Breakdown of Average Monthly Household Expenses
Have you wondered what Americans are spending their monthly income on? Or how your monthly income spent sheet measures up? Well, now you can find out.
According to data from the Bureau of Labor Statistics, the average pre-tax household income in the U.S. in 2018 was $78,635—but average household expenditures added up to $61,224. This means that most Americans are spending nearly 80% of their income.
Learn how that number breaks down and how much is allocated to expense categories like rent, health care, transportation, childcare, clothing, self-care, and even entertainment. Plus, find out how you can save money on some of your big-ticket monthly expenditures.
We know how much the average American earns—and spends—each month. But how do the numbers break down by category? The data shows that $7,923 is spent annually on food ($4,464 on food at home and $3,459 on eating out), while $20,091 is spent annually on housing costs. The latter accounts for around 25% of the average American’s income. This number is actually well within the appropriate range for housing costs, as many experts say you should spend no more than 30% of your income on this expense.
The Bureau of Labor Statistics data also found that:
- $1,866 was spent annually on clothes and other related services
- $9,761 was spent on transportation, including gas and vehicle purchases
- $4,968 was spent annually on health care
- Entertainment spends averaged out at $3,226 annually
- Education was $1,407
- Personal insurance and pensions cost $7,296
Trends in Income and Spending
From 2016 to 2017, the Bureau of Labor Statistics reported a decrease in the average annual income, but an increase in average annual spending. However, from 2017 to 2018, the data shows that there was a small increase in spending and a larger increase in income. Year over year, the average income before taxes increased 6.9% while spending increased just 1.9%.
The decrease in spending compared to that between 2016 and 2017 may come from specific categories that actually saw negative growth between 2017 and 2018—meaning that Americans actually spent less in 2018 and than 2017 on those categories. One of the largest decreases came from education costs. In 2017, Americans spent an average of $1,491 on education. But in 2018, that average dropped 5.6% to $1,407.
Other major decreases include housing, which saw an overall increase of just 1%, with decreases in two subcategories: shelter (down 1.2%) and owned dwellings (down 3.9%). Vehicle purchases also decreased by 1.9%, health insurance spending was down 0.3%, and spending on all other expenditures saw barely any increase at $2,030 in 2018 compared to $2,010 in 2017.
Where to Cut Back
Start off by focusing your budgeting and financial planning efforts on cutting back on education costs. Consider the following:
- A more cost-effective college or university
- Apply to scholarships and grants
- Apply to a no-loan college
For those already in college, get an on-campus job or try living in cheaper, off-campus housing.
Entertainment is another area that saw a large increase in spending, so focusing your budget cuts on this category is a good financial move. Consider cutting cable and relying solely on a streaming service like Netflix, Hulu, or Amazon Prime.
Limit eating out to once a week or month, and start cooking most of your meals at home. You may also consider a membership to a bulk store like Costco or Sam’s Club, which can also save you money. And instead of hitting up weekly happy hours with friends, host a rotating potluck instead. That way, you’ll get to socialize and “eat out,” but you’ll do it on the cheap.
Vehicle purchases were down, according to the data, but if you still need a car, consider buying a used car instead of new, driving a more cost-effective car, or even forgoing a car altogether and relying on public transportation. If you do decide that purchasing a new car is necessary, aim for one that has a monthly payment that fits into your budget (including the insurance, maintenance, and gas costs).
Other Ways to Save
- Consider eating your meals at home rather than eating out.
- Shop around for affordable health care plans, such as a high deductible health plan (HDHP) which will have a much lower premium. Just be sure to tuck away some funds in the case of a medical emergency.
- Save money on clothing by buying secondhand or selling unused clothes on resale stores and websites like Tradesy or eBay.
- Cut back on childcare costs by nanny sharing or doing a childcare swap with a friend who also has children.