If you’re trying to retire early, reach financial independence, or simply improve your finances, start by taking a close look at three expenses: housing, transportation, and food.
Often called “the big three,” these categories are typically among the largest expenses most households face. Many early retirees say they focused on reducing those costs rather than obsessing over smaller purchases, like coffee or streaming subscriptions.
“If you learn how to master those big expenses, it will free up a ton of money so you don’t have to stress about the small stuff,” Josh Lupo, who retired in his 30s with his wife, Ali, told Business Insider.
How to save in each category
One strategy that’s popular among early retirees, including the Lupos, is “house hacking,” which involves renting out part of your home and using the income to offset some, or all, of your housing costs.
It requires buying a property, which means having enough savings for a down payment and closing costs, but for those who can make the numbers work, it can significantly reduce — or even eliminate — a monthly housing payment.
The Lupos said they went from paying $1,300 a month in rent to living for free in upstate New York after buying a duplex, living in one unit, and renting out the other.
If buying property doesn’t make sense right now, there are other ways to lower your housing costs, such as living with roommates, moving into a smaller space, or staying put even when you can afford an upgrade. That last approach worked for early retirees Kristy Shen and Bryce Leung, who felt priced out of the Toronto housing market.
Rather than buying, they stayed in a modest apartment for a decade.
“We didn’t upgrade our housing,” Shen said. “A lot of our friends were either buying houses or moving up to a two- or three-bedroom. We stayed in a one-bedroom on top of a townhouse, and our rent basically stayed the same for the 10 years that we lived there.”
Saving on food often starts with eating at home more frequently. If you’re trying to break a takeout habit, try deleting food delivery apps from your phone. You don’t have to eliminate restaurants altogether, especially if dining out is something you value. The goal is to make eating at home the default more often.
Transportation is another major category where small lifestyle changes can add up. If public transit is available where you live, using it more often can lower your costs. If not, consider replacing some car trips with biking or walking when possible. Driving less — or, in some cases, selling a car altogether — can reduce spending on gas, insurance, maintenance, and repairs.
One couple, Steven and Lauren Keys, shared a used car and cooked 90% of their meals at home while working toward early retirement.
They said that over the last decade, their annual spending never surpassed $26,000. That allowed them to save most of their income, even early in their careers, when they were each earning around $40,000.
Leaving room for what matters to you
Cutting back on the big three can create more room to spend on what matters most to you.
Personal finance expert Ramit Sethi calls this idea “money dials.” Money dials are spending categories — such as travel, health, food, or experiences — that you can turn up or down depending on what you value. Sethi encourages people to identify the categories that matter most to them and spend generously there, while cutting back on the ones that don’t.
In other words, don’t spend money on things that aren’t important to you.
A common misconception about the FIRE movement is that it requires deprivation, Shen said: “It’s about optimization, not minimization.”
Tracking their spending helped Shen and Leung optimize. Once they started looking closely at where their money was going, it became easier to identify what added value to their lives and what didn’t.
“Despite getting multiple promotions, we did not increase our lifestyle whatsoever,” Shen said. “The only thing we actually did spend on, and we were happily spending on, was travel.”
That was a “non-negotiable,” she said.
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