Author: Selena Maranjian | August 10, 2018
How much does it cost to get by?
Most of us would like to earn more in order to buy all the things we'd like to buy and to be able to fund all our financial goals -- such as a comfortable retirement or college educations for our children. Many of us, though, are trying to buy all we want even when we don't have the money for it.
Consider, for example, that at the end of 2017, the median income for an American worker was $857 per week, which amounts to $44,564 annually. And more than half of Americans (55%) spend as much or more than they earn, per a Pew Charitable Trusts survey. It can be helpful, in order to get a handle on your own spending, to see what the average American spends on various essential items. Here's a rundown of typical American spending, much of the data is from the Bureau of Labor Statistics' 2016 Consumer Expenditure Survey, and some of it gathered elsewhere. (Note that 2016 is the latest full year for which finalized data was available, as this article was being prepared.)
So what does the typical household spend on healthcare? Well, it's a hefty sum, as you probably would have suspected. It's $4,612, to be specific, according to the Bureau of Labor Statistics' 2016 Consumer Expenditure Survey. That includes the health insurance, medical services (such as doctors, hospitals, etc.), prescription drugs, and various medical supplies. Whatever you're paying for your healthcare, know that there are probably some ways to spend less, such as using Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs), shopping around for the best prescription prices (and opting for generics whenever possible), and being smart about Medicare.
2. Housing, overall
Housing, of course, is another major expense, and for many people, it's their biggest spending category. According to the Bureau of Labor Statistics' 2016 Consumer Expenditure Survey, the average household spends $18,886 annually on housing overall -- a figure that includes mortgage or rent payments, property taxes, maintenance, utilities, furnishings, and more. A general guideline is that we should aim to spend no more than about 30% of our gross income on housing -- which includes related expenses such as utilities, taxes, and maintenance. When you go house-hunting, keep this guideline in mind and consider aiming for 25% or less, in order to not get stretched too thin.
Let's focus just on your home now. What does the average household spend on a home? Well, according to U.S. Census data, the average sale price of new homes sold in June of 2018 was $363,300. Note that averages can skew high or low if there are some extremely high or low numbers in the bunch, such as some multimillion-dollar mansions. So consider the median sale price instead, $302,100, which reflects the middle price, if you lined up all the prices in ascending or descending order. Meanwhile, the median home value in the U.S. was recently $217,300, according to the folks at Zillow. How does your home compare to that?
4. Rented housing
If you're a renter, you may be wondering how your rent compares to that of others. The median rental rate for one-bedroom apartments was recently $950 per month, while two-bedroom apartments sported a median price of $1,178, per apartmentlist.com. That varies widely by state, of course, so here are a few examples of that:
Spending categories don't get much more essential than food, and the typical American household lays out $7,023 annually on it, according to the Bureau of Labor Statistics' 2016 Consumer Expenditure Survey. Some of that is food prepared at home and some is food purchased at restaurants. The survey breaks down the total into $4,049 for food at home and $3,145 for food away from home. Note how relatively close the numbers are, despite the fact most people tend to eat most meals at home. That reflects the higher cost of eating out and is a good reminder that we can save significant sums by preparing more of our own meals at home.
6. Alcoholic beverages
Another key spending category broken out by the Bureau of Labor Statistics' 2016 Consumer Expenditure Survey is alcoholic beverages. The survey found American households spending an average of $484 annually on these drinks. That amounts to about $40 per month -- how does your own spending compare to that? Remember that plenty of people don't drink much or at all, so for those who do drink, the annual sum is likely considerably higher, while it's closer to $0 for lots of people. The 2015 National Survey on Drug Use and Health, for example, found that only 56% of respondents reported that they drank alcohol in the past month.
7. Personal insurance and pensions
Another major spending category tracked by the Bureau of Labor Statistics' 2016 Consumer Expenditure Survey is "personal insurance and pensions." The annual average expenditure was $6,831, and that includes life insurance premiums, pension contributions, and, above all -- Social Security payroll taxes paid. We don't often think about it, but most paychecks in America have 6.2% of pay withheld for Social Security tax -- with employers chipping in another 6.2%, for a total of 14.4% of our pay going toward Social Security. That can be painful, but it's meant to provide more security on the other end, when we retire. For context, know that most elderly beneficiaries get 50% or more of their income from Social Security, and that the average monthly retirement benefit was recently $1,413 per month, or about $17,000 per year. (Of course, the future of Social Security is a bit uncertain.)
Of course, Social Security taxes are just one of many taxes Americans pay regularly. Personal taxes, which include federal income tax as well as state and local taxes, cost the average household $10,489, according to the Bureau of Labor Statistics' 2016 Consumer Expenditure Survey. Of that, $8,367 is represented by federal income taxes. Fortunately, there are ways that you can shrink your tax bills, at least some -- such as by making use of tax-advantaged retirement accounts (such as traditional and Roth IRAs and 401(k)s), 529 plans for college savings, and Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs).
Education is a major spending category for many Americans and not so much of one for many others. Overall, though, the average household spends $1,329 on it annually, according to the Bureau of Labor Statistics' 2016 Consumer Expenditure Survey. That may seem minor, but remember that it's an average. Those facing college tuition costs these days may not be surprised to learn that the average cost of tuition and fees for the 2017–2018 school year was $34,740 at private colleges, $9,970 for state residents at public colleges, and $25,620 for out-of-state residents attending public universities, per the College Board. College is costly, so if you're facing these expenses it's best to have a good strategy, such as making use of 529 plans, Coverdell Education Savings Accounts, and/or custodial accounts.
10. Personal care products and services
Next up are personal care products and services. After all, haircuts and soap are rather essential, aren't they? The average annual cost of such items per household is $707 (about $60 per month), according to the Bureau of Labor Statistics' 2016 Consumer Expenditure Survey. You can reduce the costs at least a little by buying items when they're on sale, loading up at discount warehouse stores, and perhaps favoring your neighborhood salon instead of that fancy downtown one with the $150 haircuts.
11. Clothing and related services
Clothing is generally not optional in life, so this is another expense we face -- and the average household spending on clothing and related services (such as tailoring and dry cleaning) is $1,803 annually, according to the Bureau of Labor Statistics' 2016 Consumer Expenditure Survey. That amounts to about $150 per month. If a little self-reflection reveals that you do a fair amount of shopping out of boredom or for entertainment, you may be able to save some meaningful dollars by aiming to only buy items of clothing that you really need.
One spending category that totals more than clothing and personal care products combined is entertainment. The average annual household spending on it is $2,913, per the Bureau of Labor Statistics' (BLS) 2016 Consumer Expenditure Survey. That figure includes entertainment at home (such as cable TV) and entertainment away from home, such as going to the movies or concerts or sporting events. The BLS includes pets in this category, too. It's a hefty total, but it's not surprising when you consider that the average movie ticket was recently $9.16, while the average cable and satellite TV bill was recently around $101, totaling about $1,200 annually and up some 53% over the past decade. One effective way to reduce this spending is to quit your cable company and just stream your video entertainment. There are lots of options, such as Netflix and Amazon.com's Prime Video, and subscribing to several streaming services can total $50 or less per month while offering gobs of content.
Newspapers may be struggling in these digital days, and physical books have to compete with e-books now, but people are still reading, one way or another. The average household spending on reading is $118 annually, according to the Bureau of Labor Statistics' 2016 Consumer Expenditure Survey. That would include not only books, but also newspapers and magazines. It's a low number, to be sure, and it's just an average, meaning that half of households spend even less than that, while the other half spends more. Some who spend very little may still be reading a lot, but doing much of it for free, online. The Pew Research Center has estimated that total U.S. daily newspaper circulation (for print and digital versions combined) in 2017 was 31 million for weekday issues and 34 million for Sunday issues, down 11% and 10%, respectively, from 2016. The news isn't all bad, either, as both The New York Times and The Washington Post have been seeing circulations rise recently.
Transportation is another major expense for many Americans, whether it's your car and its fuel, maintenance, and repairs, or your commuting costs. The average annual cost for an American household is $9,049, according to the Bureau of Labor Statistics' 2016 Consumer Expenditure Survey. The U.S. Census Bureau has pegged the average commute at 26 minutes, while the Citi ThankYou Premier Commuter Index estimates that the average annual commuting cost is $2,600. If you take a look at your own transportation costs and you're appalled, consider reining in that spending by car-pooling, reducing your household vehicle fleet by one, taking more public transportation, or some other methods. It can even be worth investigating whether you can work from home one or two days a week.
15. Tobacco products and supplies
Only about 15.5% of Americans smoke, per the Centers for Disease Control and Prevention. But for those who do, it can be a very costly habit. The cost to the average American household is $337 per year, according to the Bureau of Labor Statistics' 2016 Consumer Expenditure Survey, but that presumably includes plenty of non-smoking households, bringing down the average. If you smoke, it's really worth spending a little time to see what the habit is costing you -- because it's not just costing what you pay for each pack, but also what that money could have done for you. For example, a pack of cigarettes costs $8 or more in many places, so stopping a one-pack-a-day habit would save you almost $3,000 -- or more -- plus what that money could have grown to, if invested instead.
16. Cash donations
Americans set a record for charitable giving in 2017, giving away more than $400 billion. How much did you give away, and how does your giving compare with others'? Well, the average annual household spending on charitable contributions was recently $2,081, per the Bureau of Labor Statistics' 2016 Consumer Expenditure Survey. On top of getting satisfaction from helping others, you can also get some tax breaks from contributions to qualifying charities, via deductions. For example, if you donate $3,000 to charity and you're in a 24% tax bracket, you're looking at avoiding paying taxes on $3,000, saving yourself $720. It's win-win!
A last category of spending tracked by the Bureau of Labor Statistics' (BLS) 2016 Consumer Expenditure Survey is "miscellaneous," with an average cost of $959. Naturally, this figure will vary widely from person to person and household to household. Here's how the BLS itself defines it:
"Miscellaneous includes safety deposit box rental, checking account fees and other bank service charges, credit card memberships, legal fees, accounting fees, funerals, cemetery lots, union dues, occupational expenses, expenses for other properties, and finance charges other than those for mortgages and vehicles."
This is a hard category to use to compare yourself against others, but here's a way to make it useful: If you break out your own spending into what you think are all your main categories -- housing, transportation, food, clothing, etc., and you still have a lot left in "miscellaneous," then you might want to spend some more time breaking that last category down further. You might find, for example, that you spend a lot on postage or on lawn care, and you might identify some spending that can be reined in.
There are charitable gifts and then there are gifts you give to loved ones and others -- just because you want to or maybe because you feel you should. These may be birthday gifts, holiday gifts, wedding gifts, graduation gifts, or spur-of-the-moment gifts. The average spending per guest on wedding gifts was recently $106, per the folks at nerdwallet.com, while average Valentine's Day spending for a significant other was recently $89. Research from finder.com has the average American spending $124 on Mother's Day gifts, while the National Retail Federation pegs Father's Day spending at $133, on average.
Of course, holiday season gifts are a huge subcategory here, recently totaling, on average, about $906, per the folks at statista.com. Whatever you spend on gifts, you may be able to reduce that sum if you mix in some hand-made gifts or look for thoughtful and unusual -- and inexpensive -- items and experiences.
Few of us stay in the same place all year long. Whether it's a big summer vacation or a few weekends away, most folks like to travel. Those expenses can add up, though. Here are some travel-related stats:
- Average vacation costs (including transportation,
lodging, food, and entertainment) for a four-day domestic trip were recently
$581 (or $144 per day), per valuepenguin.com, while a 12-day international trip
averaged $3,251, or $271 per day.
- Baby Boomers expect to take four to five leisure trips in
2018, spending a total of about $6,400, per AARP
- About three-quarters of Americans have gone into debt to
pay for a vacation, averaging about $1,108 of debt, per the 2017
LearnVest Money Habits and Confessions Survey.
- The same survey found that Americans were spending, on
average, about 10% of their incomes on vacations, with a quarter of Americans
reporting spending 15% or more.
Clearly, this is a costly category for many of us. You might manage to spend less if you favor domestic travel more and/or opt to visit various destinations during off-seasons, when crowds and prices are smaller. Another way to keep travel expenses in check at least a little is to make the most of a travel-focused credit card, which can help you earn discounts, miles that can be applied to tickets, and various other perks. Some of the best travel cards even offer sign-up bonuses worth hundreds of dollars.
20. Credit card interest
Another major spending category for many Americans is credit card interest, due to credit card debt. It may not seem "essential," but it's in no way voluntary. The average American household recently carried $5,700 in revolving credit card debt, per valuepenguin.com. Remember, though, that plenty of households are paying off their bills in full and don't have such debt. Thus, the average debt balance of households with such debt is higher -- to the tune, recently, of $9,333. Meanwhile, the average credit card interest rate was recently about 17%, with lots of cards hiking that to just about 30% as a "penalty rate" if you're late with a payment or two or commit some other infraction. If you're carrying $9,000 in debt and paying 17% interest on it annually, that's a cost of $1,530 per year. (Note that interest rates seem to be on the rise lately, too.)
If you're being charged 30%, you're looking at an annual expense of $2,700 -- just for interest. It's hard to make progress in paying down debt when you're paying so much in interest. Fear not, though, it is possible to pay off your debt -- even lots and lots of debt.
21. Bank fees
Bank fees are a stealth expense in many cases. They recently averaged about $329 annually, per Chime Bank's Bank Fee Finder Summary Report, and many get charged without customers noticing. For example, your bank may be charging you for receiving statements in paper form, for redeeming reward points, for returned mail, for not maintaining a minimum balance, and even for "inactivity" -- for not using your account much.
Fortunately, there's no law saying you must stick with your bank. Switching banks may be a pain, but find one with lower fees and you can save thousands of dollars over many years. One good place to start is with some local credit unions, as they often offer better interest rates and lower fees.
When you imagine buying a new car, how much do you imagine paying for it? According to the folks at Kelley Blue Book, the average transaction price of a new light vehicle earlier this year was a hefty $35,444. Here are some averages for certain classes of vehicles:
A good way to reduce spending in this category is to drive your car longer before buying a new one, and to consider buying a used or slightly used car instead of a new one when you need a new set of wheels. Taking good care of the car you have and getting it serviced as recommended can also extend its life.
If you have one or more pets, you probably see your spending on them as rather essential and non-optional. Those expenses can be substantial, too. According to the American Veterinary Medical Association, about 36.5% of American households have dogs and 30.4% have cats, and a survey by the folks at opploans.com revealed just how costly various pets can be. Check it out:
One way to keep pet healthcare costs in check a bit is with pet insurance, if it makes sense for your pet and your budget.
To get a handle on your insurance spending, you'll probably have to tally up a bunch of subcategories. Here are some national averages for you:
- The average U.S. household spends $3,160 on health
insurance, per 2016
data from the Bureau of Labor Statistics.
- The average American spends about $900 annually on car
insurance, according to
the folks at InsurancePanda.com.
- The average cost of homeowners insurance is $1,083
annually, per ValuePenguin.com,
which pegs the
average cost of renters insurance far lower, at a mere $187.
- The average non-smoking American pays $2,037 annually for
a $500,000 term life insurance policy, while smokers fork over an average of
$7,313. Whole life policies tend to cost around $3,000 more per year than that,
Of course, where you live and your personal particulars can leave paying rates far higher or lower than the averages above. Beyond that, look into reducing your insurance bills by calling around for the best rates every year or two and hiking your deductible (as long as you can still afford to pay it if need be). Bundling your policies with the same insurer can yield extra discounts, too.
A last essential cost that most of us face is utilities, which can include electricity, gas, water, trash removal, cable TV, and telephone service, among other things. The U.S. Department of Energy has estimated that the average household spends at least $2,200 on energy, and that at least half of that is for heating and cooling their home. Here's a breakdown of average utility costs from the folks at move.org:
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Selena Maranjian owns shares of Amazon, Netflix, and Zillow Group (C shares). The Motley Fool owns shares of and recommends Amazon, Netflix, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool has a disclosure policy.