How to Cut Your Home and Car Payments… Without Sacrificing Your Happiness

*This is Part II of a two-part series on increasing your savings rate. This part focuses on your housing and car payments. Part I addresses lower-end purchases.*

If you’re looking to move or buy a car, you’re about to make a huge financial decision.

It’s easy to fall into the “Keeping up With the Joneses” trap, but you can often find something nice for a much lower price than you thought, as long as you are willing to make small sacrifices.

Regarding your home:

Do you need the three-bedroom or will the two-bedroom do? Do you have to live in your current neighborhood or could you move somewhere else for less money and still be happy? And what about the rent vs. buy debate?

All this and more will be explored.

With the car, you may be salivating over the possibility of driving a new car off the showroom floor… But you will pay the price if you do.

Home and car purchases can change your life. So don’t start these processes without a plan.

This article will show you how to spend less… Without sacrificing your happiness.

Let’s start with your home:


The average American spends 37% of their take-home pay on housing. Back when I lived in New York City, it wasn’t uncommon to meet people that were spending close to half (!) of their take-home pay on rent.

Yes, that’s an extreme example; New York is one of the most expensive cities in the world. But if your housing costs are too high, you’ll struggle to get your financial house (no pun intended) in order.

Rent or Buy?

Let’s start by talking about the advantages of buying your home:

  • Opportunity to build equity and fully own your property in 20-30 years.
  • Stable year-to-year housing costs – don’t have to worry about rents going up in your neighborhood.
  • Freedom to make changes to your property

Home ownership isn’t the right move for everybody though. If you don’t see yourself living in the same place for five or more years, buying your home is usually not a good idea. That’s because the transaction costs of buying and selling a home are high, and generally only start to pay off if they are (effectively) spread over 5+ years.

But even if you see yourself living in the same residence for 5+ years, home ownership may not be the right move for you. A few advantages of renting are:

  • Opportunity cost of the money – your down payment is money that could alternatively be invested. If you feel you can find a high rate of return on that money, renting could be the smarter financial decision.
  • There are a lot of hassles and headaches that come with home ownership. If the home owner’s hot water heater conks out, it’s up to them to fix it. The renter would simply call the landlord and get it taken care of, with no hassle or cost, if the same thing happened.
  • Ditto for the more routine maintenance like landscaping, snow removal, etc.

How to Reduce Your Housing Costs

Now let’s look into how you can reduce your housing costs – whether you rent or buy.

The best way is to live in a smaller place. Besides the higher purchase/rental price of larger places, there are other hidden costs:

  • Higher utility bills
  • More furniture required to fill your home.
  • More things to repair and more expensive to upgrade (if you own)

Another way to cut down on housing costs is to live in a cheaper area. This type of decision will vary depending on your circumstances. Some have no ties to a certain area and would have no problem picking up and moving clear across the country. Others have jobs, families, friends, and more, making a big move unrealistic.

Don’t fret if you’re in the latter category. You may be able to find a nice neighborhood less than an hour away that is much cheaper than your current area. Of course, you’ll also want to consider the second-order impacts to your budget.

  • Property taxes (if you own)
  • Schools (if you have kids) – are there quality public schools in the area, or would you have to send your kids to private school?
  • Distance to work – is your commute a lot longer and more expensive?

A personal example on that last point:

My decision to move out of my parents’ house and into a shared apartment had a lot to do with my commute time… And its costs.

I lived on Long Island and had a brutal commute to my job on Wall Street. It was an hour and forty minutes each way. Here were my monthly commuting costs:

  • Fully paid off car – $150 a month for insurance and gas (barely used it besides driving it to the train station)
  • Long Island Railroad (LIRR) monthly pass – $270 a month
  • NYC Subway monthly pass – $110 a month

I found a group of people in Brooklyn offering a bedroom in a 5-bedroom shared apartment. They seemed nice, and as a recent college graduate, I didn’t mind having roommates. 

The room cost $900 a month including utilities. It was 40 minutes away from work, saving me two hours a day. And it would allow me to get rid of my car and LIRR monthly pass – a monthly savings of $420! 

I was basically spending $480 a month to get some independence, live in a cool area, and save ten hours of precious time per week. Not to mention, getting a few thousand dollars for the car was nice also.


I’m not a big car guy. There, I said it.

I just see a car as a way to get me from Point A to Point B.

You don’t have to share the same opinion as me, but at the very least, you should consider buying a used car instead of a new one. A new car depreciates very quickly – but the car payment stays the same.

Used cars have already gone through that period of fast depreciation, and hold their value a lot better. Obviously, there are lightly used cars – and there are cars that are on the verge of a breakdown.

But whether the car is two or 12 years old, your initial purchase price will be a lot lower than a new car, and you will be able to resell the car for a much higher percentage of the purchase price, if you so choose.

Once you’ve settled on new vs. used, you’ll want to consider the type of car. This article won’t go into specific makes and models, but one important consideration is how much you will be driving.

Will you be spending 15-20 hours a week driving, or will you only be driving for a few hours per week? A more expensive car with a smooth ride and comfortable interior is more likely to be worth it if you’re going to be driving a lot.

And if you do drive a lot, fuel efficiency is a key consideration. A car that gets 40 miles-per-gallon highway instead of 15 will save you a lot at the pump.

Finally, look at ways to save on car insurance. The national average cost of car insurance is $1,427 per year. A few ways to spend less on car insurance are:

  • Drive safely – tickets and accidents can raise your premiums.
  • Take a defensive driving course – many insurance companies offer a 10% discount if you do.
  • Drive a less flashy car – safe and moderately priced cars tend to be less expensive to insure than expensive sports cars.
  • Consider getting usage-based or pay-per-mile insurance – if you don’t drive much, it will likely come out cheaper than regular insurance.

The Final Word

Many people are spending more than half of their take-home pay on their housing and car. Add on food, clothes, entertainment, etc. and it becomes clear why so many are struggling to get ahead.

If you implement some of the advice given here, you can get on the road to financial security.

And a dollar today can be worth much more in 20-40 years if you invest it in your retirement accounts.

Simply cutting out what you don’t need can often be the difference between living paycheck-to-paycheck and building a nice nest egg.

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