that won’t take you very far.

I also think that there’s no point in saving if you can’t do what you enjoy and if you’re miserable in the process. That’s why I believe that there are limits to financial minimalism and we shouldn’t take it too far.

You shouldn’t just save money for the sake of it. Instead, you should focus on figuring out what you want in your life and how much that would cost. Once you do that, plan your savings and investments around it.

I’m a firm believer that you shouldn’t want things that just impress others, or that make you feel better about yourself.

New experiences

New experiences are very important, so you should also take this into account when saving and cutting back. Priorities tend to always change in our lives and that’s normal.

Allow yourself to have new experiences, because that will allow you to have a fulfilling life now, instead of waiting for some point in the distant future.

Personally, I’ve learned this the hard way. I used to save as much as I possibly could until I realized that I was actually missing out on many great experiences, without even saving too much money in the process. I simply don’t consider that to be a good approach at all.

Sure, you shouldn’t live above your means, but at the same time, you should think about the bigger picture.

Understand that you shouldn’t wait for some distant point in the future to enjoy your life.

The truth is that you can prioritize your savings while still living within your means and enjoying your life now.

Making more money

So let’s talk about earning more money. Don’t get the wrong idea about this, you can actually combine financial minimalism and making more money.

If you’ve already cut back as much as possible, but you’re still unable to save enough for the life you want, it’s time to start finding ways to make more money.

If you really think about it, with this your potential is unlimited in terms of how much money you can make. If you can start making more money, while keeping the same lifestyle, you can easily fast-track your journey to financial independence.

In terms of how you can go about doing that, it really depends from person to person. Everyone is going to be different. Here are some ideas that can give you fast results.

Get a raise

This obviously applies only if you have a job right now. You can also use this to charge more for your own services if you work for yourself.

Switch jobs/companies

This is a way that people don’t use enough. People who switch jobs every 2–3 years end up earning about 50% more than someone who stays within the same company.

You may be happy at your current job, but it’s always a good idea to look around for other options. Some of them might be too good to pass up.

More education

It really depends on the kind of work that you do, but this is a great way to improve your skills and eventually request a better salary.

Side hustles/businesses. This one is pretty straightforward. Stop wasting your time and start working on a side hustle, or a side business.

The truth is that financial minimalism and making more money complement each other.

Doing both of these things together really gives you the best results.