You’ve heard that you should save money by foregoing that morning coffee or collecting coupons. But do you really want to spend your days fighting numerous inner battles in your caffeine-deprived mind? Because that’s what happens when you focus on small savings.
Every little purchase becomes a struggle between the cheapest option and the one you really want. It’s only a $2 difference, you tell yourself, but it adds up over the year. Besides, $2 is almost enough for one night in a Southeast Asian hostel. So you choose the Filet-O-Fish because you have a discount coupon for it and munch miserably on your lunch.
Why It’s Easier to Save Money on Big Expenses
You could, in fact, accumulate lots of money little by little, use it to travel and live happily ever after. But why stress over a $2 purchase 100 times a month when you can save $200 on one item instead?
The truth is that people generally have less self control than we give ourselves credit for. The more decisions you have to make, the more chances you have to abandon your mission.
That’s why new year’s resolutions falter by the end of January; that’s why it’s so hard to stick to a workout schedule; that’s why, even though you’ve read about the “latte factor” in The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich
, you keep buying a cup every day.
It’s easier to make a handful of big decisions than hundreds of little decisions. Focus on your biggest expenses and buy that coffee every once in a while. (This has helped me save $20,000 in one year when we only made $50,000.)
Your 3 Biggest Household Expenses
The average American, according to the Department of Labor, spends about half of his money on these three biggest household expenses in 2012:
1. Housing (32.83% of total yearly expenses)
$16,887 on mortgage or rent per year — $1,407.25 per month.
2. Transportation (17.49% of total yearly expenses)
$8,998 per year — $749.83 per month.
3. Food (12.83% of total yearly expenses)
$6,599 per year — $549.92 per month.
The numbers are similar for Canadians if you look at the infographic below (based on 2009 figures).
Slash Your #1 Expense: Housing
You can easily save hundreds of dollars per month by living in a smaller house or apartment. This may sound like a drastic move, but think about what you can do with all the money you’ll save.
If you move to a place that’s just $250 cheaper than your current one, you’ll save $3,000 in the first year alone. You can use that money to buy yourself a much-deserved vacation, make an extra payment on your mortgage or pad your retirement savings account. And think about how much you’ll save over several years!
Yes, there will be expenses associated with the move, but you’ll quickly regain that in your new home.
If you own your home, you can reduce your interest costs by making bi-weekly payments instead of monthly payments. You’ll effectively be paying 26 half-payments (13 whole payments) over one year instead of 12 whole payments. This will help you pay off your mortgage sooner.
If you already own a home and you plan to hit the road for long-term travel soon, sell it or rent it out. You don’t have to wait until right before your departure to market your home, especially if you can get temporary rental cheaply. (Move back into your childhood bedroom? Sleep on your friend’s couch?)
One of the biggest mistakes I made was buying an apartment in Vancouver, which is one of the most expensive real estate markets in North America. Despite what your parents may tell you, a property is not always an asset.
If you don’t plan to stay in one city for at least 5 years, don’t buy a property. With the transaction costs and maintenance costs, you’re likely better off renting.
Even if you’re already on the road, accommodation is often the biggest expense, so look into alternatives to hotels. There are free travel accommodation options you can choose — check out this e-book “How to Get Free Accommodation Around the World” by a full-time traveler who saved $63,000 on accommodation over 6 years.
Cut Down on Your #2 Expense: Transportation
In accounting-speak, a car is a deteriorating asset, which means that its value decreases over time. The average car drops by 65 percent in value over 5 years. In other words, unlike the case with property, there is no financial benefit to buying a car, unless you’re a used-car dealer.
But it’s not just about the sticker price of the car. If you get an auto loan to purchase a car, you’re also paying interest. On top of that, you have insurance payments and gas. And because even the best car breaks down, you’ll also be paying for repairs and maintenance.
If there’s a good public transport system where you live, use that and sell your car. Not only will you be kinder to your wallet, but also the environment. You can also carpool and make friends on your way to work. Some other options: walking, biking or telecommuting.
If you’re planning to go on an extended trip, sell your car sooner than later. This way, you’ll save more money quickly and you can cross one item off your to-do list.
If there’s no way you can get around without a car, then buy one used. You could also reduce your expenses by adjusting your insurance. Check whether you can get discounts on your premium due to low mileage, airbags or other car features. Also consider increasing your deductible and bundling your various insurance products with one company.
Reduce Your #3 Expense: Food
This is the one big expense that requires some degree of self-control.
Obviously, you can save the most by cooking at home rather than eating out. And bringing lunch to work also works magic on your savings.
Otherwise, simply planning your meals and making shopping lists could work just as well. And don’t go grocery shopping on an empty stomach.
Even when you’re traveling, you can cook simple meals as long as there’s a kitchen at your accommodation. For easy recipes you can cook with minimal ingredients, check out The Backpacker Chef by Jacqui of Roaming Cooking. (She says it’s “the easiest cookbook ever”.)
Drink water; it’s good for you. And it’s free if you get a reusable bottle instead of buying bottled water every day. It’s even free in many restaurants.
And remember that latte factor? You can always brew your own coffee (or tea).
To be honest, we’re not too strict on our food expenses. After all, we’re already saving so much on housing and transportation. That’s the great thing about saving on the big stuff. :D
If you need more ideas to save money to travel…
- How to Save Money to Travel the World
- 15 Easy Five-Minute Fixes to Save Thousands of Dollars This Year
- 100+ Easy Ways to Save Money
- 3 Studies Reveal Why Budgets Fail
- How I Saved $20,000 in 1 Year Without a Budget
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