If you cut your expenses in these three areas you’ll reach financial independence way faster!
We’re out of our apartment. And … now we’re in the in-laws basement for a few weeks. Yipee! I was against the idea at first but we’ll save some dough and it will allow my wife to have some help taking care of our newborn son. I told my wife, the only way we are going to do this is if we have a plan to leave. I’m not going to be stuck in our parent’s basement for months without a plan to get out. So, I’m not exactly sure how long we are going to be here but we have a plan in place. I’m not against moving home if you’re struggling financially (which we’re not), or if you’re spending more than you’re making you should definitely consider moving in your parent’s basement and pay them a couple hundred in cash if they need it.
I’m going to share three places people spend the most money and ways you can save.
Offense and Defense
Warning: this isn’t a sexy post, I’ll be honest. I could write about 100 ways to make money and it’d be read more. Few people are looking to decrease their expenses. But, if you’re serious about financial independence, you not only need to make money (offense) but also keep as much of it in your wallet as possible (defense).
My purpose in sharing this is to help you get more out of your money and live a more meaningful life. Ultimately, it’s your money and I could care less what you do with it. The only time most people lower their expenses is when they’re broke. But I know people who are naturally frugal and have a high savings rate. We’re able to save anywhere from 30 – 50% of our income each month because we try and keep our expenses low. I’d like to know how to consistently save 50 – 75% each month which will help us reach financial independence quicker. I’m sure I’ll have some more things to share as we experiment more.
If you’re like, “look, Scott, you may want to lower your expenses but I want to make more money so I can save and spend more.” That’s great! You can skip this post and wait for my post on how to make more money.
To get started you need to know how much income you have and what your expenses are each month. My tracking software of choice is Mint.com. Check out the article about Mint I wrote a few weeks ago. You need 2-3 months of tracking your spending to get an accurate idea of how much you spend.
The top three places people spend money are housing, cars, and food. Nearly 70% of spending is done in these areas.
1. Affordable Housing
Housing is going to be your biggest expense throughout your life. Figuring out how to lower your housing expenses will do more for you than anything else. Too many people worry about saving pennies at the grocery store or skip buying a drink to save some money but then don’t look for ways to save on housing. I’m not saying don’t try and save money anywhere you can. Why not do both? Like I mentioned we moved back in with my in-laws and this will save us a lot of money.
You may not be in a position to move back into your parent’s house. I wouldn’t recommend it if you have kids or are over 30. But if you’re in your twenties it may not be a bad idea.
You may be in a position to do some house hacking which could wipe out your monthly house payment entirely if you set it up right. Check out this article if you want to learn more about that.
When you do buy a home, you may qualify for a large amount but that doesn’t mean you should borrow that. It should always be less.
2. Buy Gently Used Cars & Use Public Transportation
I’ll be honest, I drive somewhat of a gas guzzler and a car that has given me a lot of problems. I plan to sell it this year and test out having one vehicle. I drive a 2001 Jeep Grand Cherokee and I use it for my side business. I do auto detailing on the side and I need to keep my equipment and chemicals in. I wouldn’t drive this car if I didn’t have this business. But, one the days I go to my job I use public transportation. That has saved me a ton of money!
In 2017, I saved $1,960.40 in gas by using public transportation for work. I never took the bus, but we have a sweet trax system in Salt Lake City. I went to my university job on average two and a half times a week. More during the semester, less during the summer.
Pay cash for a gently used car if at all possible. Generally 3-4 years old with low miles. If you have to borrow money try and have it paid off as soon as possible. You’ll be glad you did!
3. Crush your food bill
Food is the biggest expense most people don’t realize they have. If you’ve never gone through an entire month of spending you may be shocked to find out how much you’re spending. We buy our groceries at two places: Costco and Walmart. I was surprised that we spent the same amount at each place on food in 2017.
At Costco, we spent $1,631.04 and Wal-Mart we spent $1,599.31. We spent a total of $3,230.35 on groceries. Including eating out we spent $5,200 last year. Way more than I would like! If you break that down we spent $433.33 a month on food. The average household in the US spends $6,600 or $550 a month. So we’re able to save about $1,400 a year compared to the average.
There are 91.25 meals in a month which means that we spend about $4.74 per person per meal. I would like to get that number down to $2-3 per person per meal in 2018.
One area I saved was bringing lunch to work. I bought lunch 18 times in 2017 and 8 of those were tax-deductible. According to a recent survey, American consumers are spending an average of $2,746 a year on lunch. That’s $7.52 per lunch meal per day.
How much are you spending on lunch per year? Most people don’t know, but keeping track of how much you spend can help you manage your income and possibly save money.
I will continue to analyze and cut back anywhere that I can. For example, we just got rid of cable and I want to take a look at cellphones, gym memberships, insurance and a bunch of other things. But for this post, I wanted to focus on the top three places people spend their money.
I am not telling you what to do with your money nor am I saying you have to cut everything out of your life. I’m simply sharing what I do and hopefully, you can take away some areas to cut back on but at the same time, spend money on things that you value. And if you don’t value you them then cut them out of your life and stop wasting money!
