Cut the big three: housing, transport and food

Saving money is often explained as "skip the coffee". Small habits do add up, but most of your money goes to just three things: where you live, how you get around and what you eat. One good decision on one of them can save more than a hundred small sacrifices, and you only have to make it once.

Where the money really goes

In the US Bureau of Labor Statistics' Consumer Expenditure Survey for 2023, the average household spent about 33% on housing, 17% on transport and 13% on food. Together that's about 60% of all spending. In Europe the shares are different (housing and food a bit higher, transport a bit lower), but the picture is the same: three lines are most of the budget.

Big decisions vs small habits

A saving is worth more than it looks, because it can be invested. Here is what a monthly saving becomes if it is invested for 30 years at 7% a year (the same assumption as in the investing strategies lesson; an illustration, not a promise):

Check any of these in the compound interest calculator. The lesson is not "never buy coffee"; it's start with the big lines, then keep the small pleasures you truly enjoy.

1. Housing: the biggest lever

A common guideline is to keep housing below about 30% of take-home pay. Above that, the budget becomes fragile: any fall in income hits a bill you cannot change quickly.

• Negotiate the renewal. Before the lease ends, look at what similar flats nearby cost. A landlord who wants a good tenant to stay may lower or freeze the rent.
• Size and location. One room less, or 15 minutes further from the centre, often costs much less. Count the extra transport cost honestly.
• Share. A flatmate can cut the rent nearly in half, especially in your twenties.
• For home owners: compare your mortgage rate with today's offers. When rates fall, refinancing can save a lot, but count the fees first (the mortgage calculator shows the monthly payment).
• Energy. Switch supplier when contracts end, insulate, and check the heating schedule. Small for one month, real over years.

2. Transport: the hidden cost of a car

A car costs much more than fuel. The AAA's "Your Driving Costs" study puts the full cost of owning a new car in the US at more than $12,000 a year when you add depreciation (the value it loses each year), insurance, financing, maintenance, registration and fuel.

• Buy used, drive long. A new car loses a large part of its value in the first few years. A reliable 3–4-year-old car, kept for 10 years, is far cheaper per year.
• Avoid long car loans. A 7-year loan makes the monthly payment look small, but you pay more interest and may owe more than the car is worth.
• One car, not two. For many couples, public transport, a bike, car sharing or an occasional taxi cost less than a second car.
• Shop around for insurance every year. Loyalty is rarely rewarded.

3. Food: plan it, don't fight it

• Lunch. Buying lunch at $12 on 20 workdays is $240 a month; bringing it from home at about $3 is $60. That's $180 a month, or $2,160 a year.
• Plan the week. A weekly menu and a shopping list cut impulse buys and food thrown away.
• Store brands. For basics (flour, pasta, rice, cleaning products) they are often the same quality for much less.
• Cook in batches. Cooking twice, eating four times, makes takeaway on tired evenings less tempting.

Then: the "boring bills" check, once a year

Phone, internet, insurance, bank fees and subscriptions renew silently. Once a year, list them all and ask for each one: do I use it, and could I pay less? Cancelling two unused subscriptions and switching phone plan can save $20–$50 a month in an hour of work.

Sam's big three review

Sam (from our money plan) spends $3,000 a month after tax and saves $580. At the lease renewal, Sam reviews the big lines: