The average American household's pre-tax income is nearly $75,000, but not surprisingly, most of this amount gets spent. In fact, when you add up the money that's paid for goods and services or taxes, the average household spends more than 90% of their income.
With that in mind, here's a breakdown of where the average American's income goes, and how much is left to save, invest, and pay down debt. How do your spending habits compare?
The average American household income
The average American household brings in a yearly income of $74,664 before taxes, according to the Bureau of Labor Statistics' (BLS) 2016 Consumer Expenditure Survey, the latest full year for which finalized data is available. This includes wages and salaries, as well as income from self-employment, Social Security and other retirement sources, interest, dividends, rental income, and more.
The average American's expenditures
According to the latest BLS data, this is the breakdown of how the average household's salary is spent. Some categories, such as "tobacco products and services," are self-explanatory, but others are broader and include several different subcategories and expense types you may be surprised about, so I've added some comments where necessary:
- Food: $7,203, which can be further broken down into $4,049 of food at home and $3,154 on food away from home.
- Alcoholic beverages: $484.
- Housing: $18,886, which includes mortgage payments or rent, property taxes, maintenance, utilities, household services and products, furnishings, and appliances. On a monthly basis, this implies that the average household spends $1,573 on all of these expenses combined.
- Apparel and services: $1,803.
- Transportation: $9,049. In addition to the cost of vehicles, this includes gasoline, finance charges, maintenance, insurance, and public transportation expenses.
- Healthcare: $4,612, which includes the cost of health insurance, medical services, prescription drugs, as well as other medical supplies.
- Entertainment: $2,913. As you might expect, this includes in-home entertainment costs (like home-theater equipment), as well as outside-the-home entertainment ventures. You may be surprised to learn that certain other expenses, such as your pets, are included here (although pets are quite entertaining).
- Personal care products and services: $707.
- Reading: $118.
- Education: $1,329.
- Tobacco products and supplies: $337.
- Miscellaneous: $959.
- Cash contributions: $2,081, which refers to charitable donations and the like.
- Personal insurance and pensions: $6,831. The largest expense in this category is Social Security payroll tax, but life insurance premiums and pension contributions are also included.
- Personal taxes: $10,489, which includes the average household's $8,367 federal income tax bill, as well as state and local income taxes.
If we subtract all of these expenditures from the average household's $74,664 annual pre-tax income, we find that there's $6,863 left over. However, keep in mind that this doesn't include interest on consumer debts like credit cards or gifts, so this isn't necessarily the amount of money that the average household saves.
Including non-cash sources, such as the principal paid on owned property and increases in market value of owned homes, the average household's net worth increased by $8,721 in 2016.
How do you compare?
Obviously, every household is different, and your income, spending, and savings could deviate significantly from these numbers. However, this can be used as a guide to identify areas where you're spending much more than the average American when you're formulating a budget and trying to keep your expenditures under control.