How to Grow Your Household's Investment Potential by 111%

The Neighborhood Finance Guy writes about financial literacy topics, main ideas, investment strategies, and retirement tips to help you make effective decisions and set S.M.A.R.T goals with your money. The information is free but the struggle is not sold separately.

Table of Contents

The Average American Household is Struggling to Stay Afloat

Looking at the stats for 2019 from the US Bureau of Labor and Statistics, it’s easy to see why American families are struggling to make head way. While the average household unit brings in $82,352 presumably as a dual income family, they end up spending $63,036 from housing to entertainment.

About $7,250 per year in savings (less than 1%) and pension (about 8.2%) is no where near enough to retire comfortably. Imagine working for over 40 years just to struggle for the next 20 years. There has got to be a better way to structure our money. Here are three easy ways to tweak your expenses to investment more. In the end, these changes boost a family’s net worth and overall wealth by 107%.

Bonus: to help contextualize financial literacy; I recommend these two YouTube channels – Book Insights Podcast and the Swedish Investor. This is the type of content you need to reposition your wealth mindset.

Start by Tackling the Big Three Expenses vs the Little Ones

Housing Costs to include Rent, Mortgages, HOAs, PMIs, Utilities, Maintenance and Insurance.
Transportation Costs to include auto loan (if any), insurance, gas and maintenance.
Food Costs which include Groceries and Eating Out.
Other costs to consider cutting down: Subscriptions, Entertainment and Amazon Prime Splurges. You can even get creative by getting on a family plan for your cell phones with friends. Anything to reduce unnecessary costs.

Here’s How the Average Household’s Expenses Breakout

The average American household doesn’t have enough money saved for an emergency. The advent of social media didn’t make conspicuous consumption easier. Instead of keeping up with the Jones, we are relegated to keeping up with the affluent across the globe. At this rate, it’s an Ego Trip.

“If you don’t have photos all over your social media, did you even travel?”
Mariana Eberhard

Many are living paycheck to stress with the next paycheck already earmarked for fixed expenses. As of January 2020, 41% of Americans wouldn’t be able to cover $1,000. We would think that the global pandemic would curtail these issue but unfortunately NO.

Financial Pocket Watching

We spend too much time people and pocket watching. New social classifications like the ever toxic Girl Boss and the problematic High-Value man have replace character, community and family. It’s a sad reflection of the times, and yet many wonder where is all of that money going?

Expenditures in 2019

Food: $8,169 broken down into Food at home ($4,643) and Food away from home ($3,526).
Housing: $20,679
Apparel and services: $1,883
Healthcare: $5,193
Entertainment: $3,050
Transportation: $10,742 with gasoline accounting for $2,904
Personal care products and services: $786
Education: $1,443
Cash contributions: $1,995
Personal insurance and pensions: $7,165
All other expenditures: $1,891

When added up, the total 2019 expenditure is $63,036 compared to $61,224 (2018). This represents a 3% increase from year to year.

As you can see in the pic above, the largest three expenses for American households are Housing (25.4%), Transportation (13.2%), and Food (10%). That’s pretty much half (48.6%) off the top just to function day to day.

For that reason, these spending categories need to be addressed and corrected over worrying about the $5 dollar Latte.

1. Total Household Makeover – The Problem with an Unaffordable Home

Key Lessons: Find an affordable home by doing the research early vs. emotionally.

Home improvement shows are all the rage these days. Business Insider went on to note that HGTV shows give viewers an unrealistic idea of how much renovations cost. These shows have become the new form of luxury escapism however on the back end, when people finally hit the housing market, they typically have marked up IG taste.

No longer will the next generation be content with a starter home, they want the half-million home today. Even at historically low rates like 2.865%, monthly payments can easily run $2,072 before HOA fees. The total payment for 30-years will be $745,845 (almost $250,000 in interest added).

Shave off about $5,000 annually

All this to say that housing is a problem. People are putting too much home on the ledger. It’s better to estimate your total home cost monthly to be 25% of your take home pay. If the average income is $82,852 minus the average taxes paid of $19,816; this means total housing cost should be closer to $15,759.

2. Buying a luxury car but it’s parked outside

Key Lessons: Buy it Used. No one who matters cares what you drive, learn to park instead.

Depending on where you are in America, Transportation is king. I’m from the south (Florida) and I get it. But honestly, you would be better served with a functioning AC system because the exterior of your car doesn’t matter. You can’t take your car to the grave with you. It’s like a TV, it have operation value as long as it works. So don’t waste too much money on a rapidly depreciating show piece.

Flex Less, Buy Used and Park on the Side

You can drop transportation cost down by 8% and you won’t know the difference. The Money Guy show shares the 20/3/8 approach when taking out an auto loan: put 20% down, pay the car off in 3 years, and your monthly payment should not exceed 8% of your monthly gross income. Save up to $859-$1000 and you will be in better shape financially.

For those with no need for a car in your area, try to watch the Uber and Lyft micro transactions. Those can eat up your fun money and your investing potential.

Limited run of 80 units, honoring Continental’s 80th anniversary, will be produced for the 2019 model year, each personalized with a unique badge

3. Lowering Your Household Waistline by Avoiding Food Waste

Key Take Aways: Most budgets tank in the food section

Inflation fears hit an all time high as of May 2021. People are finally catching on to what a global shut down means. If you have the variety of food arriving from outside the country… welp, expect delays if people can’t go to work safely. While Amazon Prime gives us access to fast deliveries, it won’t help if there isn’t a steady supply.

Food costs are expected to increase by 2% with food-away from home increasing as much as 3.5%. Tack on the additional meal prep delivery, the Uber eat service fees, and other expenses; at this rate, the monthly budget for food should be up by 8%. It’s damn near an investment. Why is this happening?

As stated before, rising gas prices and a decrease in the supply chain. It’s time to reactivate a full meal prep regiment and even consider going vegan a few days out the week. Hey, I’m not vegan so it’s hard for me too. I also recommend Trader Joes and Aldis since they are reducing variety for a more streamline approach that saves the customer money over time.

Local farm shares are a great alternative as well.

Don’t Just Talk about It, Do it!

Key Lessons: Reduce Housing to 25%, Transportation to 8% and Food and Dining no more than 10%. Do that and you will be rich in no time.

While many love to dwell on the problem, focus on the solutions instead.

By making practical decision to rain in your spending, more of you money can do toward helping you and your family.

The changes suggested 1. reduces Housing cost by 26%, Transportation by 9%, food by 50% and 2. 111% increase in Savings. Don’t break the financial cardinal rules and you will stay healthy and wealthy.

While it might seem impossible to shift downward, I guarantee that your life won’t diminish as much as you think.

This is an opportunity to do it better than before. While on this financial literacy adventure; I’ve purchased homes and even traveled. It’s very possible to become comfortable so challenge your level on uncomfortable daily.

Disclosure: This post is brought to you by the Neighborhood Finance Guy. We highlight financial literacy information, resources, and more on your way to money management goals and personal wealth. Our goal is to help you make S.M.A.R.T decisions with our money. We do not give investment advice or encourage you to adopt a certain investment strategy. Your personal finance is up to you. If you take action based on one of our recommendations, we don’t earn a dime as of 5.2021. We operate independently.

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