Many people want to simplify their lives to provide them some relief from the constant stimulation we subject ourselves to in today’s society that results in confusion. I say “subject ourselves to” because we are the ones who turn on the TV, surf the internet, and download apps to our smart phones. It is not surprising that, according to ThePew Research Center’s Internet &American Life Project, the average number of texts per day is estimated at 110 for 18 – 24 year olds, but it is still high when you think about it at 26 for 35 – 44 year olds and 14 for 45 – 54 year olds. This does not even include emails! Simplifying life brings less stress and more peace. Simplifying our financial lives—actually taking simplification further and becoming a “financial minimalist”—can actually save money as well as make money and avoid costly mistakes.
Becoming a financial minimalist is extreme. The minimalist theory is to only have things in your life that you need – every single thing must serve a purpose or out it goes. Francine Jay, author of Miss Minimalist, Inspiration to Downsize, Declutter, and Simplify, writes of an experience that transformed her life and steered her to a minimalist existence. She traveled around Europe with a carry-on suitcase and in the act of doing so had to be extremely choosy about the items she carried with her. To make it work, she could have no extraneous items, and for an item to be included it had to be a workhorse for her travels.
Now she examines everything using the same criteria. For example, she questioned whether or not she needed a stapler in her home office and decided that she really didn’t need one. A stapler is almost a sacred office item. My first thought when I read that was, how could you question a stapler? Does it really take up that much room on your desk or in a drawer? What is the big deal? Why would you get rid of it when you may need to staple something in the future? Then I realized that I didn’t have a stapler in my own office since I moved five months ago. I think it is still packed in my storage unit. Francine may be on to something here, because I guess I really don’t need that stapler. What else don’t we need?
Let’s examine five ways to apply the minimalist philosophy to finances:
Purge your paperwork. I figured we should start with the obvious. Disorganized, cluttered, and outdated files hamper your ability to be effective in managing your money. Studies have shown that employees of large organizations spend 15% or more of their time locating information. This very same problem applies to personal financial organization at home. Saving files or financial statements that are no longer needed makes it more difficult to find the ones that actually are needed.
Take the one drawer challenge. See if you can pare your paperwork down so that all of your files fit into one file cabinet drawer. Ask yourself what files you really need to have handy in paper form – the rest can be scanned and saved online. You may want a file to place tax receipts for your current year’s tax return. A very handy file to have is an “emergency” file where you have your important original documents—birth certificate, marriage license, bank and insurance information, etc.—ready to go in case of an emergency. Another one to keep in your one allotted drawer is a “when I pass away” file. Here you can provide information that your beneficiaries need to know. You may need a file for your children’s immunization and school records (which is why a whole file cabinet drawer may be needed).
Go through your file cabinet and pull out every file so the drawers are empty, then put back files that you need. All other documents can be scanned and stored in an online storage account such as Dropbox or iCloud. When I moved last fall, I found that I had an entire file cabinet full of old tax returns and decades of year-end investment statements for closed accounts. All of those were able to be shredded. I kept a few tax returns to fill out the seven years the IRS requires; the most recent ones are stored online. I suspect I am not alone and there are a few more tax returns from the early 1990s gathering dust and taking up space in file cabinets across America.
Pare down to one credit card. How many credit cards do you really need? You only need one to make online purchases and to book travel. The average number of credit cards held by cardholders is 3.5 and that may have something to do with the $793 billion in revolving debt in the U.S. With only one credit card to choose from, obviously choose one with the lowest rate but also the most benefits. Important benefits could be a generous rewards program to pay for airfare and hotels for you next vacation, or an annual statement that shows spending habits to help with budgeting and filing your taxes. Consider a card that has an alert system for unusual transactions that may not be yours.
I remember stopping at some factory outlet stores on my way home from a meeting one day and was pleased to see a Michael Kors outlet store right next to a Jones New York store. After making select purchases at each store, I headed home only to be greeted by my husband who said, “So what did you get for $400 at the Michael Kors outlet?” The bank had called our home number to alert us of an unusual transaction which he approved! Lucky for us this was unusual! We laughed about it as I showed him my coveted purchases and we were both pleased the bank called.
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