The 3 Biggest Money Suckers

Disclaimer: The statements made in this post are the opinion of the author. They should not be viewed as financial advice. Please consult with a financial specialist before making any financial decisions.
This post may contain affiliate links, meaning I’ll receive commission at no extra cost to you for your purchase.*

I know that you probably want to know what the Big Three are right out of the gate, but first, let’s have some context. Our society is built around work. There is no way around it. We work to buy stuff which pays other people to work, who use their money to buy stuff, etc. It just keeps going. In the course of all of that buying of stuff there are three things that we tend to spend money on more than anything else.

Why does it matter to know what these big money suckers are?

As I’m sure you’ve noticed if you’ve read any of my posts, the most important thing to remember is that if you want to keep any of your money then you need to spend less than you earn. If you can identify your biggest expense and reduce those expenses, then it is even easier to spend less than you are earning.

So what are the three biggest money suckers? They shouldn’t surprise any adult that lives a regular life. The big three are Housing, Transportation, and Food.

Let’s take a look at each of these expenses, and ideas for reducing those expenses.

1 Housing. According to the above referenced article, housing takes an average of 33.1% of an Average American’s money. That is 1 out of every 3 dollars! What is crazier than this is that mortgage companies generally let you use up to 55% of your monthly income for your monthly payment–including principal, interest, taxes, and insurance–when buying a home! (I know this from personal experience, I might talk about that disaster later). Basically, if you buy as much home as a lender is willing to give you then you are going to struggle to make those payments.

So what can you do about it? First, if you do not own a home, make sure that you are VERY comfortable with the amount that you will pay each month. 25% of your net monthly income is the maximum I would recommend (although advisors will generally tell you 28% of your gross monthly income is acceptable). This gives you plenty of room to cover your other expenses. Second, if you already own a home consider ways to reduce your monthly payment. This can be any number of scenarios, including selling your home and downsizing, or just refinancing if you have a good amount of equity built up. Third, look into intentional house hacking. I’ll write about house hacking later, but the general idea is that you turn your house into something that makes money instead of takes money (such as renting out rooms or buying a multi-family home, and more). If you are feeling trapped by your mortgage (or rent for that matter) take one of these steps to drastically reduce the percentage of your income spent on housing.

2 Transportation. Transportation takes an average of 15.9% of our income. While that is only half of what housing costs, it is still a huge chunk of change we’re shelling out each month. Transportation does include a lot of things, but the main reason it is such a huge part of average spending is the car payment.

The first thing many people do when they get that raise they’ve been waiting for is go out and get a nicer car. Few things could be a worse financial decision. Cars, by their very nature, are depreciating “assets” (I don’t think they even count as assets, and I have Robert Kiyosaki to back me up on that). In general, this means that the value of the car goes down, not up, over time. You’ve probably heard your great uncle say something like “Your car loses 30% of its value as soon as you drive it out of their parking lot”. While this isn’t the right number exactly, it is pretty accurate. In fact, cars lose 20-30% of their value in the first year, then 18% ish after that each year according to this article. That just shows that buying a new car is not only expensive because of the high monthly payment, but because it doesn’t keep its value like a house does.

So what can you do about it? If you haven’t bought a car yet, then consider buying a car that is used and has excellent mileage. The funny thing is that a used Toyota Corolla will get you there just as well as that brand new Ford F250 Super Duty. Now I know there are reasons for different vehicles, so if you need a truck, consider buying a used one of those too. When you have enough cash flow later then you can feel free to get that car you’ve been salivating over (if you can pay for it outright), but wait until then.

If you’ve already bought a new car on payments, you need to weigh your options. Sometimes it makes sense to just hold on to it until you’ve paid it off and then keep holding onto it because the money you paid for it upfront feels like less of a hit over time. Other times it makes sense to sell it and take the hit of a few thousand dollars then use that money to buy a car outright with the left over car. This is a good idea if you know that you will recoup the loss you took in a few months of not having a car payment. If you feel bad about both of those options consider turning your car into a money making asset, like renting out your car on Turo (not an affiliate link) to make some extra cash from it.

3 Food. Food takes an average of 12.9% of our income. While the smallest of the three categories it is also the easiest for us to understand and control. The biggest thing we need to look out for here is eating out.

Eating out is easy. You don’t have to experience the dread of opening up your fridge and finding ingredients instead of food. You don’t have to cook or clean. All you do is show up, order, and eat. Great, right? But do you know what you’re spending on eating out each month? If you are tracking your spending then you do. At 12.9% the average household (making $60,000) is spending $600 a month. What if I told you that I can feed a family of four on $300 a month? Seems unbelievable, but it is true, and I even manage to eat out a few times too.

So how do we tame the eating out beast? There is no one way to do it, but here are some suggestions. First, simply notice how often you do it. Most people can’t believe how much they eat out when they start tracking it. Second, learn how to make some simple meals at home. Home cooked meals cost less than restaurant meals because you aren’t paying labor costs. When you eat at home, you save money. Third, to solve the only having ingredients in the fridge problem, try meal planning. Just take thirty minutes to sit down and decide what you are going to eat each night of the week. It will feel a lot better when dinner time comes up and you already know what to make.

Fourth, Give yourself a theme for the week (we usually have a meat or two that we use throughout the week like chicken and ham for example, all mixed with a healthy number of meatless meals, but you can do whatever suits your diet best). A theme can help you reuse ingredients instead of buying new ingredients every time you make a new meal (and consequently letting the leftovers go bad). Fifth, you don’t have to shop at the most expensive stores. I give you permission to stop shopping where it is trendy. Trader Joe’s is just not an economical choice for all of your grocery needs. I’ve heard of multiple options, but Walmart and Aldi seem to have the cheapest options out there. Find the best discount store near you. Sixth, try couponing if you’re into that (I use coupons, but I’m not extreme) and use rewards apps to get money back. I use Ibotta and Fetch Rewards (feel free to use my referral codes, jlbmjho for Ibotta and C8WPN for Fetch to get yourself some start up points).

If you are conscious about your spending on food, then it will be manageable. If you spend when you feel like, it will become an unbearable burden.

Conclusion

There are three areas that people in general spend most of their money; housing, transportation, and food. If you take the necessary steps to reduce or even eliminate these expenses, then you will be well on your way to spending less than you earn and living a fuller life.

What are some ideas you have for reducing your expenses for the big three? Tell me about it in the comments below.

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Definitions

Principal: The amount of money that you pay each month towards the original amount of money you borrowed. So if you borrowed $100,000 you will pay $100,000 in in principal over the course of the whole loan. This is the P in the common banking acronym PITI (principal, interest, taxes and insurance).

Interest: The amount of money that you pay each month on top of the principal, the cost of borrowing money. So if you borrowed $100,000 you can pay an extra $40,000-$60,000 on average for a mortgage. This is the first I in the common banking acronym PITI (principal, interest, taxes and insurance).

Taxes: The amount of money that is owed to the government for owning property. This ranges drastically from state to and state and even city to city. Each year this can range from a few hundred to several thousands dollars depending on where you live. Even with a paid off house you still owe this. This is the T in the common banking acronym PITI (principal, interest, taxes and insurance).

Insurance: The money that you pay each month in case there is a disaster in your house that either pays to repair it or pay off your mortgage. This is usually called home owner’s insurance or hazard insurance. Even with a house paid off you still pay this each month. This is the Second I in the common banking acronym PITI (principal, interest, taxes and insurance).

House Hacking: Anything that turns your primary residence into a a money making asset. Most commonly this is buying a duplex and renting out one side, but it can include AirBnB, long term renting out a room, etc. This can reduce or entirely eliminate what you pay into your mortgage personally.

Multi-family Home: A single structure that has multiple units, such as a duplex, triplex, or apartment building. (House hacking is most common in small multi-families with 2-4 units).

Depreciating: (Depreciation) When something loses value over time, usually due to wear and tear. A car is a great example of something that depreciates, but furniture and computers and other business equipment are also examples.

Cash Flow: Money coming into your pocket from investing (either through stocks, real estate, or other assets). This is NOT the same as income because it doesn’t necessarily require you to work for it.

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