Adopting Minimalism in Personal Finance

The festival season has started and get ready, as your monthly budget or some part of savings may go for a toss. Look at the newspaper in the morning, the number of papers have increased to accommodate advertisement to tempt you- to book a flat or change your vehicle or gifting jewelry to your spouse. The online retailers are all set to minimize their losses (yes majority are still in red) by throwing you never before prices by calling these by mouthwatering names like India Greatest Sale, The 80% Off Festival Sale and The Big Billion Day Sale… So howsoever hard nut (read miser) you are, the entire bunch of marketers including your family will be behind you to fall in a trap. Just read on social media:

Snaping Deals Monday,

Fliping Kart Tuesday,

Amazoning Wednesday,

Bankrupt By Thursday…

What can you do? My answer to this will be- to stick to your long term planning and don’t deviate the long term investments. But in short term it’s a tradeoff between need/wants/family persuasions. Another aspect to it is Practicing Minimalism.

What is Minimalism?

It’s a concept where you stick to SIMPLE LIVING.Adopt frugality when you are purchasing a household article or consuming a service including financial services. You must have heard about “no to honking” or “no to plastic” campaigns, can you have “no to unwanted financial products” message running for you throughout your life.

If you have heard the term Minimalism for the first time, here it is what it means. (Wikipedia)

“Minimalism encompasses a number of different voluntary practices to simplify one’s lifestyle. These may include reducing one’s possessions, generally referred to as living simply, or increasing self-sufficiency, for example. Simple living may be characterized by individuals being satisfied with what they have rather than want. Although asceticism generally promotes living simply and refraining from luxury and indulgence, not all proponents of simple living are ascetics. Simple living is distinct from those living in forced poverty, as it is a voluntary lifestyle choice.”

People practicing Minimalism, voluntary give up complex things, lifestyle and reduce possessions. I heard somewhere that a practicing minimalist is living on just 100 things which include his clothing, kitchen things and entertainment (I admit that my clothing including shoes and accessories are 100 plus ).   I don’t think we can do so, but minimum it is… the best it is…

Adopting Minimalism in Personal Finance

If you see carefully around, everyone forces youto buy or avail certain financial services or investments. The same LIC agents call you 5 time a year to sell any new launch product, the executives from banks will come with their sobbing story making you open one more bank account, your MF distributor wants you to invest at every market dip and telemarketers will be full of “zero processing fees/zero interest/zero documents” pitch (when will they launch zero EMI or zero payback scheme?.. just kidding) to make you fall again. Do you need all these? Where is the frugality in personal finance?

Here are just few steps to start with:

• Avoid multiple bank accounts. If you are in private job and have changed it in past, you sure have multiple salary accounts in case you do not bother to close them. Do make a list and close all non-required or extra accounts. Soon it will be a problem from IT department too as things are going stringent.This year they had asked all bank account details in the name of the assesse. Next year they will ask balances and question transactions too.
• Why would you like to have more than one or maximum two credit cards, unless you are planning to go overboard your income and apply for settlement and screw your CIBIL score? Seriously my friend gone are those days when you could flaunt those golden or black cards with world like “privilege”, “platinum” or “titanium” written on them.
• Lot have been said and written about insurance but there is no doubt that you need to have just TERM INSURANCE with maximum two insurers. Rest is just insuring income of your agent and nothing else.
• One demat and trading account is all you need, if you want to buy some good stocks backed by full research (I encourage people to invest through MFs if they do not have expertise or knowledge to research equity markets). If you have multiple demat accounts, there is full possibility that you are paying annual charges to maintain all these for no reason. One is enough.
• Mutual Funds are the most scattered of all investments. 44 plus MF companies and multiple sellers. You need to fix some ground rules here: No duplication of schemes types or folios in the name of diversification. So if your financial planner suggest you a SIP in large cap fund for say 15 years, stick to 1 or 2 funds maximum in the category. If you are buying 2 schemes from one mutual fund company go for all investments in single folio only.
• There is lot of debate on Reality beating Equity. Recently I saw an advertisement for a property broker where he displayed a data where land gave 40 times return whereas equity gave just 27 times in last 35 years. He chose to hide the investment for which he claimed these returns and can he be sure of repeating the same returns? Probably not. The house you accommodate has no financial worth so how much reality you want to buy in name of diversification of portfolio. Also Indians find immense peace when they own a bit of land may be 100 kms away from their residence. Buy what you can look after and required. Going over it is sacrificing lifestyle to pay for it and blocking liquidity.
• You also need to keep a check on number of lockers, fixed deposits and other small saving schemes. Every year due to tax consideration we apply for various LICs at the last moment or apply for equity shares just because someone in the office is doing so. Avoid these last minute acts and become a minimalistic. Always consult your Financial Planner to plan these decisions pro-actively and efficiently.

Hope that the concept of Minimalism has touched you in both personal and financial ways. Drop in your comments below how you practice or intend to follow it.