A large portion of advice in the personal finance community focuses on daily spending habits and cutting “lattes” from your budget, but is that the best approach?
In the big picture, $20 at a restaurant impacts your budget the same as $20 on rent. The important factor isn’t a specific category of expenses, but your total combined spending for the month.
The purpose of financial management is to help you maximize the value of each dollar you make. It shouldn’t add more stress to your day. So instead of harping on every little item, focus on the big wins so that you can enjoy flexibility with everything else.
3 Major Expenses
When you break it down, the 3 big ticket items in your budget are probably housing, transportation, and education.
A home is the biggest purchase most people ever make, and there are huge deviations in purchase prices. If you want to add a tremendous amount of freedom to your life, then buy a home well below a price that you could theoretically “afford”.
Not only does this save you money on the initial purchase, interest payments, and property taxes, but you will also create a snowball affect impacting every other category of your budget. When you live in a cheaper neighborhood, you won’t face as much peer pressure from your neighbors to spend more in other categories.
Your vehicle is the second of the big 3. What’s the key to lowering your transportation costs? Don’t view your car as a status symbol! Use it as a method of transportation. Focus on comfort, reliability, and cost efficiency.
Even though you might only spend money on your education during a 4 year period, it can still impact your financial situation for decades. If you have yet to attend college, or if you have kids that will soon be going to college, make sure you carefully consider the financial implications.
Don’t dive into a private university with outrageous tuition simply because you get accepted. Evaluate the cost vs return on your educational investment because avoiding excessive student loan payments can free you up in every other part of live for years to come.
If you can control these 3 spending categories, then you open up new opportunities all over the place.
Saving $200 a month on your rent could cover a foreign trip for you and your spouse.
Cutting your transportation costs could free up room for season tickets with your favorite sports team, an annual hunting trip with your buddies, or a weekend with the girls in New York City.
Avoiding years of student loan payments could mean maxing your IRA contributions sooner, opening up the possibility of early retirement.
What would you do with the financial freedom created by tackling the big 3? Leave a comment below and let me know!