What can you learn from the average American’s budget?

If you follow personal finance websites, perhaps you have seen what the average American’s budget looks like.

If not, maybe you have a general idea based on how you spend.

The Bureau of Labor Statistics released this information in September 2014 and the trends are very interesting.

So rather than focusing on what those averages are, let’s figure out what you can learn from how other people are managing their money over the last few years.

Check it out:

As a percentage of income, spending in 2013 and 2014 was quite similar.

Expenses hovered around 80% of income.

But don’t forget that the income shown above is before taxes. Once you factor those in, American’s have shockingly little money for savings.

While most of the insights will come from looking at individual categories here, the biggest thing to take away here is to make sure you don’t focus on your yearly, gross income but rather keep your net income in mind.

Now here’s the deal with some of the more notable expense categories.

There was a 6.17% increase in spending for eating out from 2013 to 2014.

There was an 11.35% increase in apparel purchases.

A 9.91% increase in entertainment.

Notice a trend?

As incomes rose 4.85%, American’s were more likely to spend that extra income on discretionary purchases.

As your income rises, avoid lifestyle inflation so you can use that extra money for short and long term financial goals. Improve your emergency savings, pay down debt or add more to your retirement savings.

It may be exciting to have an increase in income, but it can be financially dangerous to inflate your expenses, so make sure to strongly consider what any extra money coming in is going toward.

The other area to note isn’t on the graph, but is “All Other Expenditures.” This could include education, personal care or extra retirement savings. In 2012, this accounted for $3,557. 2013 was $3,267 and 2014 was $3,548. Essentially unchanged since 2012, this illustrates just how little is put toward retirement.

The whole category is 5.31% of income, and savings is only a portion of that.

It helps give us some insight to why so many in the country are living paycheck to paycheck.

However, we also have to consider that the average American also doesn’t have a lot of wiggle room to save more. This is why finding ways to hack your budget are important over the long run, because every little bit helps. Rarely do you have an area where you can quickly keep an extra few hundred dollars in your pocket each month; however there can be different areas that, when combined, can make a difference.

Now, expenses are obviously going to be different depending on your household size. We’ll focus on the percent of expenditures for four groups: married (average age is 59.1), married with children, a single-parent household with one or more children, and someone who is single (average age 39.1).

Honestly, there isn’t anything too ground-breaking here because the age difference explains some of the variation (Ex. healthcare spending is quite a bit higher for married vs. married with kids or single), so what I challenge you to do is compare your expense percentages to what the averages are.

Are you above or below average? Are there areas you can improve?

How you can improve your budget

Obviously every budget is different. It ultimately doesn’t matter if the average American spends 10% of their income on food if you spend less, but it can help put your spending habits in perspective.

Perhaps you and your spouse spend 15% on food but you notice that on average people in your situation spend 11.8%. There’s probably some room for improvement.

The easiest way to assess where you can improve though is by making your own budget.

Remember these takeaways:

  1. Don’t forget to include your taxes owed when thinking about how much your income is. Think of your net, not gross.
  2. Avoid lifestyle inflation. As American’s income increase, the average person will spend that additional money on discretionary items. Don’t ignore your savings or paying off debt.
  3. In most budgets, there are few (if any) areas that will allow you to make huge improvements quickly. You see those noticeable differences when you make changes in a number of small areas. Little changes add up.

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