In corporate finance there’s a term used to describe inventory that sits in a warehouse costing the business money — that term is called carrying costs.
Imagine for a second that your house is run like a business and all your belongings are its inventory. The more stuff you own, the higher your carrying costs will be.
Of course, not everything you own will end up costing you money but you get the idea.
I believe minimalism is a sort of antidote to personal carrying costs.
Just like the costs of carrying excess inventory will eventually cripple a business, owning too much stuff will eventually wreak havoc on your state of mind and your wallet.
Today, I want to share a few principles from minimalism that will save you money.
What’s interesting about these five principles is they’re not about restricting your spending so much as changing what you decide to spend your money on that makes the difference.
Here are five minimalist principles that will fix your money problems:
1) Value Experiences Over Things
Minimalism is about focusing on what’s important to you. If you stop to really think about what you value most, you’ll realize it’s probably less about the materialistic things in your life and more about the experiences.
You remember the family vacations you took as a kid with your parents over the new suit you bought or the expensive watch that’s sitting in your dresser drawer.
Once you accept this reality, your spending shifts to align with these values. It’s no longer should I buy this new car or nicer pair of shoes. You’d rather save that money for your next big trip or outing with friends.
2) Understand Your Wants vs. Your Needs
It’s estimated that the average American household spends over 90% of their annual income. A big chunk of that spending goes toward things you don’t actually need.
Living minimally, forces you to identify what’s essential in your life and what’s excessive. A good exercise to do every month is review your credit card and bank statements.
Take out a pen and mark beside each line item whether it was a need or a want. If you do this every month, you’ll start to see patterns in your spending.
As you shift your spending to align with your values, you’ll see less wants show up. That’s not to say you shouldn’t spend your money on things you want though.
You’ll just have a clearer picture of the wants that actually add value to your life as opposed to the wants that are driven by laziness or gluttony. For example, eating out because you don’t want to cook versus going out for dinner with friends.
3) Buy Quality Over Quantity
If you’re always looking for the best deal on every purchase, you’re probably sacrificing quality.
Minimalism is less about trying to save a buck and more about buying quality things that last. Because in the long run you’ll spend less money owning fewer high-quality items than you will buying cheap stuff that constantly needs replacing.
Shoes are a great example. If you normally buy a pair of $30 running shoes, you might only get 6 months to a year out of them. If you were to spend 3x that amount, you’d get a shoe that will last you four to five times as long and are way more comfortable.
Minimalism helps you look at spending differently. Instead of getting the best deal today, it’s about finding a product that meets your needs and adds the most value to your life. Typically, this means shopping quality over quantity.
4) Less Things = More Space
As I said earlier, minimalism is the antidote to personal carrying costs. When you focus on downsizing your belongings, you see how much extra space you’re really paying for.
Approximately 1 in 10 Americans rent self-storage space, that’s almost 10% of the entire country that could be saving money if they followed this principle.
I’m not suggesting you move into a tiny house, but when you reduce your belongings you should consider what a move would save you long term if you were to give up a few hundred square feet.
5) Less Space = Less Maintenance Costs
Another benefit to owning less space and junk is it costs you less to maintain what you have. If you downsize from a four bedroom house to a two bedroom, your utilities will drop significantly.
And if you decide to sell one of your cars, your insurance, gas, and car repairs will all be halved.
Let’s Get Started!
There’s a reason businesses have entire accounting departments dedicated to reducing carrying costs. I recommend treating your home’s finances like you would a business. It may sound strange, but try it out!
As we’re about a week away from the month of August, now may be a good time to think about printing off your bank and credit card statements from the past month. Take a proactive step and ask yourself the tough question: what’s tying up my money today?
Then, once you have a clear picture of where your money is going, check to your spending patterns aligns with your values. If they don’t, think about the things that you can cut.
Use this next month as a test.
Start small, don’t start with a big change like selling your car or house. Maybe start with cleaning out your closet and donating clothes that you forgot you owned. As you begin to adopt a more minimalist lifestyle, you may find you don’t need as much as you think.
To a richer life,
— Nilus Mattive
Editor, The Rich Life Roadmap
Source: Daily Reckoning