The importance of managing the big 3 living expenses
Photo: Unsplash | Source: Medium
If you want to save money, you need to start with your largest expenses in life, not your smallest.
Let’s discuss why making smart choices around your big 3 living expenses is the easiest way to save more money.
What are the big 3 expenses?
The three biggest living expenses, or as I call them “the big 3” are;
Housing, transportation, and food account for more than 60% of the average household budget. I am assuming that is more money than your daily coffee run costs. If you are looking to save more money, the big 3 is an excellent place to start.
Let’s have a look at how much money the average person spends on the big 3.
Housing is most people’s most considerable expense.
Housing costs account for 37% of after-tax, household income in America. That means 37 cents of every dollar you bring home goes towards housing costs.
Let’s focus on the cost of owning a home because it has a lot more hidden costs compared to renting.
When homeowners budget their housings costs, they typically account for predictable expenses.
While housing accounts for a larger share of household spending, cars are a bigger money pit. If you buy a house, you are going to spend more money on your home. However, you will at least own an asset that is likely to increase in value over time.
When you buy a car, you are spending a lot of money on something that will eventually be worthless. If you bought a brand new, $40,000 car, it would lose $8,000 in value in the first year after you bought it. That works out to $666 per month.
Spending more money than you need to on a brand new car is an easy way to drive your finances into the ground.
Here's some quick stats from BudgetDirect;
The average Australian household’s weekly grocery spend $254.96
Couples with children between the ages of 5-14 spend the most on weekly grocery shops at $336
New South Wales households spent the most on weekly groceries at $275.41
Total spend on groceries and non-alcoholic beverages make up 16.6% of total goods and services expenditure in Australia
Weekly spend on food by stage of life.
The average grocery bill for the average Australian varies greatly depending on the stage of life they are in.
The big 3 expenses will make or break your finances
If you are struggling to save money or reach your financial goals, the first place you should be looking to cut back on your spending is on your big three expenses of housing, transportation, and food.
The average person spends nearly 70% of their take-home pay on these three expenses.
Making any changes to your big three expenses has an opportunity cost.
The opportunity cost of saving money on housing is to live in a smaller home or execute a house hack.
The opportunity cost of saving money on transportation is giving up a car, driving a crappier car than you used to, or finding a way to make money from your car through a ride-sharing app.
The opportunity cost of saving money on food is to eat out less and put in more time and effort by planning your meals in advance.
There is no free lunch. If you are going to spend less money on the big three expenses, it requires a sacrifice. Either a sacrifice in scaling back the lifestyle you are accustomed to or a sacrifice in dedicating more time to reduce your spending.
You have to ask yourself why it’s worth it to you to make the sacrifice that is required to save more money?
Finally, if you’re going to make the sacrifice to cut back your spending, it’s critical that you don’t squander that opportunity. Any money you save on the big three expenses should be automatically redirected to help you achieve your financial goals.
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