How to Simplify Your Finances
A sure way to make your life more simple is to take control of your finances.
Money is a double edged sword when it comes to simple living. On the one hand, it can be a cause of major stress and disfunction in your life. On the other hand, money can provide you opportunity and freedom to live simply.
A large part of the stress of money comes from having to “manage it”. Without a plan, and without intentionality, it’s nearly impossible to effectively use money in your life as a tool. You end up winging-it, which means uncertainty and bad decisions.
Step 1. Create a Plan
In order to simplify your finances, you have to be aiming at something. You have to have goals that intentional action will help you achieve.
I’m a BIG believer in the power of focus, and that it’s important to work on one goal at a time. So when doing your financial plan, try to break down a sequence of goals that you are looking to achieve. We created a Google Docs file that listed out the different goals we had financially, based on where we wanted to take our life. Below are some examples:
- Save an Emergency Fund
- Pay Off Debt
- House Downpayment
- Retirement Savings
- Vehicle Replacement
- Your Other Goals
Step 2. Do a Budget
A budget is one of the best ways to take control of your finances, making your money more simple and effective.
Think of your budget as a way of telling your money what to do. It allows you to predetermine your spending and saving, instead of guessing where your money will go.
Think you’ll hate doing a budget? Some of the biggest advocates I know for budgeting were once the biggest naysayers. However, once you follow a budget for a few months, you begin to realize how powerful it really is.
- Spending money becomes “guilt free,” as it’s already in your budget.
- It feels like you got a raise, because you are effectively using every dollar.
- And most importantly, you will reach your financial goals faster.
Step 3. Stay Out of Debt
A simple financial life should be one that involves living debt free.
Debt represents just about everything that goes against simple living. It encourages consumerism, makes you spend money you don’t have, and forces you into future commitments through repayment.
Due to our current culture’s love of debt, it may seem like an impossible task to live without consumer debt and student loans. But you’d be surprised how many people choose to live without debt hanging over there head.
Step 4. Save and Invest
Once you have a strong financial foundation of an emergency fund and your debts cleaned up, one of the best financial moves you can make for simple living is to save and invest.
By building wealth, you enable yourself additional freedoms in choosing to live a more simple life. Your options open up as to where you work, where you live, and how you spend your free time. The ultimate goal for many simple living people is financial independence; meaning that you have enough money invested to live off indefinitely.
Investing money into mutual funds, real estate and other appreciating assets helps you generate additional wealth from your hard earned cash.
In addition to long term investing, your financial plan should include saving in “sinking funds”. Building up piles of cash for future car purchases, vacations, or other larger ticket items, enables you to make stress-free purchases in the future.
Money As A Tool For Simple Living
Remember that money is nothing more than a tool. It’s up to you to learn how to use it correctly to make your life more simple.
If you take control of your finances, make a plan, and be intentional, you’ll find that money is a great tool for simple living.