Minimalism can be defined as the practice of only retaining in your life those things that bring value or joy but to me, it means freedom.
On the surface, this means freedom from clutter and fewer obligations to my possessions such as organisation and maintenance. Intrinsically, minimalism also allows me freedom from the stress that can come from experiencing unexpected financial trials.
In 2013, less than three months after my younger daughter was born, my position was restructured and my salary was ultimately cut by 40%. Not long after this, interest rates started to rise and for the first time in my life, I realised that the time was coming fast that I wouldn’t be able to pay the bills.
When I finally fixed my mortgage at a crushingly high rate at the maximum possible term, we were in severe financial trouble. At the time, I was too scared to do anything but keep moving forward. It wasn’t until later that I realised that being in that much financial hardship was somewhere I never wanted to be again. I wanted to be free.
My minimalism journey started with this idea of freedom and grew from there. It wasn’t a quick fix, it took eighteen months before we could even take the first step on the journey towards financial freedom.
If there’s one thing I’ve learned from my minimalist journey so far, it’s that this is a journey of patience, not a flurry of activity and then you’re there.
With financial freedom, it’s a journey of years.
Every journey starts somewhere and ours was no different. This was how we got back onto the path of financial freedom and how we are still following that path, almost six years later:
Step One: We made a future plan based on our values and beliefs.
We did this in two ways:
1. We worked out our values as a family and planned out what our long term lifestyle might look like. From this, we knew where we were heading, what was essential to us and most importantly, what was not.
2. As the breadwinner, I put together a professional development plan that would see me moving towards my ideal job, regardless of whether that job ever materialised. I made sure that my next job move would have the best possible chance of not only succeeding but also move our family towards our desired lifestyle. I then started working relentlessly on this plan.
Step Two: We downsized our house
We had made the decision to buy our dream home based on the fact that we could, without considering seriously if we should. In our minds, we had finally made it. Our logic was flawed.
Two years later and the mortgage on our dream house was ruining us. We had to extend the term just to keep our heads above water. We were facing horrendous payments for the rest of our working lives and beyond. We started looking for a smaller house, in the same area but a less expensive suburb with a mortgage that we would still be able to pay if we had to take minimum wage jobs in the future. Ultimately, we now own a much smaller house, with a mortgage payment about a third less than before but with half the term. It may not be what I used to think a ‘dream home’ was but my dreams are a lot more realistic these days.
My dream home today has me mortgage free by fifty-five.
Step Three: We made sure we could survive on one income
The decision on what we could spend on a house was based on a very specific formula.
The value of the house we could buy was based on the maximum mortgage payment we could afford to spend that would pay the house off over a specific time period (15 years) on one income. In the future, we hope to reduce the payment term but we started out with something that we knew would leave us mortgage-free around ten years before retirement, even if we never had any more income that we did right then. In the first two years, we fixed our mortgage at the best deal that suited all our loan needs.
Each home loan deal is different and uniquely personal. You pay higher rates for longer fixed terms but can get more flexibility with variable rates on offsetting. You can also split your loan to suit your own requirements. Rates were very low at the time so we fixed for two years at a really low rate to make some headway on our equity. We worked this out on our own but you could use a mortgage broker to help you find the best possible deal for you.
We did this so we could put the mortgage payments out of our mind for two years to focus on settling into our new life and pay off other debt.
4) We made a budget and know what our survival income is
You may not know that you can download your financial statements from your online banking to a spreadsheet like Google Docs or Excel. You can, and we did. We know everything that we spend (we spend way too much on pizza) and use this information to update our budget regularly. We know exactly what our essential spending is and what we could cut if we needed to. Our money is divided up so that our bill payments are separated and protected and our groceries and expenses are allocated each pay period to a transactional account so we never accidentally spend the mortgage payment.
5) We focused on driving down debt
Being in financial hardship can deplete your savings and put a strain on your credit card. Slowly we started attacking our loans a bit at a time, focusing on the highest interest rate loans first. Every pay period we scrape a bit more off our debt. When unexpected, unavoidable bills pop up we spend what we have to then get right back on track with our debt payments.
6) We invested in insurance
As frustrating as it is to have to pay income insurance, without savings, it’s a wise choice to make sure that if illness or injury strikes in a single income family, paying the bills is taken care of. I bitterly resent my income protection insurance, because it’s expensive, however, it’s only until we save up a nest egg in its place. We also have vehicle and house and contents insurance. Its an expense, but it will protect us if the worst happens.
7) We will save a nest egg
Our ultimate goal is to make sure we have a nest egg of cash, around three months of my salary, put away in a savings account to ensure we are protected in the case of redundancy or other crisis. We found that redundancy insurance was just too expensive so we will start putting this aside once our immediate debts, car loans, and credit cards, are paid off. Our plan is to put the same amount, or slightly less than we are currently targeting our debt with. This amount will vary for everyone but it should be enough that you are making headway but still leaving enough for fun. Your budget from Step 4 will help you work this out.
8) We’re putting money away against retirement.
We’re not saving a lot, because we want to focus on paying off our debts and our mortgage, but a small retirement fund is growing in the background that will get more focus once our debts and mortgage are paid off.
9) We’re playing the long game
With a financial freedom plan, it’s really about playing the long game. We are human and not perfect. Sometimes we splurge and sometimes there are unavoidable costs and obligations that set us back a bit in terms of progress. It doesn’t matter as long as we keep moving along the path and our intentions don’t change.
It’s a very comforting thing to know that if I lost my job tomorrow I could still keep a roof over my family’s head. I know that a downturn in my income will be difficult, uncomfortable and frustrating but it will no longer be devastating and to me that is freedom.