Your Top Expenses and How You Can Reduce Them

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What if I told you, over 60% of your income was spent in 4 areas? There is no way, right? 

Wrong! 

Recently, I found a report by the Bureau of Labor Statistics (BLS) on the wages, spending, and savings habits of the average American worker. I combed through their data and found some insightful information.  

The top 4 categories that we spend money on, accounts for 62.5% of our incomes! Not leaving much for anything else. Saving money on these top expenses will do wonders for your wallet. Even making small changes to them will have huge benefits, getting you to your financial dreams faster. 

#1 – Housing Expense: 26%

It’s no surprise, we American’s love our big houses and gated communities. Everyone needs a place to live and call home. 

However, housing costs are most people’s largest expense. The good news, it also gives the biggest opportunity for saving and positively affecting your finances. 

If you are a homeowner, make it a point to review your mortgage statement. Look at your current interest rate, monthly tax and insurance (escrow) amounts, and if you pay private mortgage insurance (PMI). A quick look at Bankrate.com may reveal that you can start saving money today by refinancing to a lower rate. Also, contact your mortgage servicer, you may be surprised to learn you could be eligible to have your mortgage insurance removed entirely! 

If you are ready to take a more extreme measure, listing your home for sale is always an option. Under certain conditions, you can sell your home for a 100% tax-free gain. Of course, be sure to consult with your CPA before making any permanent decisions. 

Renters have it much easier to reduce their top expense. Start with reviewing the terms of your lease and any early termination fees that may be involved. Next, contact your property manager letting them know you are considering a move. Sometimes they are willing to work with you, especially if you have been an ideal resident.  

If that doesn’t work, look at apartments and homes for rent online. I’d recommend starting with Rent or Zillow.com. These sites will reveal other living spaces available based on the location and amenities of your choice. Many even offer discounted or free rent when you sign a new lease. Compare these options to what you currently pay, and it might inspire you to start packing.

#2 – Income Taxes: 14.5%

“There are only 2 things certain in life; death and taxes.” – Benjamin Franklin

The next top expense is one many people don’t often think about. Taxes are taken out of your paycheck before any money ever hits your account. For most, it is out of sight, out of mind. Except for once a year, usually towards the middle of April.

The guidance of a competent CPA can help you reduce this budget killer. There are even some types of income that are taxed at reduced rates such as long term capital gains! Oftentimes, there are steps that you can start taking today to help reduce your tax burden in April. Be sure to find a CPA and enlist them on your financial team. These professionals are essential to saving you money and your long term financial success.

#3 – Transportation: 12%

It is expensive to own a vehicle. Car expenses are not limited to loan payments and gas, but also insurance, oil changes, and other regular maintenance charges. Remember how expensive it was to fix the check engine light the last time it came on?

In the modern economy, it is easier now than ever to reduce this top expense. Not only are there countless ride-sharing companies such as Uber and Lyft, but also the opportunity to work remotely. It may be time to speak with your boss about the benefits for you, the company, and the environment of telecommuting.  

You could also carpool, use park and ride, or take a more drastic measure and sell a vehicle. 

Recently we went down to one car household and so far my wallet is loving it! The jury is still out if this is going to be a long term viable option. However, for the right person or situation, I can see this being a great budget-friendly option.

#4 – Food: 10%

It’s costly to eat out. A restaurant is in business to make money. They turn a profit by marking up (sometimes over 300%) the dishes they serve. A Zagat.com survey revealed that Americans eat out 4.9 times per week. Using the BLS spending data, I learned that the average cost to eat out is $13.57 per meal. Using the same data, I can calculate the average cost to eat at home at just $5.33 per meal! So, the easiest way to save money on food is to cook.

The number one complaint about not cooking at home is not having enough time. Well, that is where meal prepping and one of my favorite inventions, The Crockpot, come into play. Pulling out all of your pots and pans to cook and clean for a single meal is not efficient or fun, it’s exhausting. The solution, meal prep. Combine this with a grocery list and you are on your way to some serious savings.  

I know I don’t need to preach the health benefits of cooking and knowing what goes into your food, so make the changes. Both your belly and wallet will thank you.

The above data shows how the average American spends their money on their top expenses. If you do what the average person does, then guess what? You’ll end up average. You are better than that!  

Review your budget and see how you stack up against the average in each of these categories. Consider the following questions:

• Where are you succeeding?
• What needs improvement?
• What is one thing you can do today to lower your spending in at least one of these categories?

Reducing your top expenses, even if by a small percentage, will have the largest possible impact on reaching your financial dreams.

The most shocking statistic to me when reviewing the BLS data was that American’s are saving only 2.4% of the cash that they bring home! We can all do better. If not, how are we possibly going to reach our goals?

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