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Three Major Ways to Save Money

Luca has a Bachelor of Science in accounting and finance and years of experience as a tax accountant, including management experience.

Counting Pennies

We all know that clipping coupons can save us a few dollars on our grocery budget each month. Bumping our thermostats up a few degrees in the summer and down a few in the winter can slightly lower our utility bills. Analyzing credit card rewards and new account bonuses with different banks can provide a little extra cash, if you can remember where you are keeping it all.

If you are anything like me, though, you read articles about these totally valid ways to save money and wonder how much hassle and time each fifty-cent saving you might win is really worth.

Saving money doesn't have to be a hassle.

Saving money doesn't have to be a hassle.

Don't misunderstand me. Coupons and lower utility bills, sale flyer searches, and Craigslist furniture are some great resources. I am a huge advocate of saving money in the little things, but you can sometimes take these initiatives too far.

My Experience: A Painful Way to Save Just a Little Money

When I first graduated college, I rented a house with two other roommates. We were all just starting out and trying to watch our expenses, and for a few months all seemed to be going according to plan. Unfortunately, we were approaching winter so the weather started to get colder. Our utilities had been fairly steady for the first months, but suddenly one month our electric bill jumped to $300.

Since cost of living for your geographic location and house/apartment size can skew your perspective on what a normal utility bill should be, let me just say that this was significantly higher than the previous bills had been. In response my roommates decided to turn off the heat to save money. Like any rational, intelligent reader, you may be thinking that the same month your utility bill has skyrocketed because your furnace is working overtime is probably not the month to turn off your central heat. If you were thinking that, you are absolutely correct.

Those were a miserable couple of weeks before my roommates gave in and turned the heat back on. I remember working later at the office than I really needed to in order to stay warm a little longer, wearing my coat and gloves in the house, and not being able to feel all my appendages because it was so cold. I would check the weather every evening hoping that each would be the night the forecast would call for temperatures below 40 degrees so I could insist that we turn the heat back on in order to save our pipes from freezing.

In that situation, we did save some money on our electric bill, but even turning our furnace completely off didn't reduce our utilities by more than $100. Split among three roommates, all that cold was endured to save less than $30 per person. This is an example of a too-painful way to save too little money.

The problem with living frugally is that the process of not spending money you may want to spend is not always worth the end result of having a larger disposable income.

Counting Hundreds

Instead of searching for all the small ways that you could be saving money, why not shift your focus to three ways that you could be making major money savings every month: housing, transportation, and clothing.

This just makes sense if you think about it. As a human with limited resources and time, would you rather focus your efforts on shaving 10% off your $200 grocery bill or trying to save 10% on your $1,000 housing bill?

Three Areas to Focus on When Saving Money

  1. Housing
  2. Transportation
  3. Clothing

As a human with limited resources and time, would you rather focus your efforts on shaving 10% off your $200 grocery bill or trying to save 10% on your $1,000 housing bill?

Housing is the largest monthly expense for many people.

Housing is the largest monthly expense for many people.

1. Housing

For many people, housing will be their largest monthly expense. Because of this, when looking to save major money, housing is one of the most obvious places to start.

Choose Low-Cost Housing

It is pretty easy to save on housing, and I would say that—second only to making it through college debt-free—choosing low-cost housing options has been the best source of money savings in my life. It is easy to choose to live in a place with cheap rent or that will give you a smaller mortgage payment. Instead of renting the $1,000 apartment, opt for one that is $900 or $800 each month instead. This may minimally affect your everyday life, but will save you a lot in the long term.

Get a Roommate

If you are in a life stage where you can easily add a roommate or two to the calculation, we also encounter a fun math concept called division. Instead of paying $900 for the apartment you found, suddenly you are paying $450 when you put a roommate in the second room. Or maybe you decide that you want to upgrade to renting a nice $1,200 3-bedroom house with plenty of room for you to never have to see your roommates. Now you have two roommates, but you are living in a nice house for only $400 every month.

Pros and Cons

Sure, roommates can be annoying sometimes and you may be a snob about the neighborhoods you want to live in, but with the $600+ a month you could save by choosing a cheaper living situation you can go on multiple vacations every year (away from those roommates) or make a large down payment on a house of your own in just a few years. Plus, often our definition of a dangerous neighborhood is often just a neighborhood where you probably don't want to be walking around by yourself at night. Is that really a need of yours?

There are a few ways to lower your transportation costs.

There are a few ways to lower your transportation costs.

2. Transportation

At first glance, transportation may seem an annoying category to cut expenses in, but the truth is that a car payment is such a major expense in your life that you need to seriously consider the price you would pay to drive the most convenient, trendy vehicle you can find. If your goal really is frugal living so that you can have more financial independence for other things in life, you should consider ways that you can cut your transportation costs.

Avoid Leasing a Car

Let me go ahead and get this out of the way: You shouldn't be leasing a car unless having a nice, new car every year or two is more important to you than using that money for anything else you could possibly think of in life. If you are currently leasing a car, congratulate yourself that you are probably losing the most money you possibly could on a car. Like I said, if having a new car every couple of years is what is important to you and how you want to prioritize your money, then by all means do that. You probably don't really want to be reading frugal living articles anyway.

This is very similar to housing, except that you can't effectively share a car. You really have to do some soul searching and determine if having a super nice car is more important to you than your money goals.

Choose an Older Model

However, when looking at cars consider how much money you can save just by going a year or two older on the vehicle in question. While a car a year younger may last a year longer than the next older year available, are you really paying for only the one year more of use you will get out of it?

3. Clothing

Clothing may be a little less major than housing or transportation, but every time I go clothes shopping I am a little amazed at how much you can pay for just one article of clothing.

Be Careful How You Justify Spending on Clothes

Don't think that I am here to completely judge every single clothing item you purchase. Sometimes you have to spend money. Shoot, I just bought a $300 bridesmaid's dress. However, I think people justify spending a lot of money on clothes by saying that they are going to get more use out of better quality clothes.

I would like to ask you to at least think about the math, though. How much longer does a $100 dress have to last compared to a $10 dress to make it worth the extra $90? At least 10 years? I don't think that is often going to happen. Of course everyone has different needs, but you should consider those carefully before you continue your current clothes shopping habits.

Identify the Most Important Items to Buy—and Only Buy Them on Sale

For example, in my job I have to look presentable. Because that is important to me and it is hard for me to find trousers that are not outdated and fit my short frame at thrift or cheaper stores, I personally buy most of my work pants new from nicer stores. However, I still always wait until they go on sale for at least 50% off as that seems to be a fairly frequent occurrence. But just because I buy work trousers new doesn't mean I have to buy everything new. I get a lot of my work shirts and casual clothing from low-end or discount stores.

Choose Your Spending Lifestyle

At the end of the day, you have to evaluate your lifestyle and priorities. Based on that, you will find what areas are best for you to try to save money in. I personally like to save money on my most major purchases so that I don't have to worry about every cent I spend on the frequent small purchases of life. But for others, this approach may not make as much sense.

How about you? Where do you focus your money-saving efforts? Answer the poll or comment below and let me know your thoughts!

Polling Time

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2019 Luca Pacioli