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How to Save on the Big 3 Expenses

When you are living paycheck to paycheck, paying off debt, or finding extra money to invest can feel insurmountable. Creating and growing that gap between what you earn and how much you spend is vital. But how exactly do you go about doing that? By cutting your top three monthly expenses, also known as the Big 3.

Cutting out your morning stop for coffee is great, but it isn’t going to have much of an impact. To truly begin making progress and grow your gap, you need to make changes in the areas that reward you with major savings.   

The three biggest budget items for the average U.S. household are food, transportation, and housing. Focusing your efforts to reduce spending in these three major budget categories can make the biggest dent in your budget, grow your gap, and free up additional money for you to us to tackle debt or start investing.  

Read on learn more about why reducing your Big 3 should be where you focus your efforts, and what steps you can take to cut your spending in these key areas.

Table Of Contents

Why Focus on the Big 3?

If you search the internet for ideas on how to reduce your monthly expenses, there are hundreds of options to sort through. Suggestions run the gamut, from swapping out all your incandescent light bulbs to LED, turning down your water heater temperature, unplugging electronics, to the ever-popular “stop buying lattes” and make your coffee at home.

These are all good money-saving suggestions and wonderful ideas to implement where you can. But more than likely, these changes aren’t going to make a significant impact on your monthly expenses. The goal is to see a sizable return on the changes you decide to make.

Think about it this way, if you make a concerted effort to reduce your electric bill by turning off electronics and programming your thermostat to conserve energy, you might save 10% on your monthly electric bill. For a bill that averages $100 a month, your savings are just $10. That’s good and certainly helps, but you can do better.

What if you could save 10% or more in one of the Big 3 budget areas? For a family of 4 who spends $1,000 a month on groceries and eating out, a 10% reduction is $100. Now we’re talking! Throwing an extra $100 toward debt is much more helpful.

I Can’t Cut the Big 3, They’re Necessities!

It almost seems unreasonable to look at reducing spending in the areas of food, transportation, and housing. After all, these are not “wants” or “nice to haves”, right? You literally need food and shelter to survive, and most people require some form of transportation to get to work. But just because these are necessities, it doesn’t mean there isn’t tremendous wiggle room where your spending is concerned. Spending with intention applies to the necessities as well.

Don’t be afraid to critically evaluate spending in these areas. Being financially resilient and working toward financial independence isn’t about living a life of deprivation. You can make slightly different choices from the norm, align your finances with your values and your goals, and make the shift to an abundance mindset.

Here are some steps you can take to reduce your monthly expenses in the areas of food, transportation, and housing.

How to Save on Food

Of the Big 3 categories, food is perhaps the easiest to start tackling. Not only are spending decisions on food made on a weekly, if not daily basis, but there are ample opportunities for breaking habits and making different choices.

You May Spend More Than You Think

Have you already tracked where your money is going? How much is going toward food? According to the U.S. Bureau of Labor Statistics, the average household spends between 12.9-14.9% of its income on food.

There are two components to this calculation: food at home and food away from home. Interestingly, the amount of money spent on food at home, i.e. groceries, is only slightly higher than what is spent on food away from home, i.e. eating out. In 2019, the average U.S. household spends roughly 57% of its food expenditures on groceries and 43% spent eating out.

That one statistic right there is very revealing. Eating out is costing Americans a lot!

Eat Out Less Often

Going out to eat can be a fun social event, a treat, and sometimes an inevitable necessity, but the truth is that the cost to eat away from home is considerably higher than what it costs to feed yourself and your family at home. When you eat out, you’re not just paying for the cost of the ingredients used to prepare your meal, you’re paying for the waitstaff, cooks, management, the building, utilities, advertising, and so on. If you eat out a lot, it has a huge impact on your budget.

Even if you don’t frequent expensive restaurants, the cost to feed a family is significant. For example, if a family of four goes out to a simple chain restaurant and each person orders a $15 entree and a $3 beverage, they will end up paying around $90 after tax and tip are included.

Doing that twice a week costs $720 a month. If that family were to cut the number of times they eat out each month from eight to two, they would save $540 a month!

It’s not necessary to give up eating out entirely, but given how costly it is to do, look for opportunities to reduce how much you spend doing it.

However often you currently eat out, try cutting it in half. Or look for ways to enjoy the experience of eating out for less. Do a little research and  find establishments offering happy hour specials or additional discounts for visiting on their slower days of the week.

Save by Cooking at Home

Without a doubt, preparing your meals at home is going to be less expensive than eating out. But this doesn’t have to mean boring or repetitive meals of beans and rice.  It’s possible to eat fantastic and varied meals on a budget. When you spend with intention on food, you can enjoy all the foods you love.

Set a Food Budget Goal

As discussed earlier, the average household spends roughly 13-15% of its income on food. For a household earning $100,000 a year, that’s $1,250 a month for a household spending at the higher end of average. Start tracking your food expenditures and set a goal to bring that number down.

So that begs the question, what’s a reasonable number to shoot for? It’s not a complicated equation but work toward a goal of spending $2 per person per meal per day. Keep in mind, that’s an average, not a strict not-to-exceed figure. If you want a nice steak dinner, no problem. Don’t deprive yourself of things you love. You’ll just need to have a few cheaper meals throughout the week to make up for it.

That $2 per person per meal per day goal can dramatically cut your food costs. For a family of four, that’s a budget of $24 a day, or $720 a month. That’s $530 less than what the hypothetical household above typically spends. How could an extra $500+ a month help you pay down your debt, begin investing toward retirement, or build an emergency fund? Deciding to be more deliberate with your meal costs can reap huge rewards.

Maybe you can envision $2 meals for breakfast, and even lunch, because cereal, eggs, and bread are inexpensive, but dinner just doesn’t seem possible.  If it sounds like an aggressive goal, that’s okay, there are several ways to bring meal costs down.

Listen: How to Crush Your Grocery Bill

Meal Planning

There are several advantages to making a meal plan. Meal planning saves you in both time and money. When you know what meals you’re going to prepare for the week, you can shop with a list of only the ingredients you need. You have everything you need and nothing goes to waste as long as you stick to the list. In addition, when grocery shop just once a week, you save time by avoiding those last-minute trips and curtail the opportunity for impulse purchases.

Another advantage with meal planning is that it eliminates the all-to-common nightly dilemma of, “I don’t know, what do you want for dinner tonight?” Decision fatigue is a real phenomenon. Without a plan, it’s too tempting to just go out to eat or hit the store to pick up more expensive prepaid or convenience items.

Instead of struggling to figure out what to make, when you have a meal plan that you’ve prepared for, you know exactly options from your plan are left to choose from.

Whatever happened to meatloaf night? Previous generations had a short list of rotating meals they went through each week. It’s not necessary to have  the same meal every Tuesday night. Be adventurous and try new recipes if you like. But it’s great to have a catalog of 25-30 easy and economical meals you and your family enjoy. It makes meal planning easy when you need to add another meal or two to your weekly plan before hitting the grocery store.

Double or Triple Recipes to Save Time and Money

One of the fantastic advantages of meal planning is that you can also meal prep. With meal prepping, you can double or triple your recipe and save money buying ingredients in larger packages at a lower per-unit cost. It doesn’t require much more effort to prepare a doubled recipe once and save leftovers for a busy night later in the week or freeze for a quick and easy meal next month. You’ll be grateful you made the extra effort.

$2 Meals

Once you’ve committed to planning out your meals, and maybe trying out meal prepping, where do you find recipes that cost $2 per serving? Fortunately, the $2 per meal goal isn’t a new concept. You’ll find thousands of ideas with a quick internet search. But it’s a lot to sort through. ChooseFI has created a cookbook of $2 per person meals based on the Barrett family’s own catalog of their top 50 delicious recipes to help get you started.

Related: Check out the Barrett Family Cookbook 

How to Save on Transportation

The United States is a highly mobile society. In a survey conducted by the U.S. Census Bureau, in 2016 the average one-way commuting time for metropolitan areas was 26 minutes. Clearly, access to transportation is something most of us need, and more likely than not, there is a cost associated with it. For most, that means car ownership.

But cars have transformed from a useful mode of transformation to status symbols. What kind of vehicle do you really need to get you from home to work, or for running errands to the grocery store? A late-model luxury SUV and mid-range 7-year-old sedan both do the job equally well.

The purpose of a vehicle is to safely get you from place to place. Newer cars may have all the latest bells and whistles, but it comes at a cost, and likely a much greater cost than you had ever considered.

Returning to the previous Bureau of Labor Statistics report, in 2019 the average household spends $4,394 on vehicle purchases/payments and another $2,094 on fuel and motor oil. If you commute to work or school in your car, you’re going to have fuel expenses. While there are different ways to save here and there on fuel, the absolute best way to significantly reduce your transportation costs is with your vehicle purchase decisions.

Cars Are a Depreciating Asset

Depreciation is a new car’s largest expense. Approximately 20-30% of a car’s value is lost by the end of the first year. By year five, the car has depreciated by approximately 60%. That’s a huge hit. Considering that but loan terms are increasing getting longer and longer, by the time you’ve paid your vehicle off, it might be worth just half of what you paid for it.

There are two ways to mitigate the reality of car depreciation: drive the new cars you buy for a long time or buy “newish” cars after they have depreciated.

Say you want to go the new car route, how long is a long time? Long enough to where you have paid the car off and no longer have a car payment for a good number of years. For a three year loan, it might mean 10 years. With a five year loan, maybe 15 years. When purchasing used cars, pay cash or go for the shortest loan term possible. The goal is to not have a car payment. Here’s why.

You Can’t Afford to Manage the Payments

A common sales tactic in the auto industry to “help” you manage the payments. If you can only afford to pay $300 a month, they will do their absolute best to find you a loan where you will pay $300 a month even if it means paying on that car for five, six, seven, or even eight years.

For years, you’re paying on an asset that is losing value. If at the end of that term, you’ve paid the car off, trade it in for another new car, and take on a new “manageable” payment, you’re falling behind when you could be getting ahead.

Not only do you lose money paying interest on the car loan, but you’ve missed out on the opportunity to invest and reap the rewards of compound interest.

The True Cost of Car Ownership

Let’s look at what managing the payments is really costing you by examining two scenarios.

In the first scenario, you’re managing the car payments. You purchase a new car every five years, taking out a five-year loan each time.

In the second scenario, you purchase a new car with a five-year loan, but when the car is paid off, you drive the car for another 10 years. During the 10 years you don’t have a car payment, you take that money and put it to work for you?

The difference is amazing.

The chart above demonstrates just how much this one decision can impact your finances.

If you purchase a new car every 5 years, sure you’ve managed the payments, but you’ve saved nothing.

If you make a slightly more optimized decision to purchase a new vehicle, pay the loan off in 5 years, continue to drive it while investing the payment for the next 10 years, you’ll have almost $87,000! But it gets even better. When you keep that $87,000 invested and allow it to grow for 20 years, you’ll have $187,000. Stay the course for 30 years and it grows to more than $400,000!

This is the result of just ONE decision: opting to drive a car for 15 years while investing the money saved by not “managing” a car payment. What if you were to do this more than once? Do it three times over 45 years of an adult lifetime, and the results are truly incredible.

Listen: The True Cost of Car Ownership

Buy Used For Even Greater Savings


Of course, the above scenario assumes new car purchases. Opting to pay cash for used vehicles or taking out three-year car loans can further increase the benefit.

Whether your car is new or used, your car is not who you are. You are trying to rid yourself of debt and crush your savings rate. You are someone working toward financial freedom and making slightly different choices to help get you there.

How to Save on Housing

If you’re like most Americans, housing is likely your largest monthly expense. The Bureau of Labor Statistics states the average hold spends between 30 to 35% of its income on housing.

As this is the biggest of the Big Three expense areas, reducing spending in this area has the potential for making the biggest gains. Unfortunately, it’s also one of the more difficult to begin taking immediate action on. However, there are some steps you can start taking now while you work your way up to the more lucrative ones.

Look for Savings With the Extra Housing Expenses

Mortgage payments and rent are only part of your total housing expense. Maintenance, home improvement projects, and insurance are all areas of opportunity for decreasing costs.

For homeowners, learning to perform basic maintenance tasks yourself not only saves you from paying to have someone else perform these services for you but can also help you to avoid costly repairs down the road. And for renters, some landlords may be willing to give you a reduction in rent during if you offer to make repairs yourself. It never hurts to ask!

YouTube has a wealth of information on home repair, but for do-it-yourself home improvement projects as well. Not only can you often do the work yourself for a fraction of the cost, but you build your talent stack in the process.

Insurance is an area many people don’t think to shop around for, but rates can vary wildly from one company to the next. Or you might be overinsured. It’s worth spending the time once a year to review your homeowner’s or rental insurance policy to determine if the coverage is appropriate for your current needs and then shop around for better quotes.

House Hacking

Chances are you’re already settled into where you are living and aren’t keen on making any physical moves right now. That’s okay, there are still a few things you can consider implementing.

If you have a spare bedroom or two, consider bringing in roommates. Rather than shouldering the entirety of the mortgage or rent expense yourself, you might be able to dramatically reduce or even offset it entirely by sharing your home and charging others rent.

There may be other ways you can use your home to make money when you think outside the box. You might be able to rent out your home as an Airbnb when you go on vacation or when your city has a major event occurring. There are people living in congested cities who rent out their driveway to people in need of parking spaces. During COVID, there were even stories of homeowners renting out their backyard pools. What can you offer that someone might be willing to pay for? Be creative!

Listen: How to Get Started Making Money with Airbnb

Are You Moving?

Moving presents the biggest opportunity to positively impact your housing costs. If you are moving, don’t buy or rent more house than you need.  A bigger home requires more. More furnishings, more cleaning, more maintenance, more energy. A smaller home will likely cost less but require less of your time, time that can be spent doing the things you really want to do.

Consider moving closer to your job to cut down on commuting costs. Or instead of moving to the best part of town, maybe you can find a slightly less expensive neighborhood near where you’d like to live.

There are several advanced strategies the financial independence community uses to reduce their housing costs. They are a bit beyond the scope here but are certainly options to explore in the future when you’re ready. They are:

  • Domestic geoarbitrage
  • International geoarbitrage
  • Multi-unit home purchases
  • Tiny homes
  • Slow travel

Listen: House Hacking with Coach Carson

The Bottom Line

The benefits of spending less become evident once you see them laid out. Changing your mindset and habits is critical to creating lasting wealth. When you make a different choice with a few significant and impactful decisions, it can change your financial path’s whole trajectory.

How have you reduced spending in the Big 3? Share your story and ideas with others in the comments below!

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