Happy Fry-day! 🍳
Do you ever lay awake at night and wonder how much your neighbors spend on canned ham each year? What about their video game budget or annual snack food spending?
Well I have good news for you… Today’s guest post from MoneyLemma reveals these very important statistics — and more — while digging through the average household budget. Enjoy…
Time to gossip for the sake of financial well-being …
Other people’s money is none of your business, and thus inherently interesting.
More importantly, that information is useful. Benchmarking, or using average data as a baseline, is helpful for making a budget and identifying poor spending habits, like buying a non-refundable $28 million ticket to space and then double-booking the calendar:
Understanding how money flows through society is also part of being an informed citizen; it’s an antidote to misinformation. This post examines how Americans spend their money and how that information can help you manage your own household expenses. By the way, this post uses 2019 data because, you know, 2020 was weird.
Average American household income and spending
In 2019, the average U.S. household made $71,487 after taxes. Of that, $8,451 was saved and the rest was spent.
Here’s a more detailed breakdown of household spending, which shows that housing is the biggest expense, followed by transportation, insurance, health care, and then other stuff:
Add it all up, and we see that 68% of after-tax income is spent on housing, transportation, insurance, healthcare, education, and food prepared at home (mostly grocery spending). For the most part, those are necessities, i.e., non-discretionary spending.
Over time, the cost of some of these necessities has generally increased (a.k.a. inflation), which we millennials love complaining about … I mean, seriously, am I ever going to own a home? I’d need a mortgage payment just for a storage locker.
Here, we can see that Americans’ share of after-tax spending on housing costs has grown to 23% in 2019 from 18% in 1973. The budget percentages on insurance and health care expenses have risen, too.
To be fair, the value received in some of these spending categories has arguably increased with the cost. Healthcare today is better than healthcare in 1970, which we see by the rise in life expectancy:
And the average home is bigger:
Reconciling the contradiction that we are both richer and poorer than our parents’ generation is an interesting topic in and of itself.
Household discretionary spending
The typical household spends about $1,200 per month on everything discretionary. That covers a lot: restaurants, Fortnite skins, taxidermy, must-have 90’s nostalgia collectibles, vintage combs, secret love affairs, hush-money payments to estranged former lovers, divorce lawyers, trips to Vegas with the boys, shotgun weddings, divorce lawyers again, desperately starting a personal finance blog to pay off all the lawyers … I’ve said too much.
The biggest discretionary bucket is food away from home, which means food prepared by someone outside the household. The average household spends $294 per month, or $3,528 per year, on eating out.
The second-largest non-essential household expenditure is entertainment, which accounts for about $250 per month, or $3,090 per year. (For some random reason the BLS classifies pet expenses as entertainment.)
(An aside … Americans don’t need to save more. They need to save smarter)
A 2019 Northwestern Mutual study found 90% of Americans don’t think they’ll have enough money to retire. But the average household doesn’t need to be so insecure … the BLS survey reveals that American households are saving $704 per month.
Here’s what that could look like over a 30-year period if invested well.
In other words, monthly savings of $720 will grow to $250,000 if it’s kept in a checking account for 30 years. Invest it? It’ll grow to $1.5 million in the same amount of time.
As long as household savings are invested wisely, most Americans will end up with a sizable nest egg. There’s also social security, insurance, and pensions that aren’t included in these numbers. Bottom line, the data is much stronger than American confidence. C’mon America!
If you want to learn more about what “investing well” means, check out MoneyLemma’s post on why 401ks exist.
How comparing household budgets can help you
I, for one, would love to know what my neighbors are spending on canned ham or ripped jeans. That urge is more than just curiosity — it’s research. Hard data can provide some context for budgeting; it’s a frame of reference.
For example, let’s say you are looking to tighten your pursestrings and save a little more. You’re reviewing your expense habits and figure you spend $2,000 per year on clothes. Is that a lot? A little? Everything in personal finance is relative and subjective, so it’s hard to say. Benchmarking, though, can help you arrive at a conclusion with confidence.
Here’s a rough visual breakdown of the average American household’s apparel spending (with women’s clothing claiming the top spot):
This is a good start but might not be relevant to your household type, like if you’re living alone. Plus, discretionary spending is a function of income — the more disposable income, the more you can spend on clothes.
Here’s a breakout of apparel spending by single women based on income:
You’ll see that women who make less than $15,000 spend $557 a year on clothing. Women who earn $40,000 to $50,000 spend about twice that.
This kind of contextualizing can help you understand where you stand. If you spend a lot of money on clothes, that’s fine — but checking the data keeps you honest with yourself, which makes you more thoughtful about your decisions.
Where to get more data on Americans’ spending habits
Most of the data in this post comes from the US Bureau of Labor and Statistics (BLS) Consumer Expenditure Survey. They publish really detailed data. If you can’t be bothered to dig through their files for analysis, I don’t blame you (it’s boring), but even just googling or asking some peers about their normal household bills is better than nothing.
The goal of benchmarking as a budgeting method is to get an outside perspective. Even if you just ask one friend, or just google one statistic, it can help you get a little perspective. Even small efforts to be intentional and thoughtful can make a big difference — and this is not the first time I’ve ended a personal finance post on that point.
As a parting thought, here’s the answer to my burning question on our fellow Americans’ average spending on canned ham: $0.78 per year.
So, which out of these stats surprised you most? How does your spending stack up???
MoneyLemma writes about the overlap between your money and your world. Check out the MoneyLemma post archive.
Joel is a 35 y/o Aussie living in Los Angeles and the guy behind 5amjoel.com. He loves waking up early, finding ways to be more efficient with time and money, and sharing what he learns with others. Rise Early | Retire Early!