Executive Summary The personal finance space has no shortage of tips to managing your spending, from bag lunches in lieu of eating out at work to home-brewed coffee instead of the morning Starbucks routine. Yet the reality seems to be that in so many situations, we dig ourselves a tremendous spending hole because of our big purchases, and then worry tremendously about the small stuff trying to make up the difference. If you really want to change your financial reality for the better, though, it’s the big stuff you really need to focus on – where you live, and what you drive.

The inspiration for today’s blog post comes from yet another article I read this morning – which out of kindness, I will not name – that advocates a wide array of spending tips to manage your finances. Eat at home more often; skip the morning Starbucks; bring a shopping list to the grocery store so that you do less impulse buying; clip those coupons; rent movies instead of going out. The list went on and on.

Yet as I looked at the list, I couldn’t help but think… really? The key to my financial future is clipping $0.50 coupons for my morning cereal and making sure that I don’t impulse buy any snacks in the checkout line? Yes, I realize that spending an extra $4/day x 5 days/week x 50 weeks/year means you could be spending $1,000 at Starbucks, which is no trivial amount. But overall, most of this seems like small potatoes.

Instead of doing so much to sweat this small stuff, I wish that we could do a better job focusing on what really matters – where we live, and what we drive. Because the reality is that for most people, our dominating expenses are actually not all this little stuff; it’s our cost for shelter and transportation.

For instance, check out this recent infographic (click for larger image) on “Where Does The Money Go” from the Department of Labor for the average household. If we add up all of the Housing categories and sub-categories, and add Transportation on top of it, we come to a whopping 63% of the household’s total annual expenditures. Entertainment? Only 5.5%. Clothing and apparel? 3.5%. Food at least is almost 13%, although we can still only trim so much, since we do still have to eat a few times every day.

So simply put, why do we focus SO much of our spending tips about the barely-20% of spending that goes towards Entertainment, Clothing, and Food, and so little on the over-60% that goes towards transportation and shelter? In real terms – we buy the most expensive house and car we can afford, and then drive ourselves crazy clipping coupons to make up the difference. Perhaps the better conversation is about owning more affordable houses, and driving less expensive (or dare I say it, USED!?) cars.

I think this is especially important in light of the growing body of research that shows how so much of the happiness we derive from our financial wellbeing is about spending money on experiences, not stuff. Yet what do we do with personal finance advice so often? We tell people to give up the experiences they enjoy – eating out, going to the movies, and their morning Starbucks routine – and never acknowledge that if you buy $10,000 used cars instead of $25,000 new cars, the $15,000 in your pockets pays for all of these enjoyable experiences, and more. Choosing an apartment that’s $500/month less expensive or a smaller house that has $500/month in mortgage costs, similarly, saves so much money on “the big stuff” that many wouldn’t have to sweat the small stuff at all anymore. And sadly, the more affluent the individual, the more that significant housing and automobile costs consume huge portions of the annual income!

Unfortunately, these are difficult conversations to have. Many people view their nice homes and their nicer cars (1, 2, or even 3+ of them) as entitlements that we “should” get the moment a lender will approve us to finance them. But the reality, as the research shows, is that maxxing out your capacity to borrow might not lead to a default, but it certainly does crowd out our ability to spend money on the experiences that ultimately bring us more happiness.

So the next time you’re thinking about a change in residence or a “new” automobile – or you’re a financial planner discussing the issue with your client – take a few moments to think about the trade-off. A modestly smaller car or automobile can save so much money, you just won’t have to sweat the small stuff anymore.

As long as there’s a secure roof over your head, and you have an automobile that’s capable of getting you to work and the kids where they need to go – even if that car isn’t as fancy as you hoped, or the house isn’t as big as it might have been – life will go on. And you might even enjoy it more.