According to the Office for National Statistics, the average household in the UK spent £676.60 per week, or £35,183.20 per year, in the 2024-2025 tax year. And the top 20% of households spent £1083.60 per week (£56,347.20 per year). I’m here to show you how to reduce those costs – indeed, how to massively reduce them. And it only takes a few simple steps, maintained consistently over time, to make a big difference.
Here’s the numbers:
Notice that households in the top 20% of expenditure spend almost four times as much on transportation (car payments) as those in the bottom 20% – despite overall spending being less than three times more. When people have more money, they tend to spend it on upgrading their car.
There’s no denying that a car is a status symbol – the greatest outward show of wealth people own. However, you’d do well to remember that around 80% of new UK car purchases are bought using finance. What you see on the exterior is rarely a reflection of the truth.
Before I go any further, I should add that this post is inspired by the Mr Money Mustache post How to Go from Middle-Class to Kickass. Go and check it out! Since that post was aimed at a US audience, I thought I’d write one for us here in the UK.
The point is that, for most people, the easiest way to increase the gap between their income and expenses is to reduce their expenses. While it’s true that there is no cap on how much money you can earn – heck you can start a successful business and have a never-ending stream of checks deposited into your bank account – this takes time (and not to mention is extremely difficult). If you really want to build wealth and retire early, you need to make changes now.
The Wealth Trap
You hear it all time: the middle class “squeeze”, …”it’s the middle class who pay for everything”, “the middle class are getting poorer and poorer”. While this is (mostly) true, and partly down to the government’s inability to tax the super rich, I’m not convinced high taxes and the high cost of living are entirely to blame. Taxes certainly are a drag on building wealth – but they are unavoidable and there is nothing we can do about them.
It seems to me that much of the “middle class” spend as if they are in the top 10% of UK earners. Big houses they can only just afford, fancy cars, expensive holidays… The middle class has a spending problem. It’s a sickness, and it’s called Keeping up with the Jones’.
House prices are amongst the highest and most unaffordable they’ve ever been, the average price of a new car has risen by ~40% since 2020, and is now more than £40,000 – and outpacing the average wage rise. And yet, when you drive around, it’s as if nothing has changed – people still cruise around in massive SUVs that are too big for the roads, and spend liberally on housing and holidays.
To remedy the situation, I offer this simple question:
Why bother even trying to compete?
Those who do trap themselves on a hedonic treadmill – upgrading your life does not make you any happier in the long-term. That new car soon becomes dull and weathered. Your hi-fi system with quadruple subwoofers gets forgotten, and your new designer outfit is worn once, and then pushed to the back of the wardrobe, consigned to the pages of history.
Once you decide to exit the Rat Race, it becomes much easier to cut costs mercilessly while maintaining the same outward appearance as everyone else. You can still live a middle-class lifestyle while spending less than half of your peers. It just takes a little intentionality. Here’s how:
Wow! By cutting down on a few simple expenses, a family could save over 40 grand per year. Take a look down the list and think about whether the column on the right is too extreme for you. If it is, adjust accordingly and you’ll save less – and spend longer working to pay for it. If you can do more – perhaps by cutting out on holidays or living in a tent(!) (this is extreme, but there are people who have done it), you’ll save more and be able to retire even sooner.
The Big Three Expenses
Focus on the “big three” expenses first – housing, transportation and food. Making changes to these will have the greatest impact on your overall finances. Buying a used car once every ten years rather than financing a new car every five years will save you over £4000 per year, and you could make even greater savings through buying a small, cheap hatchback and running it for longer.
Where you choose to live is even more important. Average house prices in London (April 2026) are £551,000, vs £163,000 in north-east England. That’s almost a £400k difference, not to mention the extra interest payments you’d make of ~£250,000 over a 25 year period. So, by buying in London, you immediately put yourself at a £650,000 disadvantage vs buying in the cheapest part of England. Don’t dig yourself a financial hole because you don’t know any differently – take the initiative and start a new live in a lower cost of living area.
Food is generally a smaller expense than the other two, but by not throwing money away at restaurants, and instead learning to cook delicious gourmet home-cooked food, you can save hundreds of pounds per month.
These savings are very real, and when combined, will literally save you thousands of pounds every month versus your fancypants cousins. And when you start to invest and add in the effect of compounding, that gap grows even further.
You see? I told you so. For a household earning the median wage, just 15 years of making intentional choices could lead to a lifetime of retirement with £1.2+ million to draw down from. Or it could mean a paid off house with a little less in the bank. Either way, it gives you back control. Doing this for 30 years would lead you with almost £6 million, more money than you’d know what to do with.
And there’s more good news. While I haven’t considered the additional cost of inflation over time on your expenses, nor have I considered the money-making potential of two people who live an intentional financial life. Wage growth would not be static, likely far higher than inflation – and potentially 10% (or more) per year. Enough for real earnings to increase dramatically over time, further expediting the road to retirement.
All of this only works if you can keep lifestyle inflation in check, and resist the temptation to upgrade your life every time you get a pay rise. If you can, you’ll soon be laughing while your fancypants neighbours fire up their SUVs and drive to another uninspiring, health and soul-destroying, day in the office.
If you can’t keep lifestyle inflation in check, then you need to ask yourself this question: is it all really worth it for the decades of mandatory extra work you’ll have to do?
I hope you enjoyed reading this post. Here are some others you may also like:
- Rich Dad Poor Dad
- How to build wealth in the UK on an average salary
- Cheap things to do on holiday (and at the weekend)
- Golden Rules for Career Success
- Why your £4 coffee actually cost £360
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