In today's world, it is so easy to spend. Banks and credit card companies exist for the primary purpose of making your spending easy so that you will spend more. Whether you want a house, car, or the latest designer shoe, there are so many things people overspend on.
When you're just starting out on a budget, it's tough to figure out exactly how much you “should” be spending on each thing.
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You may be surprised to find that there are some big ticket items that are really cramping how much you have to save and spend each month. I've put together the top 6 things that people regularly overspend on, and, of course, ways to do it better!
I’m starting with housing because it can really sink your financial ship.
People justify overspending on housing many ways. I have to have a roof over my head. I spend so much time there, I just want to enjoy it. I want to live in a safe neighborhood. I’ve heard it all.
You do have to have a roof over your head, and you should enjoy the time at your home in a safe neighborhood. But all of that can be done affordably.
Most financial experts say that housing should be less than 30% of your total income, whether you’re renting or paying the mortgage.
I’m going to take that further and say ideally, housing will be less than 10% of your budget. However, you may need to raise your income to make that happen. >> Click here for my step-by-step guide to ask for a raise
I personally have my housing expense at 8% of my income. But, I know people whose housing is free because they’ve moved in with their parents or they have roommates and their rent pays the mortgage.
Getting your housing expense right is so important because it frees up the rest of your money to be saved and invested.
How to do it better: With all things real estate, the location and the size of the home is going to determine the price. First, try to find the least expensive neighborhood that is in a safe community. Look for working class neighborhoods where people take care of their property. Bonus if kids play outside… who’s going to rob a house with kids playing in the yard next door?
Next, evaluate how much space you actually need. Ask yourself questions like: Do I really need a separate office, or does a multipurpose space in the kitchen work just as well? How many hotel rooms can I rent for out of town guests, for the cost of the guest bedroom?
Last, everything is negotiable, including housing expenses. Try negotiating your rent amount with your landlord if you’re planning on staying for more than one year, or if you pay a lump sum up front. If you’re in a mortgage with high interest, but you’ve improved your credit, see what the costs would be to refinance.
Cars are a tough buy because, if it’s your daily driver, it’s virtually impossible to call your car an asset. That’s because mileage causes car values to depreciate quickly. The more you drive, the less your car is worth, and if you drive it long enough, your car will only be worth the whatever parts are still functioning.
There many ways to buy a car, but I’ll stick to the 3 most common that everyone has access to. I’ll list them off in order of worst to best:
Buying New from a Dealership
I’ve heard a lot of reasons why people buy new from a dealership. I know the maintenance of the car, because I’m the only one that owned it. I don’t like to deal with the hassle of repairs, so I want the warranty.
If you haven’t heard it yet, there’s a common phrase that when you buy a new car, you drop almost 10% the moment you drive it off the lot. That is pretty much always true, and I just want to test the math of the “benefits” of buying new.
If you buy a $25,000 car brand new, versus if you buy the same car 1 year later, for $22,500 (10% less, because it has 15,000 miles on it). If you buy used, you’ve saved $2,500, and you gave up 1 year of use. Now, at 1 year old, you probably won’t have any car trouble and other than standard oil changes, I’d be shocked if you ever had to take it in. But, just in case you did, you’d have to spend more than $2,500 to be worse off than the guy who bought it new, and that’s assuming the warranty didn’t cover it because it didn’t transfer. Just sayin’, it doesn’t play out to buy it brand new.
Buy Used from a Dealership
When buying a car, there are a few advantages to buying used from a dealership instead of a private seller. First, and the reason why many people (including my first car purchase) go to dealerships, is that they can offer financing. Typically, it’s much more of a pain to get a bank to finance a car purchase unless it’s a dealership.
Second, dealerships can offer you the confidence that the warranty transferred, and reputable dealerships won’t sell salvage titles and may have inspected the car to make sure it’s not about to have some sort of catastrophic repair. (If they’re going to send you on a test drive, they don’t want the brakes to fail).
However, dealerships have some pretty heavy overhead that they have to cover, so you won’t get the best deal. Plus, when it comes to car shopping, nobody likes dealing with car salesman.
Buy Used from a Private Seller
The best way to get a deal buying a car is looking for private sellers. Private sellers could be an estate, selling grandma’s car, or someone that’s downsizing, buying another car, there’s a million reasons.
There are a couple of things that you’ll need to be able to buy from a private seller. First, you’ll probably have to be able to pay for the whole car in cash. Financing a private seller purchase, is fairly difficult. Second, you’ll need to sharpen your buyer awareness.
How to do it better: Companies have recognized that buying a car was a pretty difficult process. Today, the best place to start car shopping is on the internet. I use Edmunds.com to start researching for models that are safe, reliable, and the cost of repair is affordable. To see how I make sure a car will be reliable, Check out this Article about How to Choose a Reliable Used Car.
Next, you’ll want to be armed with a few strategic questions about the car when you approach a private seller. You need to find out how well the car has been maintained, who has been the primary driver, how long they’ve owned it, etc. I like to ask things like: What was the last repair you had to make to the car? Where did you get the car from? What do you do for a living? (Wealthy people statistically take care of their cars better, and really the point is to get them talking so they feel comfortable telling you more about the car you’re looking to buy).
Last, ask to take the car to a mechanic that you’re comfortable with. Ask the mechanic to look over the car, make sure they check the belts, brakes, transmission etc. all looks good. You may have to pay your mechanic a small fee, but this could save you tons of time and money down the road, if the car has some issues. Further, these issues are not necessarily deal breakers, they can be negotiation points. Say the car needs new tires; that could knock $500 off the price.
Shopping habits are tough to break. People get into them for a million reasons. I just need to get out of the house. I have nothing to wear. Nothing in my closet fits.
Trust me, I’m a 100% about being comfortable in what you’re wearing. If you’re not, it can just ruin a day. But that doesn’t have to come at the cost of your financial ruin.
First, let’s talk about 3 ways to know your shopping habit is kicking your budget. If you’re shopping and not paying off your credit cards every month, you have to cut back. If you’re not saving 20% of your income every month, you have to cut back. If you’re missing payments on things like utilities, car payments, mortgages, or rent, you have to cut back. But I won’t leave you without solutions for this problem.
How to do it better
Borrow it: I personally love the idea of borrowing your clothes. I grew up with 2 sisters and we were in each other’s closets constantly. We wore each other’s formal dresses all the way down to t-shirts, and it kept our wardrobes fresh and our expenses low.
If you don’t have friends that are close to your size, try hosting a jewelry swap. Everyone should bring at least 5 pieces that are current with the trends and in good condition. Then you can trade out some of the pieces you’ve worn too much!
Rent it: I got this idea from a friend whose daughter rented her formal dress from RentTheRunway.com. These days, there are websites that will let you rent everything from wedding tuxedos to festival outfits to formal gowns. You can wear designer looks without having dozens of outfits you can only wear once cluttering your closet racks! If you’re looking for some places to rent, here’s a few of my favorites:
Capsule it: There’s a fabulous new concept called a Capsule wardrobe. Basically, you pick a few basic pieces and a few pieces that make you feel fabulous mix them up to create over 20 outfits, and then wash and repeat your cycle of outfits. There’s a fabulous article on capsule wardrobes you can read here: How to Create a Capsule Wardrobe
Limit it: One of the most common reasons people say they shop is to get out of the house. I get it. If you’re not getting out enough, it’s so easy to feel lousy in today’s Facebook frenzied world. But remember, there are so many ways to get out of the house that don’t require you to spend money.
Instead of going shopping, go to the park, go to the gym, have a friend over for wine. Here’s a list of totally free activities that you can mix and match to make you feel social. If you still need to feel like you’ve got fresh items in your wardrobe, I recommend Stitch Fix, because they’ll send you items straight to your door, so you’re not out browsing the racks, and coming home with way more than you can ever wear.
Oh the places you will go. Travel is one of the best things about the 21st century. It’s never been easier, or more accessible, and I believe it will only get better. People want to see the world first hand, not read about it in the news. And I support your urge to travel 100%.
It is tempting to live a life of luxury when you’re out of town. You work hard, so you play hard… but it doesn’t have to be that expensive.
How to Do it Better: Before you book any vacation, see if there’s a way to do it for free (or for less). Do you have flexible travel that you can book a standby flight? Do you have flexible days that you can book a less expensive flight?
There are even more creative solutions: My husband teaches tennis for a living, and he can even get us free nights at resorts with tennis facilities if he will be available to teach tennis from 9-noon each day. That’s a pretty easy day, plus he gets a little workout in before we drink and eat our vacationer’s diet! I’ve even heard of resorts giving people with large Instagram followings discounted room rates!
Another great way is to bundle your trip. I have found great deals on flight, hotel and rental car packages through Apple vacations, and it’s nice to have a company that uses reputable vendors across the globe.
My favorite way that everyone has access to is through points programs. Whether you like to use credit or debit cards, there’s a points program out there that will benefit you. If you’re a credit card user, frequent business traveler or use sites like Ebates, you have access to points programs that can get you great deals. I follow The Points Guy to see if there are any deals out there
School is expensive, no matter what route you take. Aside from paying money for school, many students also choose not to work, and the lack of earnings means that they have to take out loans for their living expenses as well. That’s why so many graduates find themselves facing a huge student loan debt that they think they’ll never get out of.
Hopefully a payback involved on the other side of the degree. However, many graduates find themselves in careers that are not at all based on the degree they received in the first place. So, if there’s ways to make it higher education less expensive, wouldn’t you like to try?
How to do it better: Did you know that there was over $2.9 Billion in federal grant money that was completely unused in 2014? There’s probably some equally devastating number in scholarships, but it’s hard to quantify because there are so many independent scholarships.
Here’s the thing: people want to give you money to educate yourself, so even if you don’t have a 3.0 GPA, make an effort to apply for grants through FAFSA and as many scholarships as you can find. If you can’t figure out where to start, call the financial aid office at your choice of schools.
Another way to make your education less expensive is to strategically take classes that are less expensive. I found that an online class through my local university was actually less expensive than an in-person class, and I could maintain my full time work while taking 3 courses because I could fit the courses into my schedule.
In undergrad, I was able to take classes at a junior college and transfer the credits to my state university. The junior college classes were less than half of the cost, and I was able to focus more on my in-major classes while saving money.
Housewares & Tools
When it’s time to fill a house with all the things that you need, it’s so easy to go overboard. You “need” that set of pot holders, because the ones your mom gave you just don’t match your kitchen. You “need” that new lawn tool, because you broke the one you used in college.
How to do it better: First, ask yourself if you can make do without. I don’t mean that you’ll have to go out and “mow: your lawn with scissors, but can you reasonably do the same task without buying a new tool? There’s definitely a huge amount of convenience for having the right tool for the job, and when that’s the case, ask yourself: is there a way to borrow or rent the same tool?
Second, I’d like to introduce you to the concept of Buy It For Life, or BIFL. This is the concept that you’ll buy the tool once and it will last you a lifetime. Whether it’s just constructed that well, or it’s protected by a lifetime warranty, buying an item that you never have to buy again can pay off big over a lifetime of use.
Those are my top 6 places people overspend. What other ways have you found to cut back? Leave your answer in the comments!
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