Most people try to save money by focusing on smaller expenses. They shave 5 percent off their grocery bill. They don’t order a Coca-Cola at lunch. They purchase a cheaper pair of socks instead of going for the more expensive ones.
These are easy ways to save, because they don’t require much planning, effort, or risk. However, these aren’t effective strategies for improving your bottom line, growing your net worth, and improving your financial situation.
If you want to take your finances to the next level, focus on the four biggest expense categories: taxes, housing, transportation, and food.
For most people, the four categories I just named constitute the vast majority of your bills.
It’s common for both housing and taxes to consume between 25% to 30% of a person’s income (each). That means these two categories combined consume between 50% to 60% of your earnings. Saving money in just these two areas can make a massive and substantial difference on your bottom line.
How to Save Money on Taxes
The best way to save money on taxes is to meet with a tax professional.
I’m not talking about using a cheap tax service that makes its money on volume. I’m talking about going to a licensed professional who specializes in giving clients advice. Yes, you will pay more for this service, but think of it as an investment.
If your tax professional does her job well, you’ll likely see a return on your “investment” that’s much higher than anything you could get in the stock market.
For example, if you spend $300, $500, or even $1000 on tax advice, it’s possible that you may see returns that are double or triple the amount you paid. You’ll also be assured all your write-offs are legal and legitimate.
How to Save Money on Housing
No matter where you live, housing is priced per square meter or square foot. Of course, prices per square meter or square foot vary wildly, depending on the neighborhood you’re in. There’s a direct correlation between the size of a space and its ultimate cost within the same neighborhood.
The two best ways to save money on housing are living in a smaller space, and living in a cheaper neighborhood.
Living in a smaller space might be the better of those two options. Why? Because living in a cheaper neighborhood comes with additional trade-offs.
First, there could be higher crime rates. You might need to install a security system, which is an added cost. You may also lose money in terms of resale value and appreciation potential. The cost of items that get stolen has to be factored in, too.
Second, cars are typically needed in cheaper locations, as they don’t tend to be walkable neighborhoods. This increases your transportation costs, which brings us to the third expense that consumes people’s budgets: transit.
How to Save Money on Transportation
The best way to save on transit is to live in a walkable neighborhood. You might have to sacrifice space or size in your dwelling, but it’s worth it.
Being able to walk to places drastically reduces the cost of transit, especially if you can walk to work.
Depending on how walkable your neighborhood is, you may not need a car at all. If you end up going out of town on a long trip, you can always hire a car service (Zip Car, Car2Go).
How to Save Money on Food
Finally, focus on reducing your food costs. I’m not talking about clipping coupons for milk at the grocery store. I’m talking about reducing the amount of money and time you spend dining at restaurants.
The occasional restaurant visit is a nice treat, but dining out too frequently can severely harm your bottom line.
Taxes, housing, transportation, and food are the four biggest expenses you’ll face. It only makes sense to reduce your monthly overhead in these four areas. You’ll be left with additional wiggle room in your budget to pay off debt, build your savings, or splurge on something nice that’s been on your wish list.
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