According to the Bureau of Labor Statistics, housing, transportation, and food (in that order) represent the three largest categories of household expenses.
While it’s great to save money and cut back in other areas, you may get the most bang for your savings buck if you find ways to reduce your costs in these 3 big areas.
You have to have a roof over your head, but your payments don’t have to go through the roof.
Whether you are buying or renting, consider this:
WHAT MORTGAGE LENDERS OR LEASING AGENTS ARE WILLING TO APPROVE ON PAPER IS NOT THE SAME THING AS WHAT WILL WORK FOR YOU IN THE REAL WORLD.
- Mortgage lenders are in the business of providing mortgages, and they have an incentive to offer you the largest mortgage that their underwriting will allow. Leasing agents are in the business of leasing, and they have an incentive to rent you the highest priced apartment you can be approved for (because their commission will be based on the monthly rental amount). But you are the one who has to live with those payments for many years, so choose carefully. It is usually better (but see item 2 below) to get a less expensive place that you can comfortably afford. Otherwise, you could become “House Poor” by taking on mortgage payments or lease payments that leave you with little or no money at the end of every month to spend on other things, including tiny splurges now and then.
- Think about your financial priorities. Do you want the largest house or apartment you can get, even if that means you can’t save for your future? Or do you want a less expensive place that will allow you to continue saving every month? While it’s often true that buying real estate is also an investment over the long term, we still think you should strike a reasonable balance between investing in your primary residence and leaving room in your budget for saving and investing for retirement and other financial goals.
- When figuring out your housing budget, make sure that you include all of the other costs of owning or leasing (on top of rent or mortgage, taxes, and insurance), such as:
- if you own the home:
- home maintenance and upkeep (lawn care, snow removal, trash removal, cleaning, painting, etc.)
- utilities (larger homes mean higher energy costs)
- appliances or other large purchases or repairs (washer/dryer, roof, windows, etc.)
- association fees or maintenance (in a condo or co-op)
- if you rent:
- community fees
- trash removal
- parking fees
- For more on this topic, see “Housing/Buying A Home/Renting an Apartment.“
If you live in a big city where you can get around without a car, consider yourself lucky. You are saving a lot of money if you are using subways, buses, streetcars, etc. But for the rest of us, having a car to get from here to there—including driving to work—is pretty much a necessity. Many households have to have two cars to accommodate the driving needs of both partners, especially if both work in different areas. So how can you save on these necessary transportation costs?
- Consider a used car (does pre-owned sound better?) instead of a new car (after getting it checked out, of course, by a qualified, independent mechanic).
- What you can afford “on paper” is not the same as what you can afford in the real world.
- You may be approved for new car financing of $X, but you are in the driver’s seat (if you’ll pardon the expression). Regardless of the amount you may qualify for, don’t take on a larger loan than you can realistically handle.
- If you still want a new car:
- look into a lower-priced brand or model or consider giving up on fancy extras that don’t add to the safety or driving function of the car (like audio speaker systems, fancy hubcaps, heated seats, etc.)
- Look into the possibility of buying the dealer’s model (the car that they use for all of the test drives) at the end of a season. You can usually get a good deal on these cars (negotiate!), but check out the mileage and do your due diligence.
- Consider the financial pros and cons of leasing vs. buying.
- Keep your car properly maintained for optimal fuel efficiency.
- For more pointers, see Otterwize’s section on Buying or Leasing A Car.
You gotta eat, right? Food is one of the many pleasures in life, and nobody wants to live on microwaved frozen stuff with ingredients you can’t pronounce unless you have a degree in chemistry.
Here are two easy ways to cut back on your monthly food expense while still enjoying delicious and healthy meals:
- Cook more at home. It’s as simple as that.
- Cooking at home from fresh ingredients you can buy at your local market is the easiest way to lower your monthly food budget.
- If you track your monthly expenses, you might be stunned at how much you spend every month eating in restaurants, grabbing take-out meals, or buying prepared foods at restaurants and markets.
- Why pay for things like restaurant decor, overhead, waitstaff, tips, etc., when you can cook the same meals (or better) on your own for a fraction of the cost?
- Make good use of leftovers. Last night’s main dish can be great the next day in a salad or sandwich for lunch. (See, e.g., Steaking Your Claim.)
- Here at Otterwize, we have one otter who’s a great cook and one who is . . . let’s just say she’s great at take out (if that pronoun didn’t clue you in). But we both like saving money. So we’ve started a recipe section called “SimmeringSavings” to bring you low-cost and tasty recipes that you can make at home. The point is that the money you save by cooking more at home could be saved or invested (instead of blowing it to the wind).
- We hope you’ll join us by “stocking” your pantry and cooking more at home. And please share your recipes with us. (See Simmering Savings.)
- Savings can really add up if you routinely use coupons, supermarket rewards cards, and grocery savings apps:
- Check out The Krazy Coupon Lady, coupons.com, Checkout 51, and Ibotta. (See Grocery coupons and cash back for description.)
- Sign up for your supermarket’s loyalty or rewards program either through the mobile app or online. You can get discounts on many of the items you purchase, as well as digital coupons that are either automatically applied at check out or scanned at the register from your phone.