The 10 Biggest Expenses in Life and How to Reduce Them
We live in a capitalistic, materialistic society. The average American citizen will acquire debt before they hit their 20s and keep it for as long as they live. A lot of this debt stems from poor decisions and excessive spending, but many of life’s essential expenses will also drag you out of the black and into the red.
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Fortunately, there are ways to reduce these costs and potentially save you hundreds of thousands of dollars over your lifetime.
Funerals = $10,000
Funerals cost around $10,000 on average and if you live to a ripe old age there’s a good chance you will be tasked with paying for at least one of them during your lifetime.
Many of us are burdened with the cost of paying for funerals of parents and siblings following unexpected and untimely deaths; other times we’re forced to bury younger relatives who were financially dependent on us.
It’s a tragic fact of life and it can be a very difficult one to endure for multiple reasons. On the one hand, you want the very best for them. On the other hand, you can’t afford to cover the high costs that funeral homes charge and also want the process to go quickly so you can focus on mourning the deceased.
Some funeral homes use this to their advantage and have been known to push expensive caskets and services on grieving relatives. It’s a shameful practice considering the circumstances, but it’s worth noting that funeral homes are for-profit companies and have to think about the bottom line.
To save on funeral costs, encourage your elderly relatives to pay for funeral and burial insurance or to keep a little money back in the event of their death. You should also seek to negotiate with the funeral home and to make you’re not being oversold.
Weddings = $33,000
Weddings are one of the biggest expenses that don’t increase your net worth. It’s an expense used to celebrate togetherness and to create memories that, ostensibly, will remain with your guests forever.
In actual fact, the average adult attends three weddings a year and no matter how much money you invest in making yours special, your guests will struggle to differentiate it from those other weddings in 20, 10 or even 5 years from now.
The irony here is that a cheaper wedding is often more memorable because when you’re on a budget you’re forced to do things differently and that means memories of your wedding don’t merge with all the other weddings your guests have attended.
Swap the expensive wedding cake that no one likes for cupcakes or brownies; opt for a non-traditional wedding dress; switch the $12,000 to $14,000 venue for something more basic and fun.
Of course, many couples will insist that it’s all about them and not their guests, that as long as they create great memories for themselves then that’s all that matters. But if that was the case, you’d be enjoying a small gathering with your closest friends on a beach in the Maldives, as opposed to a mass celebration with people you barely like in a church in your hometown.
In fact, if couples focused more on their own desires and needs and cared less about appeasing a distant aunt or meeting the needs of a work colleague they barely know, they’d save money and have a better time.
College Education = $34,000
A college education is expensive. It’s why the average American has non-mortgage debt of nearly $40,000 and why many young adults have masses of debt before they even secure their first full-time job. However, it’s also considered a form of good debt, as it can potentially increase your net worth.
A few years ago, a study by Georgetown University found that college graduates earned $1 million more than their non-college educated counterparts throughout their lifetimes. If you look at it in terms of investment, it’s probably the best one that you make. The goal, therefore, is not to focus on ways you can save, but to ensure you get the right education.
It’s cruel to suggest that some degrees are pointless and we don’t want to go there—all education is valuable to an extent. However, many students take the easy route, studying something purely because it’s easy, allows them to coast or sounds like it will be fun. This isn’t high school anymore; you’re building for your future and the decisions you make now will impact the rest of your life.
Work hard now for an easier life in the future, not the other way around.
Buying a Car = $35,000
Americans are spending close to $35,000 on new cars, around 90% of which is financed. That’s a huge debt for anyone to bear, and while it does provide a sizeable asset, it’s an asset that rapidly depreciates. A new car will lose as much as 30% of its value in the first year and 18% every year after that, and on top of that, you have insurance, maintenance, and fuel to consider.
Everyone wants a brand-new car. You can customize it, enjoy the new car smell, and be happy in the knowledge that you’re the first one to drive it. But those meager benefits are costing you as much as $10,500 in the first year. If you opt for a car that is 1 or 2 years old, you’ll get most of the same benefits without the fear of instant depreciation.
Debt = Varies
Debt is generally bad news. It encourages you to spend money that you don’t have, and it charges interest on that money, which means you could be paying thousands of dollars just for the pleasure of owning something you can’t afford.
Avoiding debt could save you a small fortune over the course of your life. Obviously, some debts, such as mortgages and student loans, are unavoidable and may actually benefit you, but the majority will cripple you.
Take credit card debt as an example. It grows out of control because the interest compounds and is calculated on a daily basis. By only paying the minimum amount every month you’re chipping away tiny fractions of that balance, thus prolonging the term and increasing the balance.
Avoid debt at all costs, if possible, and if you already have it, try to get rid of it as quickly as you can. The more of your life that you lead without debt, the easier things will be and the better your financial situation will become.
Insurance = $50,000 +
Insurance is often essential and always expensive. A life insurance policy could cost you in excess of $20,000 over the term, and then you have car, travel, and home insurance to factor into the equation. Insurance is difficult to avoid, and it’s not recommended to skip it. However, you can save some money.
First things first, always compare policies to find the best deal and never assume that the first quote you’re offered is the best or the cheapest. Secondly, always look for the cheaper option, even if it means paying more money. Private Mortgage Insurance (PMI) is a great example of this. It can cost you up to $100 a month but if you pay a 20% down payment you won’t need to pay it. You can also save money on car insurance by increasing your deductible.
Finally, and perhaps most importantly, always maintain a good credit score. Your credit score is one of the most important numbers tied to your name and by keeping it high you will secure better quotes and more favorable terms.
A household of four spends an average of $4,500 on vacations a year. Most take one big vacation, spending a little over $1,100 for each member of the household. If you do this every year while your children are growing up, you could be spending over $60,000 on vacations, and that’s assuming you don’t fritter your twilight years away taking cruises and staying in fancy hotels.
A vacation is something to look forward to; it keeps you sane while you grind through the daily chores. However, it’s a lot of money to spend on something that creates only memories and sunstroke and there are lots of ways you can save.
Comparison sites allow you to compare and contrast prices and services from hundreds of providers, while last-minute deals can net you some massive savings if you don’t care where you go.
The best way to see the world without paying for it is to book first and plan later. The average family decides where they want to go and when they want to go before they look at prices and availability. It means they’re paying a premium for their experience, even though they can get the same elsewhere.
Look at travel sites to find where the cheapest flights will take you and then check these against the costs of accommodation. You might not get the exact experience you’re looking for, but you can often get something very similar and, in some cases, even better.
Utility Bills = up to $100,000
Utility bills are just a fact of life. Unless you’re living off the grid, huddling around fireplaces and under candles, you need to pay for electricity, phone, broadband, and other essentials. Other the course of a lifetime, these costs can accumulate and exceed 6-figures. However, there are some ways you can reduce them and potentially save tens of thousands of dollars:
- Install Energy Saving Solutions: Solar panels are a big initial expense, but they can save you a fortune over the long-term. Even if you don’t plan on living in your home for decades to come, they can increase its value and save you money until you move. Get water butts, low-flow toilets, energy-saving lightbulbs, insulation, and look into other cash and energy-saving options as well.
- Unplug: Electronics consume a lot of juice even in standby, and the average household is filled with TVs, computers, and game consoles. Turn them off, stop the power drain, and save some bucks.
- Contact Your Utility Company: Your utility company may offer some energy-saving solutions and can also recommend options based on your energy consumption.
- Air-Dry: Tumble dryers are expensive to run and can damage your clothes. Instead, consider air-drying them on a line in your yard, on your balcony or anywhere else you can find space. It’s best to dry them outdoors, letting the clear air and hot sun do the work.
Buying a Home = $226,000
A home is the biggest single purchase that the average person will make in their lifetime. It’s also the most important—an asset that could make you rich or poor and will improve your credit situation.
$226,000 is the average price of a home and 7% is the average down payment for first-time buyers. This means they’re paying just under $16,000 upfront and getting a loan for the rest. As a result, they’re charged a lot of interest and are tasked with paying Private Mortgage Insurance (PMI), which can cost an extra $100 a month.
By spending some more time saving and improving your financial situation, you can increase your down payment, improve your credit score, and greatly reduce the total interest that you’re charged over the course of the mortgage. And that’s important, because without it the mortgage could cost you in excess of $350,000 over 30 years.
Raising a Child = $233,000
A child can cost close to a quarter of a million dollars from birth to age 17. You pay extra for housing, utilities, food, clothing, and healthcare, and you also have to factor daycare and education into the mix.
Fortunately, this is based on middle-income families and there are many ways to reduce the cost, including some of the things we have mentioned already. It can also help to create a savings account and an emergency fund. The former will give you the money you need to pay for their education when the time comes; the latter will prepare you for those unexpected bills and expenses.
Encourage them to get a job when they get older, ask grandparents and close family friends for help with transport and babysitting, and don’t accumulate debt just to get the things you think they need.