The 3 Big Expenses You Need to Get Right

Do you really need to live a life of extreme deprivation?

Extreme deprivation isn't really that much fun. To most folks, the idea of putting on 4 layers in the winter instead of turning on the heat is not that appealing. Standing in the grocery store comparing the cost per ounce of beans is, for many, not a recipe for a good time. The cost savings of single-ply toilet paper is just too abrasive for most (literally).

Don't get me wrong, frugality tends to come with some weird savings hacks that are the centerpiece of your friend's jokes. I have even heard of someone using industrial CO2 containers to make their own seltzer water. Frugal folks tend to be a pretty strange flock. 

If you are motivated by cost cutting and frugality on small ticket items, go right ahead, I won't stop you. 
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But if the idea of penny pinching on the little things drives you crazy then perhaps you need a much needed re-frame on your concept of frugality. 

"The Big Three" Expenses

1. Housing
2. Transportation
​3. Food.

For those of us who cannot tolerate the idea of skipping our latte factor items, there may be bigger fish to fry for you yet.

Saving on housing, transportation, and food is a hell of a good place to start. In fact, it may be the only strategy you will ever need.

Housing. Buy less house than you can afford, nothing more. Married with one kid and no plans for more? Why the hell do you need a 5 bedroom, 3 bathroom house? You don't. Be smart. Warren Buffet still lives in the home he bought for $31,500 in 1958.

Transportation. Don't buy a new car. Ever. It's really that simple. Buffet, one of the wealthiest men alive drives a midsize sedan, a 2014 Cadillac.

Food. Don't eat out. Split meals when you do go out. Cook at home a great majority of the time. 

My thoughts on "The Big Three" expenses

1. Housing
Show these guidelines to your mortgage or real estate professional if you have trouble computing a price range off of these numbers. 

Rule 1: Always buy less than you can afford

• Do not buy a house that you cannot put at least 20% down on immediately
• With a 20% down payment your mortgage payment- including property taxes- should be less than 30% of your after-tax take home pay on a 15-year mortgage
  • You can still choose a longer mortgage duration but you will use this for assisting with finding your price range.
• Avoid PMI at all costs by making, at minimum, a 20% down payment

Rule 2: Purchase all necessary insurances - don't skimp on these! 

• ​Homeowners insurance
• Additional Disaster insurance (if applicable based on your area) - flood, hurricane, earthquake

Rule 3: Buy a house with at least 2 bathrooms - the more bathrooms in a home the better the resale value

• Consider avoiding a mortgage broker if you expect to take the full 30 years to pay off your home since their fees are often over the life of the entire loan. Instead use a brick and mortar lender such as your bank.
  • Mortgage brokers actually tend to save you a ton of time compared to dealing directly with brick and mortars.
  • My personal strategy: I likely will always use a mortgage broker for two reasons:
    1. The time savings
    2. I plan to pay my house off very quickly so the lifetime loan fees that a broker charges will be minimized

​Rule 4: Always get a termite inspection and order a plan that covers treatment.

• ​Nothing ruins a quaint home like these guys.

2. Transportation
Rule 1: When it comes to cars, buy used. Never buy new due to massive depreciation as soon as you drive it off the lot.

• I prefer the $5-7k range with less than 100,000 miles. This appears to be the "sweet spot" for durability and cost savings. These vehicles have already taken a majority of there depreciation and you can often resell them, for cash, and recover most of your money when you are finished with it.

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Rule 2: Bike or walk more often. If you cannot bike or walk, combine your trips to save gas and mileage on your vehicle.

• Not only does it save on gas but it makes your car last longer because you are keeping the mileage down. Those little daily trips down the road to the gas station can add up to thousands of extra miles on your car every year.
• If you cannot bike or walk, consider combining trips instead of making several different small runs. Again, the miles can add up significantly over the course of a year. 

​Rule 3: Shop around for more affordable car insurance.

• ​I am amazed how simple it is to save money by calling around, yet nobody ever does it. Make the call.​ Don't push it off any longer.
• If you like the plan you have, consider raising your deductible as this will lower your premium. Plus, if you buy a vehicle based on my guidelines above, parts are very affordable for vehicles in that price range and you can do a lot of the labor yourself.

3. Food.
Rule 1: Drastically reduce, or eliminate, dining out and take out orders.

• I am still a big advocate for date nights and going out with friends, but consider the choices you make. Here are some easy ways to cut back you expenses while still enjoying a night out:
  • Limit alcohol consumption - this can lower your bill by 20-50% depending on your drinking habits
  • Consider splitting an entree - my wife and I do this all the time
  • Order a salad instead of always getting the filet

Rule 2: Cook at home.

• This obviously lends to my first point, dining out less.

Rule 3: Buy in bulk. Especially buying and storing the following:

• Spices and Salt - I buy these on Amazon
• Frozen foods
• Canned goods
• Snacks such as:
  • Walnuts, almonds, pecans, cashews, etc. Buy these in bulk for cheap on Amazon.

If you happen to know you need a budget, but cannot see yourself trading in your 2-ply toilet paper for 1-ply to save a few Shekels, then focus your efforts in these three areas.

Comment below on how you have saved in these areas.