The Problem With Financial Minimalism

What's up guys, it's Graham here.

So lately, I've noticed a big push towards the concept of financial minimalism. For those of you that are not aware, this is the concept in which you cut out every expense in your life that does not add to your overall enjoyment and well-being. Doing that allows you to shift your focus and your spending towards the things that do matter and improve the quality of your life. This is, after all, something that I've been implementing throughout the last decade.

I mean, it's basically no surprise that I try to take it as a personal challenge to spend as little money as I possibly can. To cut back on the things I don't really use and turn everything into an exercise of how low I can get the prices down. In a way, this is my weird idea of fun, and it happens to be economical at the same time. Doing this is also what's led me to accumulate a pretty hefty nest egg in terms of my investments, without ever feeling like I've missed out or deprived myself of anything.

Doing that has allowed me to shift my attention and my focus towards doing the things that I enjoy the most, like seeing how many times I could ask you to smash the like button for the YouTube algorithm or get two free stocks down below in the description. So really, from that perspective, financial minimalism is amazing. I owe a lot of my financial success to recognizing the value of $1.00, delaying gratification, and being mindful of the type of spending and experiences that really just had the most value to my life. Otherwise, just not buying stupid stuff.

As great as this is, and as much as I love talking about it, financial minimalism does have one main flaw that needs to be addressed. I'll be the first to admit I wouldn't be here today if I just saved as much money as I could and otherwise lived a hyper-frugal existence without ever leaving the house. Because that alone is typically not enough to build up your investments to the point where that will cover whatever lifestyle you want to live.

So for the way I see it, here's the biggest problem of financial minimalism, exactly what you could do about it, and how doing this could end up improving your finances really for the rest of your life. Financial minimalism is all about taking a really simple, uncomplicated, and bare-bones approach to your finances. By doing that, you could lead a more financially flexible lifestyle with less obligation, and that gives you more freedom to pursue what you really want to do.

So it's all about cutting back on what doesn't matter so that you could spend more on what does. It's a constant battle of prioritizing your expenditures, figuring out where you get the most value, delaying gratification, and then sticking with it long term. The end goal is about maximizing what you have right now and then investing the difference to give you the financial security to basically pursue whatever you want to do and walk away from what you do not want to do.

But there's also another side of this that's not really talked about that much. That's because cutting back and saving alone can only take you so far. You can only save and cut back so much money before eventually you can't possibly save anymore or cut back anymore. And then at that point, you're stuck. So then what do you do?

Well, I will attempt to answer that. And to do that, let's begin here with savings. If you want to be financially independent, it's really as simple as counting two things: number one, how much money do you spend every year, and number two, how much do you have invested to cover that lifestyle? Financial minimalism fits into this mold perfectly because the less money you spend, the less money you need, and the faster you could reach that point of having your investments cover your lifestyle.

Not to mention, saving as much money as you can has several huge benefits. Number one, if you cut back your spending by $1, that $1 is really worth more like $1.30 before taxes if you had to go and work for it. Like imagine what you would have to do to have an extra $100 in your pocket right now. You would need to go and make an extra $130 because Uncle Sam needs their fair share.

So from this perspective, anytime you save money, it's almost like you get a bonus of 30%. To just keep my analogy somewhat, like would you want to eat this Snickers bar and enjoy it for a minute and then spend 2 hours on the treadmill trying to burn it off? Or would you rather just not eat the Snickers in the first place?

I mean, maybe you want the Snickers bar and that's cool, but at least for me, it seems so much easier to cut back than to work extra just for a little bit more. The second benefit to saving is, like I said, that's less money you will need to be financially independent. Just consider this: most people calculate how much money they're going to need to retire by multiplying their annual spending by 25 to 30, and then once they've hit that amount invested, they've made it.

This is also known as the safe withdrawal rate. So that means if you're 25 years old and you spend $40,000 a year, just multiply that by 30, and that means you will need $1.2 million invested to safely generate an income of $40,000 a year that you could spend indefinitely without ever worrying about running out of money. That also means, in other words, for every $1 you spend, you will need $30 invested to be able to cover it.

This is one of those things for me that once I saw it, I couldn't unsee it. Like I view that $200 car payment as not costing me $200 a month but instead $72,000 invested, because that's how much money I'm going to need in order to sustain that expense indefinitely. The same thing could also apply to you spending $100 a month dining out. To be able to cover that expense indefinitely, you will need an extra $36,000 invested.

This is why cutting back even just a little amount will have a big impact on how much money you'll need in the future. Just remember, for every $100 a month that you cut back on will mean $36,000 less money that you will have to have saved up in order to pay for it. At least for me, recognizing this was pretty eye-opening.

And third, for the majority of people, cutting back and saving money will have the fastest, most immediate impact on your finances over anything else. This is the one area that you really have the most control over. You decide if you want to get that Mercedes or the used Honda. You decide how much you want to spend eating out every night. You decide if you want to live in a really expensive part of town or live ten minutes away for half the cost.

So in terms of what you can do today, literally within minutes, going through your spending, cutting back, and saving money is going to have the best ROI above anything else that you could possibly do. However, there can be downsides to saving, as hard as that could be to believe. But seriously, the reality is that saving money alone can oftentimes only take you so far. Even if you're able to save 50% of your income, sometimes that doesn't take you as far as you would like if you're only making, let's say, $20,000 a year.

So, what's the point of saving everything if you're miserable doing it and can't do what you enjoy? That's why financial minimalism is, in a way, just as much about making more money and maximizing your value as it is about recognizing what you want and what's important.

This reminds me of an old Reddit thread I saw a few years ago with the title: "Build the life you want and then save for it." I'm going to link to this down below in the description for anyone who wants to give it a read. I highly recommend it. But anyway, the importance of this post was just by saying the end goal is not to be saving money for the sake of saving money, and you should not prioritize that.

After all, what's the point of cutting back on the things that you enjoy if doing that makes you miserable? From this, the Okie Mr. Lama SC recommended that the solution to all of this is to first figure out what you want your life to be. Then figure out how much that's going to cost, and then plan your savings and investment goals around that.

Really think about it: without money getting in the way, what do you really want out of life, and what's important to you? You got to do some soul-searching and figure out what you want to do with your time and what you want to contribute. Then from there, you could build your life with that being the goal.

And hey, if it's going and buying a Lamborghini, even sure, I'm all for it. But make sure what you want is not about impressing others or getting things to make you feel better about yourself, and instead address the root of the issues to discover experiences that will help you grow as a person.

And second, the post also recommended to leave a little bit of room for new experiences. After all, priorities change, and that's entirely okay. So give yourself a little room to pay for that upfront and work that into your overall savings and investing goals. By doing that, you could really do your best to lead a fulfilling life now rather than just save endlessly, waiting for some moment in the future where you could finally walk away from things and do what you really want.

Even for me, this is something that I have absolutely worked on and gotten better at. There was absolutely a time in my early 20s where I would do anything to save money. I mean, not anything, but anything. It certainly missed out on a lot of great experiences just for the sake of saving an extra thirty dollars by staying at home.

Even though it's certainly worth it to be mindful of your spending and not live above your means, it's also just as important to think about the bigger picture. Realize that life is not meant to be enjoyed at some distant point in the future. You could still have a chance at that now by living within your means and prioritizing your savings around that.

If that is the point where earning more money comes in, now I'm almost afraid to mention "make more money" in the same video as financial minimalism because I don't want to give you the wrong impression or make it seem like I'm going against my core values.

I mean, on the one hand, we have the connotation of hyper frugality, where we should all be content just living on the bare essentials. And then on the other hand, we have the assumption that making more money has to do with materialism, extravagances, and wastefulness.

But I believe, in a way, financial minimalism can really just encompass both. Sometimes finding ways to make more money is the best solution if you found yourself having cut back as much as you possibly can but still not being able to save up for the life you really want. At this point, diverting your attention towards increasing your income becomes a much better ROI than simply just cutting back.

With this, your potential is really unlimited in terms of how much money you can make. So making more money while keeping your lifestyle the exact same will fast-track your journey towards financial independence and building up a portfolio that will cover whatever you want to spend.

In terms of how you can go about doing that, it's really such a personalized topic, and each of us is going to be different. But generally, these few ways are going to end up giving you the fastest results if you want to end up making more money.

First, if you already have a job right now, ask for a raise. I've done this several times when negotiating my commission splits while working as a real estate agent, or also just charging more for my own services, which is kind of like me giving myself a raise. But you get the idea.

I think it goes without saying, but sometimes the best way to make more money for almost minimal effort is just to ask for it. Second, another way to make more money that a lot of people don't realize or utilize is by switching companies.

There have been multiple studies that have shown that people who switch jobs every two to three years make nearly 50% more than someone who stays within the same company. According to Forbes, the reason why sticking with one company doesn't work is because, when you're hired, they start you off from a base salary and then will raise you up based off a percentage of that.

Although by moving to a new company altogether, you could start that baseline off at a much higher amount, way more than you would get by ever getting a raise with the first company. So here's what I recommend: if you're really happy with a company you're currently working for, then by all means, stick with it.

However, sometimes it doesn't hurt to look elsewhere and just see what else is out there. You might just end up with an offer that's too good to pass up, and you might be inclined to move. The third, depending on the work you want to do, going back and getting an education could be a great way to improve and hone your skills and potentially demand a higher salary, especially in the event you want to switch companies or ask for a raise.

And fourth, working on a side hustle or side business could end up making you money during a time where otherwise you would just be watching YouTube videos. Like me watching these cat videos where they ding a little bell and they get food. I've been watching way too many of these videos. You watch one of them, and then YouTube just recommends you a whole bunch of other videos, and they're way too fun to watch. So that is my guilty pleasure.

Anyway, this is why making more money has really just as much place in financial minimalism as, say, cutting back. Instead of seeing the two as polar opposites, you should almost see them as complementing one another to get you closer to your goal of building a lifestyle that you want and having your investments pay for it.

Because like I said, cutting back on your spending and saving more is typically going to be the best approach in terms of maximizing your money and focusing on where you get the most value. But these benefits end at the point where you can't possibly cut back any more money or save any more without sacrificing what's important to you.

That, to me, is the main problem of financial minimalism in the way most people think of it. That means doing both in conjunction with one another really gives you the best results. To me, that is really what's led to everything I have today. Even before I started making a lot of money, I lived really frugally.

I tracked all of my expenses. I saved as much money as I could. I invested as much money as I could. After years of doing that, I saved up enough money to invest in real estate to make even more money. Even though I didn't spend it, after several more years of doing that, I was able to increase my income pretty dramatically working as a real estate agent.

I kept my lifestyle and my spending the exact same, even though I was earning way more. I just continued dumping all of that extra money back into my investments because I knew that would give me a sense of security to pursue whatever I wanted to do in the future, as I knew inevitably my priorities would one day change.

And sure enough, three years ago, I started making YouTube videos just for fun on the side to talk about my excitement about real estate, real estate investing, personal finance, credit cards, and smashing the like button for the YouTube algorithm. Once my YouTube videos began getting some traction, I decided to dedicate more time here to doing this, even though my career as a real estate agent was at its all-time peak.

However, I knew I had enough saved up to the point where I wasn't really concerned about the money, and I was okay forgoing some real estate commissions in exchange for doing something I really loved, which was making YouTube videos. Even though at the time this channel was making less than 1/10 of what I was making as a real estate agent.

And now, lo and behold, the tables have turned, and now this YouTube channel makes more money than I ever thought was possible or imaginable. Really, if it were not for those early years of living hyper frugally and saving as much money as I could, I don't think I would have had the courage to take that leap of faith and pursue something just because I enjoyed it without being concerned about all the money I was giving up by working as an agent.

That is really the entire point of living below your means, saving as much money as you can, and then taking the opportunities that you enjoy the most.

So with that said, you guys, thank you so much for watching. I really appreciate it. As always, you guys, if you enjoy videos like this, make sure to hit subscribe and hit the notification bell so YouTube notifies you anytime I post a video.

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