While the Money Wizard doesn’t expect everyone to save so aggressively, his practical advice can work for anyone seeking to pay down debt, create an emergency fund, or make serious headway toward a secure retirement. Sean and others point out that the average American household spends 62% to 67% of their budget* on The Big Three: Housing, Autos and Food.
People tend to believe that these three spending categories are ruled by market forces and therefore, out of their control. Yet the evidence shows that just isn’t true.
Up to 67% of the average American budget goes to the Big Three: Housing, Autos and Food.
1. How to save big on housing.
Housing costs consume more than one-third of an annual budget, more than any other category. You can greatly reduce those costs if you pause to think about the big picture. Instead of arguing over the thermostat, consider the real reason your heating bill is so high. You could be paying for more house than you need.
The common wisdom is that we’re all helpless in the face of rising home costs. But according to the U.S. Census Bureau, today’s homes are actually cheaper per square foot than ever before. Instead, it’s the size of the average home that has skyrocketed – by 64%.
We’ve been conditioned to live in larger homes, condos and apartments, full of high ceilings, elaborate baths, and rooms we seldom use. Why pay year-round for a dining room that only sees dinner on Thanksgiving? A UCLA study found that 68% of a typical house goes entirely unused on any given day.
Consider moving to a smaller, more efficient space. You’ll save on mortgage or rent payments, indoor and outdoor maintenance, insurance, utilities, daily chores...you see where this is going, right?
2. Next up: Wheels.
On average, Americans spend $9,000 a year on their cars. That’s 18% of a personal budget and four times more than we typically allow for savings. Cars are the most expensive thing we own, after our homes if we’re homeowners.
If you don’t own a car, you’re way ahead of the game and we applaud you. For those of us in locales where biking or public transportation isn’t feasible, there are many ways to avoid the high cost of fancy wheels and still get where we need to go.
The key? Buy a pre-owned vehicle, and pay cash if possible.
You don’t have to drive a clunker to save thousands on a used car. Today’s cars are built to last longer and look better doing it. You can expect a modern vehicle to click past 100,000 miles with ease. According to J.D. Power, the average used car in 2015 was 4.3 years old, had 51,554 miles on the odometer, and cost $13,500 less than that year’s average new car.
If you take good care of the car you have, you’ll have plenty of time to save up for your next slightly used vehicle. Who wants to pay interest on a possession that depreciates?
3. Your next assignment is a food-spending diet.
We all have to eat. And when we do, we’ll grab whatever food is within reach – often pricey restaurant or snack food. Maybe you’re spending more than necessary at the grocery store as well.
It helps to understand just where your food budget is going. Add up everything your household spends on food and drink for an entire month: groceries, school lunches, dining out, frozen yogurts and so on. The total may surprise you. We pay for food a little at a time and can fail to notice how those quick stops for milk, bread and M&Ms add up. The average U.S. household spends $644 a month on food. Almost half of that is spent at restaurants.
Once you’re aware of your total food bill, practice being mindful about what you eat, and when, and where. Notice which meals you find truly satisfying. You could find yourself spending less and enjoying your dining experience more.
Learn to save on the big things, and the little things will fall into place.
Financial stress can cloud our thinking, and prevent us from seeing how “The Big Three” are taking the biggest bites from our budget. By learning to aggressively manage costs in these three areas, we can greatly simplify our lives and perhaps at last, solve the case of the disappearing paycheck.
And how about those visits to your favorite barista? In response to the anti-latte faction, one online commenter wrote, “There’s something to be said about spending money on things that give us pleasure and make life enjoyable. And where that’s concerned, coffee is a pretty good bargain.”
We wish you all the best on your saving journey. Look for more on this topic next month.
Explore these articles about the roles of Housing, Autos and Food in our lives:
“The Only 3 Expenses that Matter for Saving Serious Cash”
“What Is the Average Household Cost of Food in 2019?”
“10 Good Reasons to Buy a Used Car”
“23 Ways to Slash Your Car Expenses”
“6 Ways to Practice Mindful Eating”
“15 Unusual Grocery Shopping Tips You Need to Know to Save Money On Food”
*Numbers are from the Bureau of Labor Statistics. Different interpretations of BLS tables lead to slight
variations in percentage points.