January 15, 2018

The Top 5 Expenses In Life to Save Money

Jordan Linville

In Budgeting Apps, Personal FinanceAdvertiser Disclosure

Every website, blogger and book that discusses financial health also talks about reducing your expenses.  Many talk about coupons, promo codes, and DIY ways to save money.  However, when you look at the expenses of the average American household, the majority of money is spent on:

RECURRING EXPENSES

These are expenses that you pay each and every month.  Your rent or your mortgage is usually the biggest one.  That’s a tough one to change quickly – though one that you should absolute be evaluating.  In this article, we highlight 5 expenses that most U.S. households pay each month and how you can save money on each.  You don’t need to eliminate them or even reduce them drastically.  Because they are recurring expenses, shaving off just $20 on one category saves you $240 per year.  And across all 5 categories, we’ve seen people quickly reduce expenses by $200 or more each month, and that adds up to significant savings.

1. Car Payments
2. Cable
3. Phone
4. Gym Membership
5. Eating Out

Let’s talk about each and the resources, ideas and websites where you can save on them.

Car Payments

When Sam Walton died in 1992, he was the wealthiest man in the world.  Below is the Ford 150 that the multi-billionaire drove for almost 15 years.  Like Sam, don’t think of your vehicle as something that will make you look good or feel good.  Look for the best value, and buy it used.

Think of your vehicle as getting you from point A to point B.

How would you like to put an extra $28,800 in your pocket over the next 5 years?  That’s what the average American can do by not taking out a loan for an expensive car.

According to the most recent data, the average American’s loan for a used car was for $19,126 and the average loan for a new car was $30,534.  These loans are typically about 65 months long (5.5 years) and at a 4-5% interest rate.  Meaning, the average American pays:

Car Loan Monthly Payments

Used car:             $332 per month
New car:              $503 per month

If you have a car payment, it’s probably not these exact numbers.  But it could be a significant % of your monthly household expenditures.  For anyone trying to improve their financial health, here’s one simple tip: do not purchase a new car.  It loses 30% of its value the day you drive it off the lot.  With an average new car purchase price of $30,000, does it make any sense to lose the equivalent of $10,000 in a day?   No.

It’s much smarter to buy used, but the data shows a problem here, too.  There is usually a down payment on a used car, so this means that the average used car with a loan on it is over $20,000.  It’s very possible to find a well-working, 6-8 year old car SUV or sedan for under $10,000. Check out CarGurus, which makes it easy to look in your area and filter by price, make and model.

If those same people who had taken out a loan on a new car had – instead – financed a $10,000 used car, they would be saving $330 per month.  That’s $3,960 per year.  After 5 years, they can likely sell that car for $3,000 less than they purchased it, rather than $12,000 less for the new car.  There you have it.

($330 x 5 years) + $9,000 = $28,800 in extra cash over 5 years.

Cable

The phenomenon of “cord cutting” is nothing new.  For the last 10 years, consumers have been canceling their cable services in favor of Netflix, Hulu, an antenna, or nothing.  No one is saying that you can’t watch TV or have any relaxing time.  Just realize what that relaxation is costing you, and that many people don’t miss cable once they downgrade.

The average cable bill is has been rising every year since 2010, and it’s expected to continue.  As of this writing, below are the average monthly costs for various entertainment options:

• Cable TV:                 $99
• Direct TV: $82
• Hulu: $8
• Netflix: $11
• Digital Antenna: $60 (one-time)

My canceled its cable bill in 2005, and we haven’t looked back.  I now pay for both Hulu and Netflix for a total of $19 per month, and I’m still saving almost $1,000 per year.  I also purchased the Leaf Antenna ten years ago and it has worked shockingly well.  I don’t use it that much, but when there’s a big sports game on, I’m glad I have it.

If you cancel cable, will there be shows you miss?

Of course.  But ABC, CBS, FOX, NBC, CW, PBS, ION and many others are all available through a digital antenna now.  And Netflix has turned me on to documentaries and shows I would have never knew existed.  But what’s better than the cost savings?

Time.

I would have liked to sit in my living room and watch the College Football playoffs.  Instead, I bought a case of beer and watched the finals with a neighbor.  Not watching the semifinals gave me 8 hours of my life back, and I played with my kids and read a book (finally).  Outside of the extra cash you have each month, you may just find that the real benefits of cutting-the-cord is you time.

Phone

Remember when phone plans were cheap?  Remember when you would tell your friends, “Don’t text me!  I’m over my plan and it costs $0.25 per text?”  The good news is that we don’t worry about going over plan any more.  The bad news is that we just pay out the nose each month for that privilege.

The average monthly cell phone bill is $73, according to a recent J.D. Power report.  23% of smart phone owners have canceled their service because it has become too expensive.  The main reason that cell phone plans have increased is simple: data.   We are streaming more videos, listening to more music, and using maps more often.  And we don’t want to wait until we’re around wifi – we want it now.  On top of this, most of us pay $600 for an iPhone or similar device.  And yes, even if your mobile phone carrier splits this up into small monthly payments, you are still paying it.

So if you cannot or will not switch back to a flip phone, how can you save money on your phone bill?

1. Join a family plan

Most carriers’ family plans allow for five users.  If it’s just you or you and a partner, chances are that you know some other couple.  Paring up on the same bill will likely decrease your totals by more than 50%.  Are you worried about seeming cheap if you call up a friend and ask to be on the same family plan?  Fine.  Make it fun.  If you guys all save $400 this year, use $100 of it to buy some nice wine for all of you and have a Cell Phone Party.  Or just risk seeming cheap – there are worse things.

2. Wait for wifi

This is tough, but moving down a level in your data plan will save you at least $20 per month – maybe more.  The biggest culprit of data is video, and the biggest usage of video is YouTube and Facebook.  If you go into your phone’s settings, you can change your browser app (i.e. Safari or Chrome) and your apps so that they will not stream data – they’ll only use wifi.  This will help keep you from inadvertently clicking that link that has a video playing.  Also, not checking your phone whenever you have a spare 5 seconds is actually a great habit to get into.

3. Use airplane mode

It’s very common to be at work or home or someplace where you think your phone will automatically connect to wifi.  You’re streaming music and videos, checking email, checking Facebook, and whoops….it’s all on your data plan.

Putting your phone in airplane mode will ensure that absolutely zero data is used.  This is important for your data plan usage, but it’s also just as important for your ability to focus.  Smartphone addiction is a real thing, and even if you don’t meet the definition of “addicted,” almost all of us are checking constantly and destroying our ability to focus.  Inability to focus has a direct correlation on productivity.

4. Change your app settings

If you go into your settings on either Android or iPhone, you can go to “Cellular Data.”  Here, all your apps will be listed, and you can turn off data for any of them.  Some apps like Maps are used in the car where you don’t have wifi, so it makes sense to leave them on.  Others like Uber and Yelp are also often used on-the-go.  But many are not urgent apps or ones that can’t wait until you’re back on wifi.  Click them off, and you’ll avoid inadvertently using them while on your data plan.

Gym Membership

Gym membership varies drastically, starting as low as around $15 per month and going up to +$100.  Gyms like Planet Fitness are cheap and only stay in business because they correctly assume that 80% of their members will only show up once per month or less.

Whether you are showing up at the gym every day or never, this is for you.  Try a home workout like high intensity interval training (HIIT).  This can without any equipment and for as little as ten minutes per day.  Studies have shown that for many of us, it’s more effective than going to a gym.  And it’s both cheaper and more time-effective.  Alternatively, you could try Les Mills On Demand or another online paid subscription.

If you’re in the best shape of your life and using your gym membership – ok, maybe this section isn’t for you.  But if you’re using a very expensive membership or just not using the one you have, consider trying out at-home workouts for a few months.

Eating Out

Eating out is not a subscription recurring expense like the others – it won’t bill automatically to your debit or credit card.   But most of us do consistently eat out every month.  And we’re doing it more and more.  In 2016, sales at restaurants passed sales at the grocery store for the first time.

So is it really that much more expensive to eat at a restaurant?

Yes.  On average, eating out is 3x more expensive, and it’s getting more expensive.  The average U.S. household spends $7,023 on food each year.  Let’s just suppose that half of this was from eating out, which would be pretty accurate given the figures by Bloomberg.  By packing lunches and not eating at restaurants, the average American household would save $2,340 each year.

It’s also healthier.  Even if you avoid fast food, people almost always eat more at restaurants and tend to eat unhealthier.

In Summary

The most important thing is to track what you are spending.  Even if you don’t change any of your spending habits immediately, simply seeing what you spend in different areas will offer you information that can help you determine where to focus.

Maybe you never eat out.  Maybe you found a great deal on a very sensible car and paid cash.  That’s great!  Just make sure you know where your money is going, and only then can you start keeping more of it.