#18 Applying Minimalism To Your Finances

Lesson 18,

Applying minimalism to your finances.

In this lesson,

I'm gonna show you how to create a healthy financial plan to sustain your minimalist lifestyle,

Stop living paycheck to paycheck,

And learn ways to save and get out of debt.

As always,

The first and most important step is to really understand why do you want to take full control of your finances.

Think about the reasons that are driving you to do this.

Those reasons are going to be the motivation that you need to push through this process.

Once you are crystal clear about why you are doing this and you have a very empowering reason,

All reasons,

That's when you can get started with the awareness stage.

During this awareness stage,

The ultimate goal is to really understand your finances.

How much money are you making?

How much money are you spending?

And what's left at the end of the month?

Are you overspending and going into debt every month?

Or are you saving every month?

The idea here is to create what is called a zero-based budget.

This concept is basically taking your income minus your expenses plus all the things that you want to budget for,

That could be vacations,

Retirement,

Maybe budgeting to buy a house or a car,

All the things that you want to include in your lifestyle,

They should equal zero.

So what you make minus your expenses plus all the budgets that you want to create for those important things should equal zero.

In order to do this,

I would recommend using an Excel spreadsheet.

You can also do this by hand with pen and paper,

But having an automatic spreadsheet can help you automate all the calculations,

Meaning that if you type in how much you make and all the expenses that you are having every month,

The spreadsheet will calculate everything automatically for you so that anytime you make a change,

Everything will be recalculated automatically.

It's very,

Very powerful and this is the best tool that I have found to help my clients and we also use it ourselves personally.

So once a month,

We close our month and we track in there how much money we made,

How much money we spent.

We are very aware of where our money is going and we have specific budgets so that we have full control of our lifestyle and our choices.

In order to get all the information about how much you make and how much you spend,

You have to actually look into your financial life,

Into all the bank accounts that you may have,

All the credit cards that you may have and you have to dig deeper into putting all that information in one place.

This is the secret of success.

In order for you to have clarity about your finances,

You need to be aware of how much you are spending and in these days,

I can tell you that financial life has become very,

Very complicated,

Meaning that the majority of the people,

They have several credit cards,

They have several savings accounts and checking accounts and just thinking about knowing how much you have,

It's complicated.

You have to look into different credit card dashboards,

Maybe you have to go into different places to know your expenses and that's why so many people are in debt and that's why so many people are confused because it is confusing.

So this system is going to work because I have used it with many people and with ourselves for like so many years and it's the best system I have found to be able to design your minimalist lifestyle and to create that financial plan that will support you.

In order to calculate all of this,

I have in front of me the template that we use.

This is the template that I have created after working with clients for so many years and the template looks like this.

So I have specific columns.

The first column is called income and expenses and below that,

I have specific rows for my income sources and a specific rows for every expense that we have.

Expenses could be groceries,

Car,

Could be utility bills,

Could be expenses for restaurants.

So we have specific labels that make sense to us and our lifestyle.

In your case,

You have to look at your lifestyle and decide what categories do you need,

What categories do you have.

Except that we have specific rows for savings.

We save every month a few hundred dollars for a car,

A few hundred dollars for vacation.

We put aside some money for retirement and then when we do the math,

The income that we have minus the expenses plus the savings should equal zero.

That's a zero base budget.

So that's the first column.

The second column is January.

Third column is February and we go all the way up to December.

So yes,

We have a full year here from January to December because every month can be different.

When we input the information here,

It's very powerful to be able to go back to your bank accounts and credit cards and then do this process.

When you do this process,

You become aware of your spending habits and when you are able to put all the information in this spreadsheet and you get the totals,

You may see the reality of your life.

And it may seem a little bit overwhelming for some,

But the faster you do this,

The faster you will design and create the lifestyle that you want.

And the faster that you will get out of debt and you will stop overspending because you will understand where your money is going.

You will see your behavior.

You will see what you can change.

You will see what you can tweak.

And it's very,

Very powerful.

So we have the first column is the income and expenses,

And then we have one column for every month of the year.

And then we have a column that is total.

So this is basically the total expenses of all the months.

Then we have another column that is the average monthly expense.

This is very powerful because if you have a category of,

For example,

Groceries,

And every month you have,

Let's say,

January,

You have $500,

February 700,

March 300.

At the end of the year,

You can have an average monthly expense.

And then we have the last column is called monthly budget.

So once we have all the information,

That's when we can create a monthly budget based on the reality.

And we can tweak those numbers until we find that zero-based budget.

Meaning,

If we have two sources of income,

For example,

And then we have all the expenses plus the savings that we want to create in our life,

That in our case was car,

Vacation,

Retirement,

That should equal zero.

And if it doesn't equal zero and we are overspending,

We can very quickly identify where is the money going and what can we change.

Maybe instead of spending $300 in restaurants every month,

We can decide to spend $200.

Maybe instead of buying a brand new car,

Maybe we can buy a used one.

Maybe we can work more and try to make more money.

So you see how this works.

You have options.

You are designing that monthly budget and every time you change one line,

Like the calculation happens automatically,

And you can very quickly get to that zero-based budget.

This is such a powerful tool that when is used properly,

It's going to help you get out of this financial mess that you may be in.

The sooner you have this clarity,

The sooner your lifestyle will change and the sooner that you can start tracking the new habits that you want to create.

This tool and this process is not meant to make you feel bad and it's not meant to limit your life.

It's quite the opposite actually.

Once you have this clarity,

You can be 100% confident of your actions and your decisions.

If you create this budget and your budget for example to go out for restaurants is $200 a month,

Now you have something to measure.

And if you are on the 15th of the month and you have already gone out up to $200,

You have spent already $200,

You can feel very confident to say no to future restaurant options if someone invites you.

And it's the opposite.

If you haven't spent $200,

Maybe you can treat yourself to more restaurant visits because you still have that budget.

And at the end of the month,

If you didn't enjoy only having that budget,

You can increase it and you can decrease something else.

So you can tweak this budget until it represents the lifestyle that you enjoy and that you want to live.

A few other concepts that I want to share in this lesson are creating an emergency fund.

What does this mean?

This means having a pool of money that will cover your basic expenses for a series of months.

Some people work towards having three months emergency fund,

Some others create a six month emergency fund and some other create a full year,

12 months.

This is your decision and it depends where you are at right now.

You can decide how much makes sense to you,

But I would recommend to work to have at least three months.

So if once you do this budget,

You realize that your lifestyle is costing you $3,

000 a month,

For example,

To be able to pay for rent,

Groceries and all the basics,

Then you will need $9,

000 saved to be able to have an emergency fund of three months.

This may seem a little bit overwhelming and maybe difficult for some if you are just getting started,

But you can just get started small.

You are saving every month $50,

$100,

$20,

However much you can.

And at the end of the process,

You will have that money.

Even if you are working towards just having one month,

That's better than having nothing.

This is going to give you flexibility.

If you lose your job,

If anything happens that is not accounted in your budget,

This is truly an emergency,

You can reach to that money and it can help you buy some time until you find a solution.

How do you track your expenses on a monthly basis?

There are a few ways of doing this.

You can do it with keeping your receipts.

Some other people do it by having an app that connects to your bank account and then you can categorize all the expenses.

Some people use the envelope system.

There are many different ways of collecting that information and you can choose the one that makes the most sense to you.

But the conclusion is that at the end of the month,

I recommend to do it at least once a month,

You should be able to gather the information in one place and be able to see with clarity how much you made,

How much you spent,

And if you are on track with what you decided that you wanted to see.

This is all about you and about your decisions,

About being intentional with your expanding habits.

You are the one to decide that and you are the one to tweak it as you need and your life will keep evolving so your needs may be changing and you may be needing to tweak this budget every few months or every few years.

Maybe you decide that your priority right now is to buy a home so maybe all the savings that you can create are going towards that.

Maybe your priority is to be able to travel every year for one month.

Maybe you are saving to buy a brand new car.

You decide your intention,

You decide your choices and you create a plan that supports those choices.

This is how you create a minimalist financial plan and this is how you can make it a reality.

If you are into debt,

Then your priority should be of course first paying off that debt as fast as possible and having this budget will allow you to understand your spending habits,

To become aware of them,

And then hopefully to start taking action to change them in a way that will serve you better.

Now it's time for you to do this exercise.

It's time for you to track down all the expenses that you had,

Track down all the income that you had,

Track down the things that you want to save money for,

The debt that you need to pay off,

And create that plan so that you can have the confidence every month of knowing that you are doing the right thing.

When doing this process,

You may realize that maybe your financial life is a little bit messy and that's normal.

That's why it's so important to have a holistic view of your finances,

To be aware of how many credit cards do you have,

How many bank accounts do you have,

How is your money flowing in and out,

And maybe you can optimize that by maybe having everything in one place so that you can only need to log into one dashboard and you can simplify the process as much as you can so that maintaining is easy and simple.

In our case,

We created a closing the month to-do list where when we did it one time,

We kind of tracked down all the steps that we needed to do and then every month it became easier and easier until it became something automatic for us.

So the steps could be log in into my bank account number X and download the transactions,

Log in into my credit card 1 and download the transactions,

Log in into my credit card number 2 and download the transactions.

You see?

And then once you have all the information gathered in one place,

Hopefully in the spreadsheet,

That's when you can have a realistic view of how much you have,

How much you spend,

And that simplicity will be right there.

Doing this once a month is going to give you the clarity and it's going to give you the power of deciding how to keep going with your life,

What you are doing that is right and what you are doing that you feel is wrong and how you can change those things,

How you can change those habits and how you can create that financial plan that you are seeking for so that you can support your new minimalist lifestyle.

I hope this lesson helps you gain that clarity.

Please do the exercise.

Do it because when you do it,

It's going to be a huge awareness tool and by the end of it you are going to have a great budget to follow and a great reflection document that you can go back anytime to reflect,

To change,

To tweak and then move on the next month with the new plan that you created.

Good luck and any questions you know where to find me.