Why positive minimalism is the only meaningful approach to managing money

Financial baggage is probably the worst excess baggage you can possibly carry to the extent that it can basically destroy your life.  By contrast, while money can’t buy you love, it can buy you independence and the ability to exercise a significant degree of control over your own life.  For me, therefore, that means you need to drop any ideas you had about money being some kind of dirty word and start seeing money as a tool which you can make work for you.  If you take a positive approach and apply minimalist principles, you can change money from a source of stress to a source of meaning without becoming greedy or materialistic about it.

Your financial present build your life’s future

There is only one point you really need to understand about money management, which is that every purchase you make in the present will impact your future in some way.  Therefore, you always want to take financial decisions which make your future brighter and simpler rather than ones which have the potential to bring dark clouds over your horizon.  To do this you need to understand two points:

1. Where you are now
2. Where you want to be

Where you are now

Finding out where you are now can be tedious, but it matters and the good news is that dealing with that initial financial purge is generally the worst bit of sorting out your finances and generally it gets better from there.  So here’s how you do it.

Step one - dig up a year’s worth of debit and credit card statements

This is probably one time when printing out statements can actually be worthwhile.  On your first run, you’re going to go through your statements and mark off any payments which are essential.  Essential payments are anything you need to pay to keep body and soul together and any debts to which you are already committed.  That’s it.  Anything else is a want.

Step two - mark off any payments which form part of a contract which ends in the coming year

Put these into a calendar and set yourself a reminder to look at your options before the contract expires.  This will ensure that you get the best deal on essential contracts, like insurance and get out of non-essential ones (like mobile phone contracts for most people).

Step three - look at all your other regular payments and decide which really bring you joy

By this point, you’ve marked off all your essential payments, so anything left over is discretionary.  If you absolutely, genuinely love it and it really adds to your life, fair enough, but if it doesn’t, you could be simply wasting money you could use to build yourself a better, more joyful future.  Consider cancelling the contract and seeing how you feel.  If you really miss whatever it is, you can always sign up for it again.

By this point you’ll have a good handle on where your money is going and how much of it is on essential payments, now it’s time to ramp it up a gear.  Start by making a date in your diary to go through your bank and credit card statements at least once a quarter if not once a month, thereby keeping up the good work and get ready to take financial management a step further.  Going forward, you can probably do this perfectly easily with digital statements.

Start analysing your receipts

Here’s a hard truth about managing money.  When you look at a receipt for a shop like a physical supermarket or an equivalent online store, it’s often easy to tell yourself that the money is spent on essential purchases such as food, cleaning products and toiletries, the products you usually go to these places to buy.  The fact of the matter, however, is that supermarkets and similar retailers use essential products like these to lure in shoppers and then do everything they can to tempt them to spend on non-essential products.  Even if you do stick to core products such as food, buying convenience options can mean you wind up spending a whole lot more than you need to.  Take a good hard look at your receipts and see where your money is really going and spend some time thinking about ways you could spend less now to benefit your future self.  I’d suggest that unless you need to keep a receipt in case of a return, you simply scan it, either with a scanner or with your phone camera and go through your receipts when you go through your bank statements.

Catch all the purchases you make without getting receipts

Between cash and contactless cards, it’s easy to make purchases without getting a receipt and it’s equally easy to forget about them, particularly if they are consumables such as coffee.  An easy way to capture these purchases is to use your mobile to take a picture of them.

By this point you should have an excellent idea of where you are right now, which brings us to question two.

Where do you want to be?

Answering question two can be a whole lot more challenging than answering question one, but for many people the place they want to be is the place where doing what they love achieves a goal which is meaningful to them.  For example, I love writing and I have the goal of helping other people to achieve their potential and live the lives they want to live.  Writing this blog is a part of that.  It’s great if you can earn your living doing what you love and in many cases it’s possible, but it may entail making adjustments to your lifestyle, which is why it is so important to get on top of your finances and, above all, to clear yourself of debt.

Streamline every purchase you make so that it contributes to your overall goals

Each and every purchase you make should either be essential, bring you real joy in the present or contribute towards building the future you want.  Any other money you have should be used firstly to free yourself of debt and then to build savings and investment income for you to live the life you want.

Debt is a chain, free yourself of it as quickly as possible

In my personal opinion, all debt is bad debt, it’s just that some of it (such as mortgage debt) can be less bad than others.  There are basically two ways you can approach getting out of debt.  The traditional approach is often called “snowballing” and basically it means that you work out which of your debts is costing you the most money and throw all of your spare cash at that until it is cleared.  You then move on to the debt with the next highest interest rate and so on until you are debt free.  In my opinion this is the best overall approach, but, depending on your situation, you may be able to finesse it slightly.  If you have lots of “spotty” debts (a number of cards/loans with low balances), it may be worth clearing these off first and closing the accounts as this will reduce the amount of credit to which you have access and that can improve your credit record, which is always a plus.

As soon as you are debt-free start saving, investing and contributing

Saving is putting cash aside so it can be accessed conveniently when you need it.  Investing is about making your cash grow by purchasing something you believe will either bring you an income or increase in value (or both).  This can be anything from a gold coin to an education.  The more you have as savings and investments, the more financial independence you have and the more you can live the life you want to live.  Contributing means recognizing that you have been blessed with the opportunity to gather more than you need right now and showing willingness to share with those in need.  Remembering to contribute is what keeps us grateful and humble and focused on what really matters in life.

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