The amount of money you earn impacts many aspects of your personal finances. The more you make, the easier it is to live within a budget, cover your expenses, and have money left over for other things.
Sometimes it can be hard to get a good perspective on where you stand in terms of how much you’re making or whether you earn a lot or a little cash. That’s why it can be helpful to know how your earnings compare to what your peers are bringing home.
This is the average income among Americans
According to the Federal Reserve, the median household income in 2021 was $70,300, up 3% from $67,900 in 2021. The mean household income during 2021 was much higher at $141,900 in 2021, up 15% from $123,400 in 2018. Mean income is higher than median income because there are some very high earners that raise the average amount of household income people are bringing in.
The Federal Reserve reported that the income gains since 2018 occurred at all income levels, but those who earned the most experienced the greatest positive change to their earnings (which is not surprising, and which served to increase income inequality during this time).
These median and mean incomes are before taxes are taken out, and stimulus payments families received from the government during the COVID-19 pandemic were potentially captured when people reported their income, but were excluded from the Federal Reserves report.
The income numbers are also a measure of the “usual” or customary income families received, so if some families were unemployed or lost money on investments, they would have reported how much they usually made and not necessarily how much they made in that particular year.
The income increases between 2018 and 2022 are also measured after adjusting for inflation. There were substantial price increases that happened post-pandemic, and without adjusting for inflation, median and mean income went up 20% and 33% respectively. In other words, people made big gains in the amount they were bringing home, but not in their buying power because prices rose a lot too.
So, these numbers should give you a pretty good idea of what households across the country were bringing home in recent years.
How can you make the most of your income
Now, your income may be above or below what your fellow Americans are bringing home. But while income has a big impact on how much money ends up in your checking account, a low income doesn’t mean you’re going to end up broke and a high income doesn’t mean you’ll end up rich.
In fact, plenty of people who earn a lot of money spend it on purchases that don’t end up increasing their net worth in the long run, while many people with limited incomes end up saving diligently and growing rich. A lot depends on what you do with the money you’re earning.
If you want to make the most of your income, you should spend mindfully and prioritize savings. This means making choices about where your dollars should go. You can do that by budgeting, tracking spending, and focusing on spending on things that you truly value while cutting expenses in areas that don’t matter as much to you.
You should also set savings goals that are specific and measurable (such as saving $500 a month for retirement and $50 a month for vacations or whatever amount makes sense for you). You can use online savings calculators from Investor.gov to see how much you need to save each month to hit your targets. Once you have a goal, automate transfers to savings and your brokerage account on payday so you always hit your target.
By taking these steps, you can make the most of the income you have, regardless of how it compares to what your peers are earning.
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