Updated at January 25, 2023
A Minimalist Approach to Personal Finance
My simple strategies for winning in personal finance
Personal Finance is one of the most commented and debated subjects nowadays due to the number of problems that people are facing because of consumerism which, in turn, is a consequence of an increasingly capitalist world.
For most of my life, I wasn't very good with money. The money that came in was the same as the money that went out and it only got worse when I entered adulthood and started working. I was earning 100 to 200 euros a day as a Software Engineer at the age of 23 and without any knowledge about financial education, I spent all the money in less than a week.
When I turned 24, my old housemates offered me Unshakable by Tony Robbins, and after reading this book I realized that I needed to make big changes to improve my relationship with money. This was one of the biggest challenges of my life but over the course of 1 year and a half, I managed to change my mindset about money, have my own apartment and save the equivalent of 1 year of my monthly expenses in my savings account.
Since then, I have dedicated myself to always improving my money habits to achieve the long-awaited financial freedom using 2 minimalist approaches:
1 - Spend less than I make
This is the basic formula for winning in personal finance. No matter how much money you earn, the only way to become financially free is to spend less to avoid debt.
I was able to spend less by:
Not comparing my life with others
This is one of the mindsets that, although I don't have this problem, I always make a point of remembering on behalf of other people. I see so many people working to buy things they don't need, just because they saw it in an ad on social media, series, or reality show (you know which one I'm talking about 😉).
Remember, social media is free because they make money from ads, and ads are there because they make money from you.
Avoid Lifestyle Creep
Whenever we receive a pay raise or passive income, the first thing we want to do, even if unconsciously, is to improve our lifestyle - when in reality we are just increasing the cost of it - so that we somehow feel rewarded for earning more.
This is the financial trap I most fell into during my first 2 years at work until I realized that using an extra income is the same as making an extra expense.
Make it difficult to spend
One of the many factors that lead us to spend money in an uncontrolled way is the fact that technology has made shopping so easy that nowadays we can do it in just one click. We have online banks that allow us to move our money from anywhere, credit cards that allow us to buy things we don't need with money we don't have, everything is so simple and in the palm of our hands (literally) that it becomes increasingly difficult to resist temptations.
In Atomic Habits, James Clear explains that to remove a bad habit, we need to make it difficult, so I try to do this by uninstalling fast-food and taxi apps, not having credit cards, and leaving only cash in my checking account to pay bills. accounts and put everything else in a savings account at a bank where I don't have any associated cards.
When you have a very clear goal, you need to make some sacrifices to achieve it. Whether it's not going out much, canceling your Netflix subscription or any streaming service, or stopping eating out, any reduced cost will be an asset to get you closer to your goal.
2 - Save as much as I can
After cutting costs, the second approach to my finances is to save as much as I can. I save a portion of my salary every month in my savings account, but in addition, during the month, I also save all the extra money I get, whether it comes from content creation partnerships, or even what is left of my expenses.
This approach gives me a sense of security and inner peace because then I know that if something happens to me like a health emergency or something else really important, I will have somewhere to fall back to cover the expenses without having to go into debt.
Tips to improve your relationship with money
In my opinion, one of the reasons why we are mean with money is because money is still taboo. We can't talk openly with our family and friends about how much we earn or spend without feeling judged, offended, or even envied.
During this time, I realized that I can only improve my financial habits if I start having honest conversations about money, where I remove my ego and try to learn new things, and be aware of the mistakes that other people make or have already committed with the money.
The best way I've found to learn about finance is by reading books. As I said before, reading Unshakable completely changed my mindset about money and helped me to truly become unshakable, both financially and emotionally, so I recommend you to read this book, it has reliable advice that works and I believe you will gain a lot of knowledge from it.
My approach couldn't be more straightforward, spending less than I make and saving as much as I can, and although I know how difficult this is due to the amount of pressure we face to do the opposite, I'm working every day to keep my mind unshakable, to make my relationship with money healthier because I know that only then will I become financially free.
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© 2022, Nubelson Fernandes