This is not an article propagating minimalism and asking you to live a van life. Though that may be appealing for some folks, I fully recognize that (extreme minimalism and the van life) is not for me and my family and most of my readers. One additional disclaimer – I will also say after a lot of soul searching and debates, my family moved to a bigger house this past month. So before you start wondering how I can be so hypocritical by writing an article titled ‘less is more’, I want you to know that I simply wish to explain that there is a place for this phrase in everyone’s life. Indulge me for a few minutes and read on.
What does the phrase ‘less is more’ mean?
‘Less is more’ means simplicity and minimalism is better than complexity or having a lot. The phrase has historically been used in art and architecture contexts. Designers use it a lot in the context of simple designs. Today the phrase is used in these contexts in addition to other contexts.
The context I wish to talk about today is around personal finances. Wait a minute! How can having less money be better in personal finances? The answer is a bit nuanced and I want to talk about that in today’s article.
Less ‘things’ in your life and home
Spending less on ‘stuff’ is good for your finances but it also reduces clutter and is good for the planet.
As someone who just moved homes, I can say packing and moving is not fun. But you know what is less fun? Packing and moving things that you realize you have not used in years. My wife and I have tried to be good about this but somehow things just accumulate. We did quite well on the big items that are visible every day – furniture etc but on the smaller items that are less visible (i.e. shoes, clothes, tools, stationery etc) – not so much. We ruthlessly threw so many items that it pained me to see all the money we figuratively trashed into the trash can.
From a personal finance standpoint, the benefits of spending less money on things is obvious. I have talked about cutting your expenses in a prior article titled ‘Let’s Marie-Kondo those expenses’. But outside of that, having less also means less clutter and less trash. Less trash is good for the environment btw. If you are a hoarder and make the argument that you never trash anything then its worse – the clutter in your life will become unmanageable. This article references a study that was conducted that showed that buying less stuff was way better than trying to buy more ‘green’ products if you are one of those who is conscious of the environment.
Some of the statistics around this is staggering – I was reading these online while doing some research for this article. While I will admit these are unverified statistics, I will simply explain some of the qualitative aspects of it. The number of people who rent offsite storage to store their stuff is quite large. I have read stats that say it’s around 1 in 10 Americans. Whether we believe that or not, I can tell you anecdotally the business of personal offsite storage is very lucrative. A significant portion of Americans who own two car garages dont have space to park more than one car and an even larger proportion of Americans who own 3 car garages dont have space to park 3 cars for sure. We have the space so why not fill it with stuff? Apparently approx 3% of the children live in America, but they own 40% of the toys consumed globally. How many dresses do you own that you use at least once a month?
The point is obvious. We spend a lot of money on stuff but unfortunately the percentage of people who have enough savings and wealth is much less. Most of my readers tend to be people who have the ability to do both – spend money on things and still save. But I challenge you to ask yourself – do you really need or use the stuff? If you don’t use some of the things or barely use them, then maybe do your wallet and the planet a favor.
Now, none of this is to say you should not buy things you enjoy. If you do use something and find joy in it, then absolutely spend money buying it as long as you can afford it. The last part is key – ‘if you can afford it’. Unfortunately, a lot of people interpret that last part in different ways – that is beyond the scope of this article. Popular personal finance blogger Ramit Sethi in his blog ‘I will teach you to be rich’ propagates spending money on the things you find joy in, including the popular latte 🙂
Less complexity in your investments
Keep your investments simple. You wont lose our on returns by doing so.
Let’s shift gears a bit now. A lot of us have a variety of bank accounts, investments that have become scattered. I have read of some people who have 20 different bank accounts, credit cards , money in 7 different 401K accounts…the list goes on. If you are not one of them, thats good. It’s Ok to have more than 1 bank account or credit card. You might want to have 3-4 to bucket your expenses and money. I do that. But more often than not, this is the result of stuff accumulating as you move companies, locations and you dont bother closing accounts or moving them. Now, closing credit cards do have implications on your credit score so you do want to be careful of that.
If you have moved companies over the years, its possible you have multiple IRAs, 401K accounts. The only valid reason you might choose not to roll over money into your current employer’s provider is if you feel the fund options are limited or there are some specific features you need that are not available. Even then, limit it to two if you can.
Over time, I noticed I have small amounts of money in different types of investments – crypto currency, crowdfunded real estate, taxable trading accounts across different platforms. I put myself through the pain of tracking my net worth every single month on a spreadsheet in 2020. When you do this manually (I know, there are automated ways to do this but I did this on purpose to become more aware of our net worth), it becomes unbelievably painful when you have 50 different lines on your spreadsheet to track different accounts. And it’s not like this means you have a ton of money – in my case, it simply meant I had really small amounts of money scattered in all sorts of accounts. I really started consolidating these over time to keep it simpler.
Writer JL Collins in his book ‘The simple path to wealth’ talks about consolidating your portfolio into a simple 2 fund portfolio – one for stocks and one for bonds. Honestly, for most average investors, this is more than enough. Admittedly, I have some work to do here.
I know family members who have passed away suddenly with no estate plan and documentation of where their assets were. A lot of money was never found or there was simply no knowledge of where they existed. Simplifying your investments and portfolio has a lot of benefits. And you don’t necessarily lose out on returns by doing so.
Less mental bandwidth on managing finances
The last part of less is more I wish to talk about is how you can possibly spend less mental bandwidth thinking about your finances. Unless you are someone who is a personal finance geek, you probably don’t want to have to spend time every single month working through your finances.
The way to think about this is that the less you accumulate, less complicated your finances are, the less you need to think about it. I have talked about automating your investments in this article and automating tracking your expenses and even your net worth through tools like Mint. If you have it all well set, you can simply spend 10-15 min each month reviewing your finances and be done. Nothing complicated, nothing exotic – just keep it simple and you will feel absolutely in control of your finances.
So what do I need to do?
Start small. Take baby steps.
If everything I said above made sense and you wish to take action, read on. I always say this – don’t overwhelm yourself by thinking about everything at the same time. Start small. Take baby steps.
- Start with what you want to simplify. Make a list based on the above points I made. You can always add to the list later. The idea is to know what you’re going to start with.
- One of the things we did was, we identified a bunch of ‘things’ in our house that we decided we did not need. We simply gave them away through Facebook marketplace or Goodwill or our local library.
- Track your spending particularly in the discretionary area of your budget. I have observed that it allowed me to be more conscious when I went to Costco or Target where I would have randomly picked up things I did not even want in the first place.
- Don’t DIY your investing if you feel you don’t feel comfortable doing it. Work with a financial advisor or at least work with a trusted friend or family member who has a lot of knowledge on this. If you want to model whether you will be on track for retirement, then I definitely recommend working with a financial advisor who will have tools for you to use.
Finally, know this – doing a one-time cleaning will set you up well but like everything else in life, you need to periodically do spring cleaning to ensure things are not getting messy again.
Concluding thoughts
My intent of this article is to show that there are many ways to think about ‘less is more’. But personal finance is personal – so you need to think about what is best in your life. All I ask is that you intentionally think about this so then you can decide if what you want makes sense.
Thank you for reading and I wish you luck in your personal finance journey!
Disclaimer :I am not a financial advisor and all the information in my articles are from my personal experience and are for informational and educational purposes only. Please consult with a financial advisor or CPA for professional advice.
