Demystifying Personal Finance Philosophies: Frugalism, Minimalism, and Essentialism

We all want to have enough money to live the lives we envision for ourselves. Whether it’s following a purpose-driven business plan or having enough time to spend with your kids, everyone has their reasons to save. The question remains, what’s the best way to do it?

In episode 10 of the Black Girl Fly podcast, we talk about the well-known personal finance philosophies that have shaped our financial knowledge. And while we discuss how cutting spending is only one part of the build-wealth equation, we thought we would review some of those well-known personal finance strategies in order to help you determine what works best for you.

There are all kinds of personal finance philosophies out there, and it can be hard to know which to follow. We’ve broken down some popular philosophies, what they mean, their benefits, and also the cons, so you can decide which make sense for your lifestyle and vision.

1. Frugalism

Frugalism is perhaps the most popular personal finance philosophy out there. It’s the foundation of financial gurus who encourage us – in their unique ways – to live below our means. Pretty good advice if you ask us. So, what does “live below your means” really mean?

Essentially, whatever your monthly take-home pay is, your expenses should be less than that. What’s more is that you should try to reduce those monthly expenses whatever way you can in order to maximize your savings. You might recognize hints of Dave Ramsey’s “beans and rice” philosophy in there. Ramsey is adamant about cutting spending wherever possible. So, if you’re trying to shrink your debt, cut the dining out and reduce your grocery bills by shopping smarter.

Frugalism is a great perspective to use when interrogating your spending habits. Are you buying coffee every day while your student loan debts overwhelm you? (To be clear, we’re not against the occasional coffee, and we don’t subscribe to the belief that if millennials just stopped buying lattes, they’d all be homeowners by now. But we do appreciate a thoughtful, common-sense budget.) Is your food budget eaten up from dining out? Frugalism says pinch your pennies and send every dollar you can to debt reduction and savings.

Probably the most important warning to offer anyone interested in practicing frugalism is to not miss out on smart investment opportunities. For example, while it’s important to build up an emergency savings account and reduce debt, if possible, you’ll also want to contribute to a 401(k) or Roth IRA and an index fund. It’s really all about when you’ll need the money. Save for an emergency, but if you can, also save for the long-term. In addition, you don’t want to miss out on opportunities that, yes, cost money, but that might lead to career growth or other opportunities.

2. Minimalism

While frugalism is about crunching the numbers, minimalism is more of a mindset. Minimalists subscribe to the rule of eliminating everything you don’t need in order to live a simpler lifestyle. Cutting the clutter will not only lead to fewer expenses (new clothes, electronics, fancy car); it will lift up the mask of consumerism and materialism and allow you to find real joy and peace in your life. Woah, who doesn’t want that?

Minimalism, Joshua Fields Milburn writes, requires the spender to ask, “It this worth my freedom?” before making any purchase. The goal is to get rid of excess so you can focus on what’s important in life. By not carelessly spending money, and by eliminating the idea that self-worth is determined by net worth, what minimalists spend money on is incredibly intentional, and thus can be enjoyed more.

Minimalism can be a great way to take stock of what you actually enjoy and what you can cut in your spending. For instance, if you were to walk around your house, could you point to items that have monetary value but are really just taking up space for you? Maybe those are shoes or books or even furniture. For some, those items might be valuable. But if they are not serving a true purpose for you, consider selling or donating them. And work toward only making purchases that matter. “Is this worth my freedom?”

The downside of minimalism is much the same as the downside to frugalism. While minimalism can bring peace of mind, it might make it easy to exclude yourself from experiences. Maybe there’s a new piece of technology that you think is really cool, but you don’t need it. If you don’t have the funds to pay for the new gadget, definitely close your eyes, turn away, and hum a tune to distract yourself from how shiny it is. But if you’ve got the money, and you think it’ll bring you joy, is it really worth denying yourself that happiness? Some might say yes, that the very reason you’re interested in the gadget in the first place is because we live in a consumerist society. Not to say that you can’t buy a new gadget if you’re a minimalist. But fully subscribing to that philosophy might bring on some difficult, emotional decision-making.

3. Essentialism

The sweet spot between minimalism and not being consumed by complete guilt. Essentialism is the personal finance philosophy through which you focus your time, energy, and money on what is most important to you. Basically, find out what is going to make you happy and put your resources there. While still following in the steps of frugalism and minimalism, essentialism provides an opportunity to assess value in your possessions and spending habits.

Just the same as frugalism, through essentialism, you would reduce spending wherever possible, cut debt, and save. But when it comes to going on vacation and finding the right hotel, it might not be as simple as choosing the cheapest motel. Instead, you might remember that you’re a hard-working badass woman who deserves a minibar and accessible sauna. Maybe even a view. If a nice hotel brings value and comfort to you, so long as you’re not regularly staying in 5-star hotels (where are you going in this pandemic anyway?), why not pay for the treat.

A downside to essentialism is it can be tricky for some to make these kinds of value decisions. For instance, some people thrive with rules and restrictions. And it could very well be that the inability to make these value decisions are what got them into debt or created their unsustainable spending habits in the first place. For these folks, removing this decision-making can make a significant difference to their financial health. But for those who want to cut back and trust themselves to make the right decisions when it comes to spending money, essentialism could be the perfect fit.  

Are You on Track?

Need help assessing your financial situation? Download the free Legacy Builder Audit. This guide will help you determine your strengths, weaknesses, and next steps to get your personal finance in order and grow your wealth. Whether you’re team frugalism, minimalism, or essentialism, Black Girl Fly is here to help you build your legacy.