Beware of Large Expenses That Never Go Away

Attacking the head and the tail of the expense dragon

Many articles and books have been written in recent years on the virtues of eliminating small recurring expenses to control debt and reach financial independence. You’ve seen the headlines about $5.00 lattes and avocado toast. I call this attacking the tail.

While these little expenses do add up, almost too much focus has been put on this end of the dragon — it’s truly just half the story. In fairness, a $5.00 latte purchased ever workday for a month would be $25 USD per week ($100 USD per month). But saving $100 per month is not what allows people to retire at 40 or build a net worth of over $2 million USD by age 50. That requires creating large streams of revenue (income) AND attacking the other end of the dragon — the head.

All too often we see financial advice these days with vague actions or broad generalizations. Things like eat out less, cook more at home. But have you seen the price of groceries these days?

Authors try to shy away from specifics partly due to liability reasons but more so to have their advice be applicable to a wider audience. When it comes to attacking expenses, we need to be more specific, especially when we want to take the head of the dragon.

Head Expenses

The problem with head expenses is that they tend to last a very long time once they’re in place. When I finally started getting serious about achieving financial independence, I read the books about cutting out the lattes and magazine subscriptions. Things went fine for a while and expenses dropped. But then I hit a plateau for years and couldn’t figure out why I couldn’t make further progress in cutting expenses.

It was the head.

Head expenses are the largest expenses in your life — the big things. If you really want to achieve financial success you must attack the head. And for the sake of being specific, let’s define a head expense as anything $400 USD per month or more for someone making $100,000 USD a year or less. Going up the scale, for someone making over $250,000 USD, a head expense might be an expense $1,000 USD or more per month.

So, what are common expenses that may fall into this head category:

Housing Expense (Mortgage/Rent) — Your place of residence is likely the top of your head expenses; it’s an unavoidable cost but can be mitigated depending on where and how you live. A house can be an extra expense and wasted space if you never go in your backyard — could a townhome be a better and cheaper choice? Staying in the smallest space for as long as possible, even living with roommates, can really put you years ahead of the game when done right.

Property Tax — Nothing gets homeowners more riled up than talking about property taxes. As home price values have skyrocketed 10%, 20%, or more in just a few years so have property taxes. In states with no state income tax, the money needs to come from somewhere to provide funding for schools and public infrastructure. An average home can easily have yearly property taxes that cost several thousand dollars.

Electricity/Gas — In my part of Texas, USA, electricity and natural gas to our home are provided by the same company and come on one utility bill. In the summer the electricity portion is sky high because the air conditioner runs all day in 100-degree Texas heat, but natural gas is low. In the Winter, the bill flips as residents burn a lot of gas in heating their homes, while less electricity is used. Yes, it gets below freezing in Texas.

We don’t live in a mansion, and we’ve had months where our bill was over $500 USD in some summers. It’s expensive to live in certain parts of the country because utilities can be a beast to distribute and maintain across a declining infrastructure — just ask people in Flint, MI about water supply issues.

Car Note — The purchase price of cars has been the talk ever since COVID. Growing up in the 80’s, I remember a decent car note being in the low $300’s (USD per month). Today, it’s not uncommon for people to walk around with car notes $600, $800, or more for a monthly payment.

Parking — If you live in New York City and your apartment building has a garage, then your vehicle has its own rent. A few years out of college a friend of my brother was living and working near Manhattan. He and his fiancé were paying $500 USD per month for just one parking spot in the building. They got rid of the second car, because who wanted to circle the block five times at night to park five blocks away, hoping your car was still there in the morning. And what if you work at a job where you must park in a pay lot every day? Thousands of people do.

Gas/Tolls — If you’ve ever owned an SUV during a summer of rising gas prices you know transportation gets expensive fast. You have to fuel up often, and when you do, you’re paying $60 USD or more per fill-up. Add tolls in some major US cities, where going just one way can cost you $5.00; you can easily break the threshold of $400.

Child Care/Daycare — All the parents out there will testify with me on this one. If you have two working parents in the household and no family around to watch the newborn, daycare is an inconvenient truth. My son entered KinderCare when he was 9 months old. The cost way back then was over $1,000 USD and your standards couldn’t be any lower — as long as your child was returned to you each day with the same number of fingers and toes they left with; it was considered a win.

Private School — I’ve had enough direct and indirect experience through my own schooling, my child, and family members to adamantly say there can be a huge difference in quality of education between public and private schools. A top private school in most major cities around America can easily run over $8,000 USD per year, but at least your kids will still be taught how to write in cursive.

With shrinking budgets and overworked teachers, you’d be appalled at what gets left out of today’s curriculums in public school. And it’s not the teachers’ fault; the public system is just not designed for success on a limited budget.

Alimony/Child Support — This can be a real kicker for many and can last for years. When courts get involved, the spouse who has to pay usually must contribute more than if they had been able to work out some arrangement with the ex-spouse.

Groceries — I rarely can go to the grocery store today and not walk out with at least a $60 USD bill for like 5 items in my cart. As I’ve mentioned in other articles, many couples in my neighborhood have 2–3 kids. You can spend over $400 easily per month trying to feed the family, especially as the children enter their high school years.

Medical Debt — A good friend of mine had his first son born premature. For 3 months his child was given the best care at a top medical center. When all was said and done, he owed a debt in the high five figures and that was after health insurance. These types of debts can be more debilitating than the disease itself and often lead people to just stop paying altogether. Who wants a car note, or the cost of a small condo paid over the next six years, because they had to have surgery?

Student Loans — Much has been written about the price of college in the United States and unfortunately (for me), this problem isn’t going away in the next 4 years. At some point in my lifetime, maybe there will be a greatly reduced price to get a college degree. As for my son, we’re in that middle-class where we make too much to get substantial grants and make too little to just write a check and not care. He will have loans which will need to be paid off over years — it’s just how it will work for us.

So, while most people think of the “head” expenses as just the house and car note, there are quite a few other things that can simply destroy a budget.

In order to really put a dent in lowering your expenses, you have to cut off the head of as many of these as possible. Even within these big head expenses, you really have to be worried about the ones that truly go on forever.

A car note will eventually be paid off in maybe 4, 5, or 6 years. But an old leaky house with poor heating and air conditioning will be an expense as long as you live there. This leaves you literally pouring money into a never-ending black hole which doesn’t build equity.

Figure out if there’s a way to reduce or completely eliminate those large expenses that live on forever.

Ironically, some of these large expenses are very much related. I’ve lived in super nice neighborhoods where the public schools are decent enough where you save money from having to send your kid to private school, but then half the people on the block are paying spousal or child support because they’re divorced.

Life is a funny thing.

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