We all know the benefit of tracking our spending and keeping a budget. But when you need to save more money, how do know where to make adjustments?
The easy answer is to cut back on the daily Starbucks or start cutting coupons. Small changes do add up to significant savings over time. However, small changes to our biggest budget categories make an even greater impact.
According to The Bureau of Labor Statistics, the top spending categories for Americans in 2017 were housing, taxes, transportation and food. But this leaves out another major budget category. According to a care.com survey, 1/3 of families with young kids reported spending 20% or more of their total household budget on childcare costs alone. The average spending on childcare outranks even the food spending category.
If you are looking to make a big impact and accelerate your savings ability, you’ll want to focus on your top household expenses. These are the areas where the majority of your money goes every single month. When you make even a small change to the biggest expenses in your household budget, you’ll be able to make a much greater impact overall.
This post will review the major spending categories within every budget and offer tips to cut back on that spending and save more than you thought possible.
Contents and Quick Links
- 1 Housing
- 2 Transportation
- 3 Food
- 4 Childcare
- 5 Recap
- 6 Action Steps
Housing is almost always the largest monthly expense. Since you probably don’t want to move, it’s often completely overlooked as an opportunity to not only save money, but to save so much money that you can completely transform your financial future.
Rent rather than own
It’s interesting to me that there is such a stigma against renting. If you live in a very high cost of living area, it may make a lot more sense to rent. This often provides more flexibility in where you live as you can afford to live closer to work or in the right school district. It’s likely a better fit for your budget, which will allow you time to save and invest rather than continue to sink money into an overpriced home.
It’s also possible that you can rent within a condo or apartment complex that offers the opportunity to manage other units in return for free or discounted rent. This can save you thousands, or even tens of thousands every year.
Additionally, by renting you aren’t responsible for all the added expenses that come with owning a home. Maintenance, taxes and insurance are all much greater when you own.
With the money you can save by renting rather than owning, you can easily save enough money to invest and accelerate your savings even more. You can still buy a home, but choose the right location, independent of where you need to live, and use it as a rental for passive income.
Read about all the reasons you should consider investing in real estate at Real Estate Investing: Six Pivotal Reasons To Get Started Today.
This is an amazing technique for a low mortgage, or even make money on your housing every month. This is the way to seriously build wealth and set the path to financial independence.
House hacking is when you buy a home and live in part of it, then rent to either a tenant or a roommate. If the thought of having a roommate is unappealing then a great option is to purchase a multi-unit property and rent the other unit(s).
Read more about how house hacking works at House Hacking: What It Is And Why You Need To Know About It.
Have a roommate
If you’re young, you can stand a few years of cramped quarters, especially when it preps you for financial security and even financial independence.
Don’t live in the biggest house you qualify for
Rather than stretch your budget to the absolute max so that you can live in your ideal home, take some time to soul-search and determine just what type of home will make you, and your family, happy.
Does it really need to be the flashy big home that will be the envy of all your friends and coworkers?
It’s quite possible that if you set aside the need to look a certain way or feel socially accepted, a smaller home that could use a little TLC over time would be just fine. The extra room in your budget will lower overall financial stress and allow for a more relaxed and happier life.
Live in flipping
If you have the ability to DIY some home projects, this is a great option. Particularly if you like the concept of house hacking but not the thought of roommates or tenants.
Assuming you have lived in a home for at least 2 of the last 5 years, any profit you make on the sale of your house is tax free up to $250,000 for singles or $500,000 for couples filing jointly.
This means that if you buy a home, add value through appreciation and improvements, then sell it in two years for more than you bought it, you can make up to $500,000 in tax free income!
Sure, you have to buy a home that needs some work and live in the middle of a construction zone, but that’s a big(tax-free) income!
If your mortgage is adding stress to your life, you may want to consider downsizing to a home that better fits your budget. There is absolutely no shame in this. A happy budget makes for a happy life. Living in a home that drains your finances and prevents you from saving for a secure future just doesn’t make sense.
Don’t buy new
This is one of the most common money mistakes I hear people reflect back on. If you aren’t in the habit of trying to save money or live frugally, buying a new car might sound like a good idea.
Reasons you may tell yourself are that the dealership is offering a great sale and the financing is lower, the technology is up to date, no one else had driven it and therefore it won’t have as many mechanical issues, it smells better… the list goes on.
But the real hard truth is that you lose thousands of dollars simply by driving that car off the lot. Regardless of the “deal” advertised. A two year old car will still have updated features and in two more years, that new car you were lusting after will also have two-year-old features. You simply can’t keep up with the latest and greatest bells and whistles.
The engine technology has also improved greatly over time such that regardless of how hard the previous owner was on the car, it isn’t likely to affect the future maintenance. On top of this, a certified used program provides additional peace-of-mind with an extended warranty and maintenance plan.
Don’t buy more luxury than you need
I don’t care what you think about me. I don’t think about you at all.
– Coco Chanel
I love this quote. It simply doesn’t matter what other people think about your car. You don’t need to drive a flashy BMW or Mercedes to project the image of living a successful life. Save the extra cash, invest, then live your successful life.
Find an alternative commute
I used to sit in traffic for two hours a day. By the time I made it home in the evening I was so stressed out and grumpy from all the stop-and-go and horrible drivers. I had to find an alternative.
Then I learned that my company offered a commute program. They actually pay me extra every month to use public transportation rather than drive. It took many weeks to fine tune, but now I bike to the train station, take my bike on the train, then bike right to my building for work. It takes about the same length of time except now I get my exercise and enjoy some quiet “me” time on the train ride. I save money on gas, parking permits, and get paid a little extra for the “inconvenience”.
Even if you think there is just no way to adjust your commute, try to think outside the box and come up with some possible alternatives.
Live closer to work and shorten your commute
If you just can’t find a great way to find an alternative commute into work, consider moving closer (and combine the suggestions from the above section on housing). This option is better for your health, wallet and adds time for what’s important. Like family, friends and hobbies. Or a side hustle!
When I first went through my finances I was shocked to realize how much I was spending on food. I had a busy life and simply didn’t have time to make food every night or pack lunches for the day. I became stuck in the routine of simply eating out all the time.
And when I did buy food at the grocery store, it often went bad before I got around to cooking it. I was throwing so much food away. Now, because I’m more aware of tracking my finances and sticking to my budget, I realize that this is literally throwing cash in the trash.
Don’t eat out so much
If you’re in the habit of eating out a lot, try cutting back a little at a time. Pick one day that you will cook at home (with enough for leftovers) then pack lunch the next day. Try adding more and more days that you don’t spend money on dining.
I find it fun to create a game out of this. Track how much you spend on food this next month, then try to beat that number next month. Have a spending competition with your partner and friends to see who can spend the least amount of money.
There are so many apps that help you save money on groceries. I now save an average of 20-25% on my groceries, simply by using the app for my store. There are even more apps, like ibotta, that can save more money.
My store app provides a list of all the foods that are on sale each week, as well as products with current manufacturer’s coupons. I take about 5-10 minutes to review what is on sale, then plan my meals accordingly. For example, if chicken is on sale but beef is full price, I’ll buy chicken for the week.
You can read more about savings apps and how I save money on groceries at 11 Tips to Save On Groceries.
Shop once a week
I used to stop at the store most weekdays on my way home from work. I would come up with a meal idea based on whatever I was craving at the moment. Not only was I tired from the day, I was also hungry. This led to a lot of impulse buying.
The biggest takeaway for me was to only grocery shop once a week. This way you plan ahead, research what is on sale, then only buy what you need. It also saves time and money on gas.
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Something else I learned from Erin Chase during her interview is the power of meal planning. I was quite skeptical before, especially because I really hate conforming to a plan, but I’ve since come around to it. Mainly because planning ahead saves me so much time and money.
Erin created the $5 Meal Plan, which is a fantastic weekly meal planning service. From the experienced planner to the true beginner (like I was!), this is a great resource to save stress, time and money.
The best part is that each meal is quick and easy to make and costs and average of just $2 per person. I literally cut my food expense category in half.
You can learn more and test it out with a 14 day free trial at $5 Meal Plan.
This is a spending category that is very difficult to get creative with. If you need childcare, there’s just no way around it or very many options to choose from. However, here are some possible ways to pay less for childcare.
Run the numbers
Start by running the numbers. Does it make sense for both spouses to work? In some cases, childcare is actually more expensive that what you earn. If the difference is close, consider staying home rather than continuing to work.
Stagger your work schedules
If you have flexible work hours, one spouse can work mornings and the other can take afternoons and evenings. While this saves on daycare costs, it adds the high price of not allowing for much time with your significant other.
Can you cut days
Another option is to only use childcare a few days a week rather than all 5 days. This can be accomplished by working part-time, bringing in a friend or family member to babysit one day a week, or working from home on certain days.
This is an option I wish I’d had the flexibility to use. If you know other parents in need of daycare just 1-2 days a week, take turns providing it between you. For example, if you and a friend both work part-time, one mom can watch both kids Monday and Wednesday, then you can watch the kids Tuesday and Thursday. Then you either pay for Fridays, take that day off or work from home.
FSA for dependent care
Some employers off a tax-advantaged spending fund to help cover childcare costs. It works just like a flexible spending account for healthcare. You can set up to $5,000 aside before taxes to cover eligible childcare expenses.
Monthly spending falls into any number of common income and expense categories. Lumping your spending into these categories is really useful for tracking your monthly finances, as well as managing your budget. But there are only a few categories that make up the majority of your overall spending.
Typically that’s housing, transportation, food and childcare. While it often feels like these categories are fixed, and there just isn’t much wiggle room to cut back in order to save more money, that isn’t actually the case. There is always something you can change in order to reach your biggest goals.
So if your goal is to save more money and build wealth for a more secure financial future, or even a financially independent future, try out some of these suggestions. Think outside the box, be open to some change, and above all, don’t base your life and financial decisions on how other people will judge you.
- If you haven’t already, track your finances by reviewing all of your spending from the previous 3-6 months. Don’t forget to include every account, including credit cards and investment accounts.
- Establish some categories based on your most common expenses.
- Order your categories from largest spending amount to the least.
- If your top categories include housing, transportation, food or childcare, brainstorm some things you can do to cut back. Are there any suggestions from this post that will work for you and your family?
- Remember to think outside the box and be creative. Have fun with this process. Do some research and see what your options are.
- Be sure to share what ideas you come up with and what changes you will make in the comment section below!