Image source: Getty Images
Americans are spending a lot of money, on the whole. But just how much, and where is the cash going? It can be helpful to look at how other people are using their money so you can get a better idea of where you stand relative to your peers — and get some insight into some areas where you might be spending too much.
Here’s what Americans are spending money on
According to recent data from Ramsey Solutions, the average American household spends $6,081 per month or $72,967 annually. But there are big variations in spending depending on household composition. Specifically:
- Families of four spend an average of $7,875 to $9,168 monthly depending on how old their children are.
- Single people average $4,337 per month.
- Married couples without children have average monthly expenses of $7,111.
Housing and transportation account for the biggest chunk of that spending, eating up 33.3% and 16.8% of the average American’s household budget respectively. Food costs take up another 12%, as do personal insurance and pensions, while healthcare comes in at 8%. Finally, entertainment and other expenses account for 4.7% and 3.1% of each household’s spending, while the rest of the money is eaten up by clothes, services, education, and cash contributions.
How does your spending compare to the average American’s?
Taking a look at these numbers can give you a good idea of how your own spending habits fare relative to your peers.
While it’s interesting to see how much money people spend in terms of the dollar amounts going out of their checking accounts every month, the information about where the money is going may be even more helpful. For example, most people are spending a little over a third of their income on housing. That’s just above the recommended level of 30% of household income going toward this spending category.
If you’re devoting a much bigger chunk of your budget to things like housing, food, or entertainment, that may be something that you’d want to take a look at. It’s not necessarily a problem as long as you’re also saving plenty of money and accomplishing your financial goals. But it could give you a starting point for where to look if you’re struggling and need to make some budget cuts.
How can your spending help you meet your goals?
The most important thing, though, is how your spending affects your own personal finances. You may have different financial goals than your fellow Americans, and you may not want to do what the average person does. For example, if you’re hoping to retire early and travel the world, keeping your housing costs well below the average most people spend might give you the ability to save enough to do that.
Ultimately, the goal is to make sure you are easily covering your expenses with your income and have plenty left over to save for the things that matter to you. The best way to do that is to:
- Define your financial goals, being very specific: You should calculate exactly how much you need to save each month for retirement, big purchases, a house down payment, an emergency fund, and whatever your other goals are.
- Automate your savings: Once you know what your goals are, prioritize accomplishing them by paying yourself first. Transfer the necessary amount of money into your savings account so you can be assured you stay on track.
- Keep your fixed expenses low: Aim to keep your fixed monthly expenses below 50% of your income so you have ample funds left over to save and spend.
- Spend on the things that matter. You can make a detailed budget to do that or, if it works for you, you can spend whatever’s left in your bank account after you’ve paid fixed expenses and hit your savings target. Focus on doing the things with your money that bring you the most joy.
If your expenses are below the amount you need to accomplish your goals, then it doesn’t really matter how they compare to that of your peers. You’re doing the right thing for you, and that’s what will count the most in the end.
Where to invest $1,000 right now
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has nearly tripled the market.*
They just revealed what they believe are the 10 best stocks for investors to buy right now…
*Stock Advisor returns as of February 12, 2024
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.
