The personal finance community is often guilty of focusing on the little wins – skipping the $4 latte, for example. But the reality? Skipping your $4 latte here or there likely isn’t going to move the needle. In comparison, did you know the average American spends more than FIFTY PERCENT of their income on just THREE expenses each month? Housing, transportation and food are the biggest expenses in our budgets. Instead of worrying about your $4 latte, let’s focus on minimizing the big 3 expenses for MAXIMUM impact to your finances.
The Latte Factor
At 3x/week, the previously-mentioned lattes are going to cost you around $48/month. If you’re not getting $48 worth of value, then yes, let’s talk about ways to cut back on that. BUT, if your morning coffee run enhances your life and brings you joy within your budget, by all means, enjoy your latte without shame!
Being conscious about what you’re spending money on is important. But depriving yourself of small things that bring you BIG happiness isn’t the answer to finding financial success. As long as those lattes bring you joy and aren’t putting you in financial straits, go for it.
We’ve talked before about ways to find immediate money savings, but sometimes, nickel and dime’ing our way to a higher savings rate just doesn’t have the impact we want it to! In comparison, minimizing the big 3 expenses will save us THOUSANDS of dollars. Let’s turbocharge our savings rate for maximum impact. Ready? Let’s go!
Housing
As we all know, housing eats up a good chunk of your income each month, and that’s true if you’re paying a mortgage or just renting. Things can get tricky with housing if you have a family, kids or pets, since the safety and comfort of your housing affects more than just one individual, so some of the ideas below may be way outside of your comfort zone. But let’s throw it all out there and see what sticks!
We’ll start out with the simplest, and work our way to the wild and wacky ideas. Regardless, if you’re working on minimizing the big 3 expenses, housing is the place to start.
Keep Purchase Price Reasonable – First things first, if you’re buying property, do NOT (and I repeat: do NOT) spend as much as the bank approves. Banks are incentivized (interest for years, y’all) to give you more money than you need. Instead, do the calculations and make sure you’re 100% comfortable with all of your numbers. That includes the monthly payment, the interest rate and the total amount of debt you’re taking on.
Look Into Refinancing – With interest rates so low right now, it’s worth a quick call to your lender to see what they could offer if you already own a home. Decreasing your interest rate may mean you can adjust to a shorter-term mortgage or bring your monthly payments down. In most cases, closing costs can be rolled into the loan so you’re not out any cash at all!
House Hacking – House hacking is the millennial’s way of referring to renting out your space long-term. A duplex or four-plex can be a good way to cover your mortgage, since you’ve got renters paying you to stay there. Or, maybe you’ve got extra rooms in your own place that can be easily rented out. It’s not always a blast to have a roommate around all the time. But when you look at your bank statements, you can rest assured it’s a good financial decision.
Airbnb – Even if you’re not in a touristy spot, Airbnb may still be an option for you – whether you’re renting out an extra room or your entire house. Business travelers, healthcare workers or even just people visiting family or friends are looking for a space to stay.
It’s possible to pay for your mortgage just by renting an extra room a few times a month. Not bad, huh? And, if you check out the Airbnb site, you’ll see people get creative with the way they use their spaces – garages, backyard tents, tree houses, unused RVs. All are available on the wide world of AirBnb!
There’s a lot to consider here, so be sure you’ve done the research and set clear rules for any guests.
Consider Moving to a Low Cost of Living Area (LCOL) – Housing costs vary WIDELY depending on the city and region. Even widening your search zone by a few miles within one city can have a tremendous impact on what you’ll be paying. If you’re in a remote work situation, this idea could have a HUGE impact for you. As an example, the average cost for a 1-bedroom apartment in San Francisco is $2,675 per month. The average cost for the same apartment in Omaha is $823, according to Zumper. Kansas City? $1,004. You see how this idea could pay dividends.
Downsize – Whether you’re renting or buying, moving to a smaller home can also have an impact! Less space = less expensive in most cases. Have you ever noticed that our stuff tends to expand or shrink depending on the space we have? The added benefit of downsizing is you don’t have room for all that STUFF! Maybe there’s some initial discomfort, but human beings are amazingly adaptable.
Check Out Alternative Housing Options – #Vanlife. #RVlife. #Airstreamlife. #Skoolielife. #TinyHome. So many different options! If you’re living a fairly flexible lifestyle, why not go all the way?! In 2020, remote work became the new normal, and after being stuck at home for the last year, doesn’t a nomadic lifestyle sound GREAT? The other good news here is you’ve now combined AND optimized both your housing and transportation budgets. What a win.
Housesit – Using sites and apps like TrustedHousesitters.com, you can actually eliminate your housing budget altogether. All you need is a sense of adventure and a little bit of creativity. Homeowners who are away hire others to stay in their homes through these sites. Who knows? You might even get to hang out with cute dogs and cats as a bonus!
Transportation
When we’re minimizing the big 3 expenses, we can’t leave out transportation! We’ve all got places to go and people to see, yeah? With insurance, gas, and the price of an actual car, transportation can heavy up your budget. Even if you’re in a city where a car isn’t needed, transportation still adds up. Just like above, we’ll start with the normal (ahem, boring) ways to save money and move on down to the wild and wacky (and way more fun) ideas!
Don’t Buy New – Ok, ok, we all love the new car smell. I know it! But here’s an idea: buy a USED car and use a NEW car air freshener! It’s not exactly the same, but it will save you so much cash!
New cars lose value immediately (up to 10% the MINUTE you drive off the lot, and 20-30% within the first year), so even though you’re getting a new car smell for a short time, in just a little time, they’ve lost the sparkle.
Look Into Used Cars Instead – If a used car is maintained well, it can last for thousands and thousands of miles. No need to take out a $40,000 loan for a new car that will take years to pay off! A $10,000 used car (or less!) will get the job done, and depreciate much more slowly than a new car.
Not convinced? Other benefits of buying used include: lower insurance rates, lower taxes and NOT dealing with sleazy new car dealers. Besides that, did you know the new car smell is actually toxins being released from the new car materials? Not as sexy now, eh?
Some car makes and models are more reliable and last longer than others. So do your research to make sure you’re getting ALL the value possible.
Re-Estimate Your Car Insurance Every Year – Don’t be afraid to get estimates every year – consider it an annual event like Christmas! Or New Years! What fun! Put it on your calendar and follow-through each year to be sure you’re getting the best rates you can. Remember, car insurance is necessary, so don’t go cold turkey. But it is possible you’re paying more than you should.
Consider both the type of coverage you have and the deductible on your plan. Both can be adjusted depending on your needs.
Try Car Sharing – In most major cities across the country, car sharing companies like ZipCar make short-term car rentals easy and cheap. If you don’t need transportation often, this is a GREAT option. With ZipCar, a small monthly fee (>$7) gets you access to reliable cars you can borrow for a few hours at a time.
Rent Your Car – Similar to AirBnb, it’s possible to rent out your car while you’re not using it! Turo has become popular in large cities and allows owners to rent out their cars for short-term periods. The site does focus on luxury cars – unique makes and models that aren’t always easily accessible. BUT don’t worry, all makes and models can be found on the site.
Alternative Transportation – I think you know where I’m going with this one. Scooters & bikes, oh my! Don’t knock it till you try it. When I was early in my career, I rode a (pink!) Vespa scooter back and forth to work to save on gas. Cute AND gas efficient! What could be better?
Cities are continually improving their bike lanes and biking trails. Why not take advantage of some good weather and enjoy the breeze in your hair? With a little bit of planning (and maybe a tag-along bike wagon), it’s possible to rely almost solely on a bike for all of your transportation needs!
Become a Remote Worker – What better way to capture savings on transportation than to cut out your daily commute!? If it’s possible with your job, check into the possibility of full-time or part-time remote work. If 2020 taught us anything, it’s that a LOT of jobs can be done from home.
Food
We gotta have it to live, but I was STILL able to come up with a few ways to save money here. Give me a good saving money challenge, and I’ll rise to the occasion! I didn’t get quite as wild and wacky here, but if your goal is minimizing the big 3 expenses, food is something you’ll need to look into.
Plan Ahead – Although not the most fun item on this list, setting aside time each week to plan out your meals can help you reduce costs (and waste!). Eating in will almost always be cheaper than eating out. BUT if you plan ahead, you can do both in one week and still not break the bank. The 3 P’s (prior preparation and planning) will always have your back.
Planning ahead eliminates the last-minute I’m-hungry-but-there’s-nothing-in-the-refrigerator fast food runs. AND when you plan ahead before a grocery store trip, you’re less likely to blow your budget on items you don’t need.
Here’s one healthy meal plan resource that can help you keep your meal costs low while still satisfying you and the family.
Drink Water – When eating out (or in), beverages can add up! Stick with water for maximum health and wallet benefits.
In Conclusion
These 3 BIG expenses – housing, transportation and food – eat up a big chunk of our budget each month. It’s easy to make an IMMEDIATE impact when we cut costs in those areas. Keep the latte and focus on the areas where cutting back will create the most margin for your budget. Minimizing the big 3 expenses is a really important step if you’re looking for some extra money at the end of the month to put toward your financial goals.
What steps will you take toward minimizing the big 3 expenses? Did anything on this list stand out to you?
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This was really good information! I may rent out my car for extra income! Thanks keep giving us this golden info!!!
Great article. I love the practical yet effective approach to saving. My husband and I live in the city which is extremely costly to live in. We have toyed with moving to a suburb which would have a significant impact on reducing our expenses. It would be a game changer like you mentioned. Thanks for sharing.
These are great suggestions! One perk of working from home this past year has been having the coffeemaker right there, for sure! We are always looking for ways to cut our grocery budget, as well!