Forget coffee and avocado toast — most people blow nearly 40% of their money in the same place

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Giving up coffee isn’t the key to retiring early.

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Tristan Fewings / Getty

There’s one area where almost everyone in the US overspends, and – spoiler alert – it isn’t coffee. It’s not avocado toast either, for that matter.

The biggest chunk of the average American’s budget goes toward housing, which accounts for about 37% of take-home pay. Many people spend even more.

In some circumstances, spending a lot on rent or a mortgage is unavoidable. But in many cases, making a few sacrifices on housing expenses today could lead to significant savings – and a far more comfortable future.

Take, for example, Grant Sabatier, a 30-something self-made millionaire who founded the finance blog Millennial Money. He was able to save about $25,000 in two years by cutting back on housing, as well as transportation and dining expenses.

“At the end of the day it comes down to a personal choice, but I was happy moving to a smaller apartment, moving closer to my office, and eating out less, to bank the difference,” Sabatier wrote on Millennial Money.

He continued:

“While I don’t have the exact figures, I estimate that cutting back for 2 years, before buying my first home, I was able to save about $25,000 that I invested in 2011 and 2012, and that ‘cutting back’ is now worth more than $100,000 in my investment accounts. I’m going to continue to let it grow and hopefully making that decision 2 years ago will compound in 20 years into a lot more money.”

Saving enough over a 40-year career to maintain your lifestyle in retirement is challenging enough. There’s no shortage of advice about how much you should be saving, typically at least 10% of your income. But with the current US savings rate at 5.3%, according to the Federal Reserve, many Americans will come up short.

But there’s a lot to be learned from people like Sabatier who have managed to hit their savings goals well before 65.

Rather than depriving yourself of coffee and avocado toast – though you might want to do that as well – take a hard look at how much you’re paying for housing right now. If it’s more than 30% of your pretax income, the standard measure of housing affordability, it’s time to make a change.

To make more progress on your savings goals, however, you’ll want to limit your housing expenses even further. Look for a place that costs 25% or less of your after-tax income, and funnel all of the cash you save toward your retirement accounts.

In some parts of the country (hi, New York and the rest of the Northeast), the percentage spent on housing can be even higher than the 37% average. But that doesn’t mean it’s impossible to find affordable options, even if you have to have multiple roommates or a longer commute.

Keeping housing costs low is smart, no matter how much money you have. The billionaire investor Warren Buffett lives in a modest house worth 0.001% of his total wealth.

The best financial move you can make is to literally move to a less expensive home. Once you do, you can celebrate at your local coffee shop.