How We Minimize Our Big 3 Expenses

How We Minimize Our Big 3 Expenses350 Do you want to achieve financial independence and retire early? The first step is to save a large portion of your income. Personally, I recommend trying to save 50% of your income. That way, you can FIRE in a reasonable time. Saving 50% is pretty difficult, though. You need to minimize the big 3 expenses to have a chance. Also, we all start small. Once your active and passive income increase, it’ll be much easier to save 50%.

Big 3

For most households, the big 3 expenses are housing, transportation, and food. These three categories can take up a huge percentage of your income. Housing in particular is getting more expensive every day. It’s the biggest problem for many of us. Transportation expense is better, but it really depends on how you handle it. Some people enjoy expensive rides and they don’t mind spending money on their personal vehicles. However, you just need a safe and reliable vehicle. You can get that without spending a huge amount. Food is actually very affordable in the United States. However, it can be a big problem for lower-income households. Healthy food can take a large percentage of your income if you don’t make much.

The RB40 household is doing quite well with all 3 categories. Let’s take a quick look.

Big 3 expenses

*From the U.S. Bureau of Labor Statistic – Consumer Expenditures 2019

Wow, that’s better than I thought. There is one thing to note. Our household income is about twice as much as the average income. It’s easier to keep the percentage low if the denominator is higher. However, many high-income households still spend a huge percentage on the big 3. When you make more, you tend to spend more. It isn’t easy to stay frugal when you make more income.

Let’s go through each of the big 3 to see how we manage to stay way below average.


We spend about $1,400/month on housing. This includes mortgage, property tax, insurance, utilities, repair, and maintenance. That’s not bad for a high cost of living location like Portland, OR. The way we managed to keep our housing expenses down is shared housing. We live in a small duplex and rent out one unit.  This duplex is a 2-story home that was divided into two units sometime in the 80s. One unit is a bit small for a family, but it’ll work for now. Our son is still young so we can manage. His “room” is actually an office/den. It’s okay for now, but I’m sure he’ll want more privacy when he’s older. We plan to take over both units when he’s in high school*. Our housing cost will double at that point. You can read more about our duplex here.

*I didn’t get my own room until I was a junior in high school so I don’t feel bad for our son at all.

The easiest way to reduce your housing expense when you live in a high cost of living location is to share housing. You can buy a house and rent some rooms out or the other way around. I believe the kids call it “house hacking”, these days.


Housing expense is difficult to reduce because it largely depends on where you live. If you live in San Francisco, you’ll spend a lot on housing no matter what. On the other hand, the transportation expense is a lot more controllable. Many households choose to spend on nicer/newer vehicles because it’s important to them. For us, a car doesn’t mean that much. It’s just a way to get from point A to point B. As long as it’s safe and doesn’t stand out, we’re happy with it. Also, we don’t have a garage so we park in the street. A luxury car will get dinged up quickly and I’ll just get mad. For us, it’s better to have a modest vehicle. Here are 10 reasons why I prefer a cheap car.

Our current vehicle is a little minivan, a Mazda5. We purchased this vehicle in 2010 for about $17,500. We paid cash for it and plan to drive it into the ground. It’s been a good vehicle for us and I hope it lasts until RB40Jr goes off to college. We don’t drive much (5,000 miles/year) so the main expense is insurance. Even if I factor in the cost of vehicle purchase, we’d still be way below average in this category.


Wow, we spend more on food than transportation. That must be pretty unusual. We spend about $500/month on groceries and $100-$200/month on restaurants. The way we keep food expenses moderate is to cook at home. I cook dinner on the weekdays and Mrs. RB40 cooks on the weekend. This year we get takeout about once per week to support the local restaurants. I think this category is the easiest to control out of the big 3. Healthy ingredients are affordable and anyone can learn how to cook. Most of my recipes are very easy. You can check out my SAHD recipes page for some interesting Asian cooking.

Your Big 3

The average US household spends 48% of their income on the big 3 expenses. This makes it impossible to save 50% of their income. There are still other categories to spend money on – taxes, clothing, entertainment, healthcare, education, and insurance. Saving 50% of your income is hard. You have to put a lot of effort into it. I think you need to keep the big 3 under 30% to have a chance. Of course, FIRE is not a race. You can still get there if you don’t save 50%. It’ll just take a little longer.

In conclusion, track your expense to see what you spend money on. This will help you reduce your spending and hasten FIRE. Of course, you should also grow your income at the same time. Do both and you’ll achieve financial independence before you know it.

Do you know how much money you spend on the big 3? Share your percentage in the comment!

More about the big three.

*Sign up for a free account at Personal Capital to help manage your cash flow and net worth. I log in almost every day to check on our accounts. It’s a great site for DIY investors.

Image Credit: Aaron Burden

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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31 thoughts on “How We Minimize Our Big 3 Expenses”

  1. This is really cool. We budget every line income and expense line item but never considered calculated how much we spent in the “big 3. It looks like it’s around 30% (17% in housing, 2.5% in transportation, and 10% in food). Food is one area we are struggling to reduce our spending on.

  2. My breakdown of the bis 3 is:
    Total comp: 10.6k/month
    Rent: 1100/month (2 bed 1 bath, utilities another 50$, 11%)
    Food: 150/month (2%)
    Transport: 150/month (insurance + gas; 2%)
    Currently trying to keep monthly expenses around $1500 (successfully!) and since I’m deferring taxes on majority of my income through tax advantaged accounts my tax bill should be pretty low (est. ~15k total). Aiming for >70% investment rate for 2020 and 2021.
    Would love to find a SO or roommate to cut that housing bill in half but otherwise pretty happy about my budget 🙂

  3. Wow, I match your percentages almost exactly! I live in San Francisco but my housing cost is only 10% because I have rent control and moved here during the Great Recession. I don’t have a car so my transportation cost is 1% in a typical year, close to zero this year without the commute. My food cost was about 3-4% last year (and less than 2% this year since most of my restaurant splurging is when I’m traveling). I had never actually done this analysis, just looked at my overall savings rate. Thanks for inspiring me to crunch these numbers 🙂

  4. We are in our late 50’s and we spend less than 10% in three categories. However, due to our early retirement, we now have to pay $3100 per month on medical/dental/vision insurance, which is really outrageous. Frankly, I don’t know how average person can afford to pay such a high premium, so now I am considering a part-time job even though we are financially secured.

    • Oh wow, that’s a lot of money for healthcare. The last time I checked for us, it was around $600 for the 3 of us, not including dental/vision. At that rate, I’d rather live abroad. Hopefully, we’ll have some kind of healthcare reform soon.

  5. Joe, I’m with you. I firmly believe that FI (and a shot at RE) is heavily dependent on managing the big three. While a lot of mindset, routine, and discipline can come from the “latte factor”, much of the actual hard numbers comes from managing the big three.

    Looking at our last full-year budget (2019), we spent:
    1) Home: 49.8%
    2) Food & dining: 20.0%
    3) Health & fitness: 12.3%

    Auto & transport came in 4th at 5.1%.

    Those expense percentages are of our *total spending* for the year, which was about $41K.

    I’d have to look up some additional data to figure it out as a percentage of our income, but we probably saved somewhere around 70% last year.

    Nice reminder of how much The Big 3 tends to matter for most folks!

  6. Yes, the big 3. We live in a small townhome, own a honda fit, and prepare our own meals. But we do want a bigger home (actually an extra room) and an SUV after we’re FI.

    A big expense for us is actually our daughter’s daycare. She attends part time, and is still as much as our mortgage.

  7. One thing I’ve read several times and which I find to be true is that it is far easier to make one decision to buy a lower-cost house or a lower-cost car to save several hundred dollars per month than it is to constantly have to decide which thing you want that you aren’t going to buy because you can’t afford it.

  8. Yeah mine was, based on gross income: housing 2%, food 3%, transportation 1%. Taxes were the highest at 33%.
    We saved about 55% of gross income, or 80% of net.

  9. That’s cool that you can just expand out your living arrangements once you’re ready. That’s one big plus to living in a duplex!

    We were able to drop a lot of our costs down in general by moving to Panama. However, there are a few caveats.

    Our housing dropped significantly since we’re paying only $1,100/month for a higher-end fully-furnished place with almost all utilities included.

    Our transportation costs had also dropped since we don’t have a car here. We spend almost all our time walking. However, we ended up buying a 2012 Honda Pilot for about $12k when we went back to the States this past summer for a few months. That pushed our costs up for the year but now it’s just sitting waiting for us to come back (we took the insurance off of it).

    Our food costs actually went up though. Fresh fruits and veggies are cheap here in Panama but other things cost a lot more than we’re used to paying at Aldi or Walmart. We’re also dining out a little more but that’s much cheaper than eating out in the U.S.

    Overall, our costs for the big 3 are down quite a bit. It would definitely be a lot higher if we moved back and kept living the way we are now.

  10. …. I don’t have any idea!

    When DH was employed we were saving my entire income, so we had a savings rate above 50% (not counting big purchases like new cars and renovating the kitchen, which should probably be counted in present discounted value or something). These days… no clue. My plan is to start to pay attention once I have to start pulling money from savings into checking to pay our bills. I’ve refilled my gas tank 2x since Covid (once right at the beginning, once recently), so probably not much on transportation. Housing property taxes are like 10K. And we’ve been spending a huge amount on groceries, like $250/week (so, $13000 annual?). So, spit-balling, our regular required expenses aren’t huge.

  11. H-20%

    I’m slowly whittling away our big 3 expenses. We just refinanced our mortgage, and luckily my company loans me a truck to get to work and our other vehicles are all paid for. Our biggest problem is always the groceries. Food is super expensive here in the Bay Area, and if I don’t make a huge effort to drive far to get to a discount grocer for food, it usually ends up costing quite a bit for our family of 4.

    We do save 50% of our income. So we have that going. Nice post.

  12. Great post. We’ve worked a lot on our big 3 the past 5 years. We were definitely over 50% before, but I’ll have to take a look to see what the percentages are now.

    I’m glad you made the point about cheap food in the United States and the balance with health. I see it a lot with the families I work with. The food they have easy access to is not something that should be the main part of any diet. It’s another component of our health care crisis.

  13. Nice Joe, 14% is an incredibly low number for the big three. I’d have to do some analysis to get my own number and I know it would be low, but probably not that low. This year in particular with the pandemic my transportation costs are practically nil.

    And thanks so much for the highlight to my post – cheers!

    • You’re welcome! We’re in a sweet spot right now. When our son is a teenager, it’ll rise up to around 25%. Also, our income will drop when Mrs. RB40 retires. I guess we’ll see how it goes.

  14. We’re at around 24% with the split being (18/1/5). Our income is higher than most, so that helps keep the numbers small as you say. We are doing a 15-year mortgage, so our housing cost has been more than most. I just went to a refinance calculator and we could refinance the remaining at 30 years and cut it down about the same as our food costs. That would bring our big 3 down to about 11%, but we’d stuck there until 2050.

    Reducing the expenses of the big 3 is one of the most important things in personal finance. If you can get that right, so many other things can fall into place.

    • 24% is great! We’ll probably end up around there when our son is a teenager.
      Oh wow, 11% would be awesome. I need to talk to our credit union about refinancing too.
      Although, it’s a bit harder to get the best rate with a duplex and rental.

  15. You nailed it Joe. I was fortunate enough to have a company car for 16 years which really helped. Since retiring I bought a 4 year old Lexus (I do like cars?) for $15,000 cash but plan to drive it for a good 10 years and got out of the house business by renting a 1 bedroom apartment now. I don’t miss the hassles of home ownership.

  16. 15% housing
    3% transportation
    5% food

    I hadn’t looked at it this way before. The percentages didn’t turn out very surprising. For a comfortable house this close to DC, I’m pretty happy with our housing; the modest cost was sheer luck from buying at the bottom of the market. Our cars are 15 and 16 years old. And we got carryout both days this past weekend, but that’s a conscious decision to support businesses we love rather than a mindless expenditure because we’re lazy about cooking (I love cooking to the point that my wife feels needlessly guilty that I do so much of it).

  17. Well, I don’t own a car and I live alone. So both the transportation and housing department are pretty low. Now, with food I’m really off the chart. I workout a lot and that means eating a lot. Combine that with my natural appetite and you’re looking at a budget for a family of 4.

    Only for me.

    Oh well, I guess I make up for it in other places.

  18. Great post Joe! Back when I was working I probably spent about 25%-30% of my income on the “big 3”, but it varied a lot depending on my income level (which did fluctuate a lot).

    I tended to save anywhere from 40%-70% of what I earned. Yes, it varied a lot. I think the important part was that I was able to save consistently. I wasn’t saving then splurging on an overpriced vacation or fancy car. I invested it and never spent a penny. That was key.

    Save what you can from the big 3 and do it consistently. Do that and financial independence isn’t far away.

    • That’s great! Spending 25%-30% on the big 3 sounds just about right. That gives you a chance to save a significant chunk of your income. We spent more than that in our 20s because we weren’t as financially savvy. Luckily, we ramped up our effort in our 30s.


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