Money Hacks: How to Reduce Your Big Three Expenses

Where 60% Of Your Income Goes: Housing, Transportation, and Food

It’s no secret that the three biggest expenses in life are housing, transportation, and food. Unless you did not know that, then it was a secret! Surprise! Add taxes to that mix and over 70% of the average American’s income is already gone before they even take any other aspect of life into consideration. You need to sleep somewhere, get to your desired destinations, and eat food to survive. While most people are content with simply paying for these things without a second thought, there’s actually a lot of potential for savings and investments if you take the time to be in-tune of your spending habits. I want to explore a few ways to reduce these “big three” expenses so that you can reallocate those funds towards accelerating your investments and breaking away from an endless rat race. I’ve just seen the matrix for the first time recently (shocking, I know), so my vision for getting myself and others out of the rat race has been amplified as of lately.

Housing Costs

According to the U.S. Bureau of Labor Statistics (statistics, I know, tons of fun, right?), the average American spends approximately $22,624 per year on housing costs. This equates to around 33% of total annual expenditures for an average household in the United States and is significantly more than most other nations around the world. On average, Americans spend over 6% more of their income on housing compared to other developed countries, so it’s no surprise that it’s the largest expense in most households. Here are some ways you can save money on your housing costs:

• Consider refinancing your mortgage (if you can get a lower interest rate) or switching to a bi-weekly payment plan which will reduce the amount of interest you pay over the course of your loan.

• Shop around for a cheaper homeowner’s or renter’s insurance plan to reduce your monthly and/or annual premiums.

• Make sure you’re taking advantage of all available tax deductions for homeowners.

• Think about downsizing to a smaller home. Not only will you save money on the monthly rent or mortgage payments, but you’ll also save on utility bills and property taxes.

I recently moved out of downtown Chicago to a town about 25 miles outside of the city and my utility bill went down by half. That does not even take into consideration other costs associated with living downtown, so you can imagine how much can be saved monthly by moving to an area that is more cost friendly. Don’t get me wrong, I loved the experience and would not trade it for anything, but depending on your chapter of life, finding short and long-term solutions to cut down housing expenses can go a long way.

Transportation Costs

The second biggest expense most households face is transportation costs, accounting for around 16% of total annual expenditures in the United States. That’s roughly $9,000 per year! The biggest money-saving tip here is to avoid getting the nicest car on the block, or neighborhood. It is one of the fastest ways to look rich but also the quickest way to stay poor. Investing in a used car rather than buying new can save you thousands in the long run — just make sure it passes inspection first! If you are one who does not mind public transportation, that is another area that can save you on costs, but not necessarily time. You could opt for public transportation systems like buses and trains if they are available in your area since they usually offer more affordable rates than owning a car would require. If you do need a car or want a vehicle (like me), try shopping around for cheaper insurance plans. Also, if you do drive often and want a newer vehicle, look into getting a vehicle with better gas mileage. That can save you hundreds of dollars a month if you drive every single day. Getting a fuel efficient sedan compared to a truck or SUV can cut your gas expenses in half. Your transportation expenses can add up quickly if you don’t pay attention; so, it pays to think about cost-effective alternatives every now and then.

Food Costs

Finally, food costs account for around 12% of total annual expenditures in the United States and is the third biggest expense most households face. You can save money here by planning your meals ahead of time and shopping for groceries online or at least planning ahead. That way, you can compare prices more easily and look for the best deals. Additionally, try to shop in bulk when possible and take advantage of coupons or other discounts whenever you can. An especially important area that can save you dramatically on food costs is by avoiding eating out as often. It is not always the most ideal or preferred method of eating, but is one of the quickest ways to reduce the burden of food costs. It is one thing if you are going out to enjoy a meal, but avoid eating out every day for work meals. Why do you want to spend roughly an hour’s worth (more or less depending on how much you make) of labor on your meal each day?

Also, do I have any Aldi shoppers here? Aldi is a hidden gem when it comes to cost savings on groceries. So, if you have not yet shopped at Aldi, you should change that.

The “big three” expenses can easily consume most of your budget if left unchecked. However, with careful planning and smart decision-making, there are plenty of ways to save money on each one without having to sacrifice too much quality or comfort in return. Allocating those funds towards assets that will pave the way towards financial freedom is key when looking into reducing any kind of expense, especially either of these three areas. Keep these in mind unless you want to remain an “NPC” in the matrix we call life.

*This is not financial advice. For educational purposes only.