Minimalist Finances and Budgeting

Minimalist Finances and Budgeting
by Joshua Millburn
We are minimalists, not communists. And minimalists aren’t allergic to money.
—Joshua Millburn
So Many Great Questions
Ever since I wrote about leaving my corporate job at age 29, a lot of people have asked a
lot of questions, many of which revolve around finances.
How are you going to make a living?
How are you going to pay all of your bills?
What expenses do you still have?
What expenses do you get rid of?
How can I apply this to my life when I still have to deal with X and Y and Z?
Hopefully this essay will address most of your questions.
But first, a note: living a meaningful life has nothing to do with how much money
you make. I used to make a lot of money. I don’t make nearly as much money anymore.
Not even close. And that’s OK because contribution and growth and pursuing your
passions are more important. I’ll address those concepts later in this essay and tie it all
together—finances and living a meaningful life—with a neat little bow at the end. Enjoy.
Budgeting
Let’s start with how I manage expenses. As you can imagine, I like to keep it simple, so
let’s look at it in a way that will apply to anyone: regardless of your income, you must
spend less than you take in, otherwise the math does not work, and you will go into debt
—or further into debt—if you spend more than you make.
This might sound overly simplistic or vapid or trite, and yet more people are in
debt today than ever before.
And I know this first hand. I used to spend more than I made, even when I was
making well over six figures. It didn’t matter because I was spending more money than I
brought home. That will never get you ahead. Never.
This all sounds like common sense, I know. But the problem is that common
sense isn’t all that common these days.
Bottom line: you must spend less than you make.
Resources
I realize that your situation is different than mine, but that doesn’t mean you have an
excuse, it doesn’t mean you can keep putting it off, it doesn’t mean that you have to
remain trapped in a job you hate, in a life without freedom.
Because everyone’s situation is different, I want you to have some resources to
tackle your finance and debt problems:
Debt: Baker over at Man vs. Debt has some outstanding resources to help you get out of
debt. That’s a great place to get started. It doesn’t happen over night (it took me nearly
two years), but you must get out of debt—or a least be on the journey towards a debtfree
life—before you can live a life of freedom.
Money Management and Tracking: the best site to track all of your expenses (from
what I can tell) is Mint.com. Mint brings all your financial accounts together online,
automatically categorizes your transactions, lets you set budgets & helps you achieve
your savings goals. And it’s free.
Accountability: I respect Raam Dev for the way he holds himself accountable with
respect to his finances. On his website, he publishes a monthly financial report in which
he discloses all his expense (e.g., meals, housing, cellphone, etc.). Even when he
overspends, he makes it public. While I don’t aspire to live a similar lifestyle—the
lifestyle of a perpetual peripatetic—I can tell that Raam’s tracking method has changed
his mindset for every dollar he spends. How will you hold yourself accountable?
My Expenses
Let’s talk about absolute expenses. These are simply the things I must pay to live my
current lifestyle:
• Rent (includes trash and water)
• Utilities (gas and electric)
• Car Insurance (I don’t have a car payment)
• Gasoline (for what little I do drive; I walk when I can)
• Food (including tips; don’t be a jerk, tip well)
• Savings Account (can also include retirement accounts like 401k, 403b, Roth IRA,
etc.)
• Health Insurance & Medical Expenses
• Cell Phone (optional)
• Gym Membership (optional)
That’s it. I didn’t include totals because yours will obviously be different. So plug in the
numbers for yourself, and that’s what you need to make to live. And for me these
expenses don’t count money for things I want to do outside of my absolute expenses,
things like concerts or movies or other events that require money. But those things are
optional, and I don’t have to do them.
A note about health insurance: if you want to leave your job or start your own
profitable business or are already self-employed, I still recommend having some type of
health insurance. Sure, some people don’t have health insurance (e.g., the extremely
successful Tyler Tervooren), but there are options for non-corporate people. The most
common options are as follows:
• Purchase a high-deductible policy
• Check prices with the Freelancer’s Union
• Compare quotes with an insurance broker
• Get insurance through your spouse’s employer
• Move to Massachusetts or take lots of vitamins
A note about your savings account: it is important to have an emergency fund saved that
you don’t touch. Rule of thumb is three to six months of basic living expenses (food and
shelter). Adam Baker shows you how to make money from selling your crap; that’s a
great way to build up some quick savings.
Expenses I Eliminated
These are the expenses I used to have, but got rid of (over a two year period):
• House payment (sold the house)
• Homeowner’s insurance
• Car payment (paid off the car)
• Cable TV (got rid of my TV)
• Internet (go elsewhere for Internet)
• New clothes every month
• Credit card #1
• Credit card #2
• Credit card #3
• Credit card #4 (Yes, I had four credit cards. No, I am not kidding. I still owe a little
money on one of them and plan to pay it off this year.)
• Student loans (paid off except $55 per month for US Dept. of Edu.)
• Other miscellaneous debt (paid off)
• Junk
• Junk
• Junk (yes, I used to buy a lot of junk, but I’m not buying that stuff anymore)
Trading Money For Freedom
One principal I live by is questioning all of my purchases. It takes time to earn money,
and my time is my freedom, so by giving up my money I’m giving up small pieces of my
freedom. Before I make a purchase (even for a cup of coffee) I say to myself, “is this cup
of coffee worth $2 of my freedom?” This has significantly changed my mindset.
Income
Once people know how much money they need, they always want to know how to make
that much money so they can leave their soul crushing job or find a job that they enjoy
more that might pay less. These people often say, but I don’t want to write or start a
website. I say, that’s OK! If you start a website like this one with the intention of making
money, you will probably fail. Yes we make some money from our site now, but that’s
not why we started it. But that’s not your passion anyway, so…
First, you must identify your passions. This one is easy for some people, and you
might already know the answer. If you do, that’s great.
But if you don’t know the answer, Jonathan Mead did a beautiful job explaining
the seven keys to discovering your passion.
Me? My Passion? Writing. Especially fiction. And by the end of 2012 I anticipate
that my income from fiction will surpass the income generated from our popular site.
What about you? What is your passion? Do you want to start a profitable
business? Do you want to teach children? Do you want to start a blog? Do you want to
write a novel? Do you want to become a scientist? Do you want to travel the world? Do
you want to feed the homeless?
Second, you must identify your mission in life. This one’s a little more tricky and
even a bit philosophical. Sometimes, if you’re very lucky, your mission is the same thing
as your passion, but it’s OK if it’s different too (it’s different for me).
Another way to look at this is to ask yourself, “What is the meaning of my life?”
OK, I’ll admit, this is an extremely complex and abstruse question. The good news is
that I’ve spent years thinking about it and helping other people with this same question
(I led a large group of people for a long time and helped them understand their goals; I
have a decade of leadership under my belt).
So let’s remove the complexities of this question. Regardless of the answer’s
specificity, the answer always revolves around two things:
• Personal Growth
• Contributing to Other People
In other words, the meaning of my life is to grow as an individual and contribute to
other people in a meaningful way. And the good news is that you get to decide how
you’re going to do both.
Growth.
I grow in several ways, most notably:
• Writing & Reading (mostly literary fiction) strengthens my mind and my
craftsmanship, and it also strengthens my relationships because we have
interesting topics to discuss.
• Exercise (daily) strengthens my overall physical and mental health.
• Relationships allow me to connect with others to get new ideas and learn more
about myself through conversation.
Contribution.
I contribute to others in several ways too:
• Charity & Community Outreach. I donate my time to charitable organizations, I
also organize larger teams to participate at local community outreach events.
• Coaching and Mentoring. I help others when they are looking for direction.
• Writing. Great writing contributes to readers in a special way. Great writing can
connect with another person on a level that other forms of entertainment are
incapable of doing.
How about you? In what ways do you grow? In what ways do you contribute? How
would you like to grow and contribute? Make a list and pick your top three in each
category. Focus on those, they are your mission.
Good luck on your journey into freedom. You deserve to be free.