Common Places to Cut Budget

Americans love to spend. The St. Louis Federal Reserve claim Americans personally save about 5.0% of their income. After-taxes anre mandatory expenses, it feels like it is impossible to get and save or pay down debt. The advice is always to pay down debt and save. If you aren't making enough money to cover your expenses, then how can you do that? If you are making so little that you are scraping by, it feels impossible to make a dent in your giant credit card or student debt burden.

At RewardBus (for earning more income, consider using your sparetime and smartphone to earn more money), we view expenses a little differently. We are tired of hearing about how our cup of coffee a day is killing millions of starving kids in Africa, preventing us from our perfect retirement or costing grand travel escapades. There are larger problems in our budgets and we try to address them the best way we know how: from the largest to the smallest in the budget. With that in mind, let us be pound-wise and penny-foolish. We might make a few mistakes and toss a few pennies down the drain. But, where we're right, we will hopefully save thousands. (All percentages from 2014 BLS Survey on Consumer Expenditures)

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  Percentage of Spending
Housing 33.3%
Transportation 17.0%
Food 12.6%
Personal Insurance 10.7%
Healthcare 8.0%
Entertainment 5.1%

Housing

Housing-related costs makes up about one-third of total spending in America. About 60% of it is direct mortgage or rent payments, while the rest is split among utilities (20%), furniture/furnishings (~8%) and other housing related costs (such as maintenance/repairs or gardening services). Some of these seem particularly difficult to cut, such as utilities. There are ways to reduce your electricity expenditures, but it's mostly driven by the size/age of the dwelling and the source of electricity (which a lot of times can't be altered). We will focus, instead on the first part: rent/mortgage, a full 20% of all American spending.

Housing is often a form of luxury spending: people enjoy living in great neighborhoods with great furnishings. The opposite, however, is not the ideal: broken and worn down appliances is high crime neighborhood. The key here is trying to evaluate the best housing plus commuting cost tradeoff. Commuting (below) is also a significant expense. Trying to juggle good school systems, a low commute and affordable housing may seem like a difficult task but size and quality of home is generally the tradeoff here. Another way to be creative is to stock up on roommates or consider adding bedrooms for more roommates. Generally a 2-bedroom is less than two times a 1-bedroom. This means splitting the cost will save money. This is easy when you don't have a family but is often an option even for families. If you are able to rent out an extra room, you may be able to put away an extra $6,000+ a year! ($500/month) When you put it in those terms it seems to make more sense to consider alternatives.

Transportation

Transportation refers to commuting (traveling would be thrown under entertainment). The 17.0% is very roughly split three ways between maintenance, gas and outlays for purchase (or depreciation). Depreciation, to me, is the part where most Americans can cut back. According to the data, transportation property of Americans depreciates roughly $3,000 a year. $250/month may not seem like a lot but this may be too much vehicle for many Americans. The tradeoff is between purchasing a lesser car or a better car (hopefully with lower maintenance and gas costs). If you own a truck, consider the actual cost this is to you: in expenses, maintenance and depreciation. Trucks are often some of the largest expenses possible, and it doesn't come solely from gas: high maintenance, insurance and depreciation costs also exist. We mention great deals for ridesharing, but the focus on mileage efficiency is true elsewhere.

Food

Food is roughly split halfway between eating out and eating at home. One simple way to save money is to eat all of your meals at home, but we are going to recommend something different: optimize meals eaten at home. Eating out is often a great luxury, where you are given great food and don't have to deal purchasing, cooking or cleaning. I feel it is only right to be able to treat yourself to this twice a month or more. At home, however, citizens often waste a lot of food. Try to make meals to either be completed durign the first meal it is served, OR be sure to store and save for a later time (that time should almost always be the next day). One habit I got into myself was cooking a meal that would be for dinner and lunch the next day. This would usually be enough to not have stale leftovers sitting around in my fridge.

Another thing to consider is simply the ingredients/recipes being used. Rice and beans are a great base for a lot of meals. In fact, adding meat and cheese (cheese and rice may be a bit weird, however) to either of those as a base is an extremely simplified possibility for a dinner meal using a crockpot. Meat choices can vary a bit: beef, chicken and pork are often extremely affordable. Compared with frozen meals, the benefit to the pocket and wasteline will thank you.

Personal Insurance

>10% of this is Social Security/Pension taxes so unfortunately there is not much we are able to do about that, but the average American pays ~$4,500 in Social Security Taxes in a year. This does not include health insurance.

Conclusion

There you have the major categories. Simple optimization of the large categories can provide the largest benefits. If you are able to shave just 10% of the budget in each of food, transportation (probably the easiest) and home, it will result for the average American in ~$3,200 in annual average savings. This may not seem like much, but it may be able to pull your retirement forward by years if you start early enough! Behold the power of compounding interest.