Average vs. Recommended Expenditure On Housing, Food, Transportation

Average vs. Recommended Expenditure On Housing, Food, Transportation To Achieve Financial Independnce

From a previous post, we know that the average expenditure by U.S. consumers is huge. This post will look at the recommended expenditure on housing, food, transportation and more.

According to the Bureau of Labor Statistics (BLS), the latest data for 2019 shows the average U.S. household spends $63,036 a year and earns $82,852 a year gross income. Spending $5,253 a month on average is good living.

See the data for yourself in the chart below. Notice how the average income before taxes jumps a healthy 5.4% from 2018 to 2019, while the average annual expenditure only increases by 3.0% during the same time period.

Americans are getting richer AND saving more! For 2023, you can increase the figures by about 12% to get an approximate spending and earnings estimate.

Average vs. Recommended Expenditure On Housing, Food, Transportation

With so many line items in the expenditure budget, I thought it would be interesting to focus on the four major expense items:

  1. Housing
  2. Transportation
  3. Food
  4. Healthcare

The Average Percentage Expenditure On Housing, Food, Transportation

According to the BLS, the average percent of total expenditures spent on housing is 32.8%, 15.9% for Transportation, 12.9% for Food, and 8.1% for Healthcare. This totals 69.7%.

Nobody really cares about Apparel and Services. It's housing and healthcare that are the most important items, especially in a high interest rate higher-for-long inflationary environment.

But notice a really interesting expense: Personal Insurance and Pensions. Personal Insurance and Pensions is essentially forced (Social Security and Pensions) and unforced savings. It averages 11.9%. The higher this percentage, the better.

If you read the many complaints in my $300,000 and $500,000 middle-class budget posts, you'll notice some people are mad that I include 401(k) and 529 plan contributions as an expenditure. They say I'm wrong and stupid.

But guess what folks? When creating an income statement, you either have to classify the item as an income or as an expense. Paying upfront to ensure a more financially secure future is an expense.

If you don't believe classifying retirement savings is an expense, then take it up with the Bureau of Labor Statistics!

One of the biggest reasons why the fear of running out of money in retirement is overblown is because worker bees FAIL to account for or believe that saving for retirement is an expense.

Here's the thing. If you've really saved enough for retirement, you no longer need to save for retirement in retirement. Suddenly, that expense is gone and you may have more cash flow than anticipated.

How Do You Compare To The Average Expenditure?

Based on these latest expenditure statistics, the average American is doing well. Income is up, savings rates are up, and we're 10+ years into a bull market.

But let's say living well isn't good enough. You want to live GREAT and be much better than average with your one and only life.

What should your target expenditure percentages per category be to help you achieve financial freedom sooner, rather than later?

I've got the answers for you.

Target Expenditure Percentages By Category

Here is my recommended expenditure on housing, transportation, food, and healthcare.

Housing: 31.1% Average vs. Recommended 20% Or Less

Transportation: 15.9% Average vs. Recommended 10% Or Less

Food: 12.9% Average vs. Recommended 10% Or Less

Healthcare: 8.1% Average vs. Recommended 8% Or Less

Average Total: 69.7% versus Recommended Total 48%

In other words, I recommend slashing your Housing, Transportation, and Food expenses by almost half compared to the average American.

Unfortunately, you can't do much about reducing Healthcare expense since it is highly regulated and restrictive. Unless you want to take more risks, drastically reduce your income to get healthcare subsidies, or move to Canada, I've kept the budget percent inline with the average.

Meanwhile, instead of only allocating 11.9% of your budget to Personal Insurance and Pensions (Savings/Investments), I recommend ramping the percentage up to at least 30%. Once you can get to a 30%+ savings rate, you should be well on your way to financial independence.

Your ultimate goal should be to consistently get to a 50%+ household savings rate. One of the easiest ways to achieve a 50% savings rate is to try and save 100% of one bi-weekly paycheck each month and save most of your year-end bonus, if any. If you have a spouse who earns a similar amount, you guys can try and save 100% of one spouse's income as well.

Once you've got your savings/investing rate at a high level, everything else will fall in place. Conversely, once you fix your Housing, Transportation, and Food expenses, it'll be much easier for you to save and invest.

Recommended Expenditure Targets For Financial Independence

The Missing Variable: Income

To slash Housing, Transportation, and Food costs by roughly half while increasing your Savings / Investments to 30% or more is difficult on an average income of $78,635. However, the missing variable to this equation is aggressively growing income.

It's extremely hard to frugal your way to early retirement. Instead, your concurrent goal should be to double or triple your income by finding extra work, getting promoted, switching industries, starting a side business, working longer hours, learning new skills and more. It won't be easy, but nothing good comes easy.

I'm positive that if you follow my Aggressive column, you will achieve financial independence within 15 years. If you follow the Target column, financial independence will be yours within 25 years. It's up to you to figure out the right balance.

Related: How To Make Six Figures At Almost Any Age

Americans Are Living Well By Spending Well

Hopefully, nobody feels sorry for Americans who are able to spend $61,000 a year while saving 11.9% for retirement on average a year. We are truly living in the best of times in the greatest country in the world.

If you get to spend more than $61,000 a year, there's no real sense of urgency to retire early. But for those of you who don't like your jobs or can't see yourself working for 30+ years, then the only way to get out is to tighten your budget, earn more income, and follow my recommended expenditure targets.

Owning your primary residence long-term is important because you get to sidestep inflationary costs while also benefitting from an inflating asset. The return on rent is always -100%, no matter how much you want to believe otherwise.

Thankfully, the recommended expenditure on housing is no more easily met due to a drastic decline in mortgage rates. Housing affordability has gone up because mortgage rates have gone down. If you haven't refinanced your mortgage yet, I would do so. Check out Credible for real and free mortgage rate quotes from qualified lenders.

Forcing yourself to drive a humble car, take public transportation, walk, bike, or take an Uber pool will also help you stop pissing away your money. Spending too much on a car is probably the #1 personal finance killer in America.

Meanwhile, the data shows most Americans are eating far too much. To save money on food and lose weight is such a great combination! Heck, if you lose weight, there's also a chance your healthcare costs may go down as well.

With the average wage, saving at least 20% of your income is possible. Whether you do so or not just depends on how quickly you want to achieve financial freedom.

When I was making just $40,000 a year in Manhattan, I maxed out my 401(k). Further, I lived in a studio with a friend because I knew I wouldn't be able to last for more than 20 years in the finance business. It was simply too brutal. Therefore, I lived like a college student for years and diligently saved.

For those of you with cushy jobs and single-digit work hours per day, you are in danger of not saving enough because your work life is too good. You need to seek PAIN and DISCOMFORT to get you more financially motivated.

Do not expect the good life to continue indefinitely. Force yourself to save more because nothing good lasts forever!

Bottom line: If you want to be financially above average, you need to spend below average and earn above average. There's no way around it. That said, you could also make a strategic investment in yourself by donating lots of money to fancy events. For example, AOC paid $35,000 to attend the Met Gala in 2021, which has likely boosted her shadow net worth by 100X.

Invest In Real Estate To Build More Wealth Long Term

Housing is an important part of everyday expenditure. Over time, housing expenditure will likely continue to grow due to rising building costs, materials, and inflation overall. As a result, it's wise to invest in housing.

Today, you don't have to own a physical rental property and come up with a large downpayment. Instead, you can invest in real estate more easily online. Here are my two favorite private real estate investment platforms.

Fundrise: A way for all investors to diversify into real estate through private funds with just $10. Fundrise has been around since 2012 and manages over $3.3 billion for 400,000+ investors. 

The real estate platform invests primarily in residential and industrial properties in the Sunbelt, where valuations are cheaper and yields are higher. The spreading out of America is a long-term demographic trend. For most people, investing in a diversified fund is the way to go. 

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. These cities also have higher growth potential due to job growth and demographic trends. 

If you are a real estate enthusiast with more time, you can build your own diversified real estate portfolio with CrowdStreet. However, before investing in each deal, make sure to do extensive due diligence on each sponsor. Understanding each sponsor's track record and experience is vital.


I've invested $810,000 in real estate crowdfunding so far. My goal is to diversify my expensive SF real estate holdings and earn more 100% passive income. I plan to continue dollar-cost investing into private real estate for the next decade.

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84 thoughts on “Average vs. Recommended Expenditure On Housing, Food, Transportation”

  1. I am assuming these figures are for your gross income, not net? I’m thankful that figured either way I would be hitting your suggestions. We are able to live a comfortable life in charleston Sc while saving 50% of our net or 35% of our gross income on retirement on $250k per year salaries while being home owners. We are in mid 40’s and are three years away from paying off our house with a net worth of $1.5m. If people follow your advice it will work and they will be financially independent. Just takes some self denial and some delayed gratification

  2. Constant Momballa Mbun

    Thanks for the interesting article with clear targets in sharing the income to gain financial independence. However, one expenditure that seems underestimated and should be included among the major expenditure categories for those with children is education.

  3. This is a joke.

    A recent study by the Brookings Institution found that 53 million people in the US—44 percent of all workers—“earn barely enough to live on.” The study found that the median pay of this group was $10.22 per hour, around $18,000 a year. Thirty seven percent of those making $10 an hour have children. More than half are the primary earners or “contribute substantially” to family income.

    Similarly, a Reuters report from 2018 found that the average income of the bottom 40 percent of workers in the United States was $11,600.

    So what’s this about “the average” family spending 61K a year then?

  4. Alex Goumilevski

    Sam, this is a totally awesome article and you are SO ON POINT! There are so many people that talk about investing/retiring early and then continue to spend 80-90% of their after tax income. Once you start saving, you realize that living on less income is not any less fun, and often times is actually more enjoyable. And you get to be less of a consumer and contribute more towards buying less stuff = producing less of a harmful impact on the world!

    The bigger thing also I see is the “expense creep” that people encounter when they start making more money. They get a raise, bonus, etc, then buy a more expensive car/house/vacations, whatever. I think it’s fine to take a small portion of your increase (say 10% or so) and blow it on something you enjoy, but don’t spend all of it. Then you can never get off the friggen treadmill!

    I’ve been reading your posts for 4-5 years and you really speak the truth, that some folks don’t want to hear. Thank you so much for being a rockstar and doing this, world needs it!

    I do think if you put out a book and can get it read, it would be a positive contribution to society, even if it is a pain in the rear to do it.



  5. Trying to get ahead

    I continue to be surprised by how much money people are spending, even under what FS considers an “aggressive” savings budget. Where is the money going? My wife and I gross $550,000 combined, or $407,000 after taxes. We live in a 4 bed / 2.5 bath house worth $700,000 outside NYC and both commute 1 hour by PT to NYC. We wear brand-name clothing and travel frequently to international locations. I would think most outside observers would agree we live well. We spend as follows:

    Housing 5.4% ($22,000) (includes RE taxes, utilities, maintenance, lawn, etc.)
    Transportation 4.4% ($18,000) (includes PT, 2 cars, maintenance, and insurance)
    Food 3% ($12,600) (includes groceries and dining out for sushi, etc.)
    Healthcare 1.2% ($5,000) (includes premiums, copays, and Warby Parker eyeglasses)
    Apparel .5% ($2,000)
    Misc Expenses 5.5% ($22,400) (includes weekly trips to Costco and Marshalls)
    Savings/Retirement 80% ($325,000) ($19,000 each for 401(k)s plus matches, $6,000 each for backdoor Roth IRAs, and balance in taxable brokerage account)


    1. Housing. As one of the other commenters highlighted, it is somewhat disingenuous for me to represent my housing cost as being so low because my home is mortgage-free, so I am not sure how to count that. If I had a mortgage, my housing costs would surge $30,000 per year, forcing my total housing costs to 12.7% of our gross household income. How should I look at that percentage of my budget considering that?

    2. Transportation. I own one car and lease a second car for $200/month. Is that considered financial imprudent because it would be less expensive over time to own both cars and drive them for several years, or is it moot because $200/month is a relatively low cost on a $550,000 household income? Would you consider this a rounding error over time or should I rein in that expense?

    3. Healthcare. How are people spending 8% of their incomes on healthcare? This cannot be for just premiums. Does this assume health issues?

    4. General. How are people spending 88% of their incomes? Actually, how are they even spending 50% of their incomes, especially for people making over $250,000/yr?

    5. How do you define FI?

    Thank you.

    1. There’s this thing called social security. It allows people to spend every dollar they make and more. They turn sixty-something and live off of that plus medicare. Pretty simple concept.

    2. 4. Looks like you have major cost elements paid off / eliminated (house, education, childcare, vacations, etc.) which is normally not the case for most people. I’m on the same boat as you although making about half. However, i can see where money can easily disappear if I don’t make rational budgetary restrictions. Spending $60-70K is super easy even if you biggest ticket items paid off

      1. Trying to get ahead

        That’s actually what I am spending. We are spending 20% of our take home, or about $81,000 or so. I just don’t know if my numbers are disingenuous to myself because there is no mortgage expense. I do, however, have a lot less saved and invested in mutual funds because I dedicated so much money for so long to debt repayment. For example, adding back the mortgage I used to have as a pro forma for illustrative purposes, raises my expenses from 20% of NI to 27%.

        1. The normal way to account for housing cost on a paid-off house is “imputed rent”, i.e. what you could rent the place for if you weren’t living in it. This can be tricky sometimes as some areas have few if any rentals, but a decent ballpark estimate would be 5% of the home value (per year). So for you a decent guess would be $35k per year in housing expense (on top of property taxes, maintenance, etc).

          1. Trying to get ahead

            Sore subject. It would obviously be alot higher. Unfortunately, I did not predict this incredible 10 year bull market and I am old enough to remember 2008 well and all of the people who lost everything because they lost their jobs and their nest eggs while they still had big mortgages on their homes. I have been expecting a recession for a few years now. I was trying to set myself up for always avoiding a situation like that. I will have a $5mm net worth by age 40 with no debt (other than one small loan on one of my rental properties) and then I will have 25 years to supercharge my investments since I have reduced my monthly expenses by paying off my mortgage, student loans and mortgages on other rental properties. Had the last several years not had gone as well as they had, I would have looked like a genius, but given the tremendous bull run, I look a little foolish for paying off so much debt.

            1. I don’t think it’s ever wrong to pay off debt. Sure, you could have made more investing, but paying off debt is great.

              I’ve been relatively conservative with my investments as well since I left work in 2012. But things are just gravy, so I’m happy with the peace of mind.

    3. The Great Pumpkin

      Don’t be one of these losers who don’t enjoy life and die giving away millions. If you don’t need it, don’t waste precious time making it. Not rocket science.

      1. Trying to get ahead

        The problem is who knows what they “need?” As you are working, you want to save as much as you can to have security and you never know what the future will bring (e.g., sickness, job loss, financial meltdown), so you save to protect against the downside. Therefore, it’s entirely possible that you die “giving away millions.” I am also not sure that you can’t “enjoy life” if you are a super saver because that implies that you need to spend money to be happy.

    4. “How are people spending 8% of their incomes on healthcare?”

      For a single self-employed male in the United States a basic policy with a huge copay and very little coverage can easily be over $1000 a month.

      Since the majority of the population makes less than 8000 a month, this is quite easy for regular people to understand.

  6. Our housing costs (inclusive of taxes and insurance) are around 32%, so slightly higher than the average and we are able to save 28% of my husband’s after tax base salary. I don’t break our spending down otherwise (it just goes on a cash back credit card). I don’t really budget for home upgrades (so that would come out of the savings percentage) and sometimes he gets bonuses which we save all of, so that savings percentage is sometimes lower and sometimes higher. We have three kids, but we are thinking about downsizing and decreasing that housing % a bit going forward (and at this point we have a decent amount of home equity just sitting there).

    1. 32% is kinda high, but it’s hard to downsize with three kids under 18.

      I will say that if you can get to 20%, you will feel amazing progress on the road to financial independence.

  7. The BLS consumption category for housing includes mortgage fees and interest, home maintenance, hotels, furniture, housewares, housekeeping supplies, fuel/electricity, etc. I think including all these items is difficult in practice. Everyone probably thinks their spending way less than 30%, but may not be per the BLS definition.


  8. Houses and Cars–usually the two largest problems. Why? One, we need them, and two, they are the largest exterior presentations of our wealth or lack thereof.

    So people spend inordinate amounts of money driving new, high-end, expensive cars to get from A to B when a car significantly less provides the same. And people continue to purchase larger, nicer houses as income increases. The basic needs for shelter and transportation are so commingled with image that people lose site of the utility provided and focus on the image.

    The simple answer? Stop caring about what others think and purchase based on utility provided. Easier said than done, I know–but it works; I live it everyday.

    I don’t wish I spent less on any category necessarily, as we live well below our means, but “TV/PHONE/INTERNET” is way too costly for what we get, and the constantly increasing fees are insane.

    1. good point. I went carless and am currently living in a cheap rental. I think a good balance is important. Everyone’s goals are different, but just because someone pays way more for luxuries and does not save for retirement, I do not want my taxes raised to bail those types of people out… makes me upset when thinking about it. I sacrifice daily going to work, consistently earning and saving.

      1. I’m averaging $1.27 per day on food for the past 2 weeks. It is definitely possible. People will make all kinds of excuses for the choices they make. Meanwhile I’ll have complete freedom over my time at age 29 when I’m worth 7 figures

      2. Absolutely agree. If my taxes continue to increase because people want free healthcare, free education or free anything, I have a concern.

        Look beyond the giant houses, the fancy cars, the fancy clothes, the jewelry–its quite often an (expensive) facade. People driving $50-$70k SUVs with credit card debt, student loans, etc. up the wazoo.

        Why would I ever subsidize or support forgiving someone’s personal (i.e. school, health, etc.) loans when they drive nicer cars and live in bigger houses than I do? Just because I make X times more than them? That’s effed up.

        1. Are you just as upset at your taxes going to endless wars?

          I’d rather taxes go towards healthcare and education than more buried bodies.

          1. Taxes help fund numerous programs we need, e.g. military. But to answer your question, military spending doesn’t bother me, its necessary, to what extent is debatable, but a necessity nonetheless. (Do we need to spend as much as we do and fight “endless wars,” I’m not sure I’m qualified enough or know enough of the facts to answer that much broader question.)

            Me subsiding others education and healthcare? Not a necessity and that bothers me. (That happens enough already…)

    2. I agree with this, although I wonder, is it possible that Americans are actually much much much wealthier than the data presents? When you have a 25-year-old driving on $55,000 BMW, surely that money has to legally come from somewhere.

      Perhaps a massive generational wealth transfer is really in effect and has always been in effect for decades.

    3. The Great Pumpkin

      You clearly aren’t in business or sales. Unfortunately, image sells. You look at people selling an image as fools while not realizing this image is an investment in their income with a solid return.

  9. Simple Financial Independence Math

    From the age of 25 to 35 – it is 10 to 15 percents after tax saving and invest in the American’s prosperity.

    From the age of 35 to 45 – it is 15 to 40 percents.

    From the age of 45 to 55 – it is 40 to 60 percents.

    Leverage FS compiled expenses data and compete against the statistics to get into the appropriate saving rate by age.

  10. I love going back to the $500K rat race article and all the people criticizing Sam because of the article. He is merely stating how people at higher income levels can feel strapped, based on how they budget. Regardless, Sam I appreciate the articles. Keep up the great work. This site is a valuable resource.

    1. Agree. And Sam, PLEASE DON’T SELL YOUR SITE. If you don’t own it, you won’t have the passion for the content as you do now.

    1. Do you think this to be true? There are many $15-$25/hour jobs out there that aren’t being filled b/c it seems like people don’t WANT to work these jobs.

      There’s also a lot of unreported income as well.

      But yes, median wage will be lower than average. But why compare yourself to the median, when you can at least compare yourself to the average?

      1. It’s like the example of Bill Gates visting a homeless shelter….the average net worth in the room is a multimilionare.

        1. Yep, are you of the belief that most of American is poor and struggling to get by in this economy? If so, can you elaborate and share what kind of struggles you are facing?


  11. I’m pretty much agreeing with this. Most of our careers we’ve been in the target column and we moved mostly to the aggressive column a year ago. If it’s possible for people to be at target, it makes long-term planning a lot less stressful. This is when you can start planning on cruddy 4% real returns and still be ok.

  12. Sam – what a great post! I just recently posted about the average household expenditure as well. I guess great minds do think alike.

    That’s why I argue it makes great sense for young folks starting out to live at home for the first 3 years of their working life.

    They can cut down on the number 1 expenditure (housing) and also save on the other ones (such as transportation if you can use your parents’ car instead or food if you eat home cooking).

    That amount saved by living at home the first 3 years, when invested throughout your working life, can lead to millions and fund your retirement.

    1. I agree that living at home to drastically save costs for the first three years after high school or college makes a ton of sense.

      But after 5 years, adult kids have gotta go. Otherwise, they’ll get too dependent on mom and dad.

    2. Lynette Dudley

      That makes sense. However, as a parent (paying those household bills for the “stay at home” kid), I would ask that the kid contribute a weekly/monthly stipend. Only fair.

  13. While understanding expenses is important, it’s much more important to avoid major lifestyle inflation and go for the big income. Take leverage in your career, don’t play it too safe. Also agree that the window is only so long, burnout or market efficiency (technology, too many people chasing the same opportunity, etc) will eventually change the situation.

    1. Yes, go for the home runs early in your career while you are still young, have the energy, and can more easily withstand setbacks.

      I always wish to have taken more risks with my life while young… like go to China for that eye glass factor job op in Shenzhen in 1999.

  14. It’s easy to hit your recommended 50% savings target with a paid off mortgage. Although not optimal from an investment ROI perspective, it sure makes it easier to allow yourself to spend on a few extra luxuries. I personally like the relaxed budget vs buying a nicer house to get that incremental “living in a nicer house” value.

  15. Some people may be able to trim a bit off of food but probably not too much. The biggest waste I see by far is the car situation. If the average American’s car expenses are that high (gas, insurance, registration, payment), then that is a significant deterrent to building more wealth. Unless the money really is there I would say go with a used Honda/Toyota and keep the number down.

    1. In our case the car is indeed a huge expense (even if we drive a 10 year old car we purchased in cash). The insurance is 250/month, because husband has no driving history in the US, even if he drove cars for more than 30 years.

      In our case we live off about 3,000/month, when rent + utilities + car insurance amount to more than 2,300/month. The remainder is for food and daughter’s needs.

      Weren’t able to save money yet, but we’re still debt free, which is important to us.

      I wished we lived off 50K+ yearly, but there’s a lot of work to increase our incomes to this number.

  16. The ” food at home” number, $4,464.00, is crazy low. That’s $86 a week for grocery budget. You could swing it if you live alone sure… Maybe with one other person but with a family?!? I don’t see how? I have a family of 5 and we budget $200 a week and that is tight were we buy what we can afford vs what we want. Does anyone else out on the blog with a family make it by with this little on groceries? If so what’s your secret?

    1. Family of 3: We cut our grocery bill in half by shopping at Dutch country grocery stores.

      We save hundreds of dollars every year by shopping at these discount grocery stores.

      Items are scratch and dent, overstock, discontinued that the big chain stores have to clear from the shelves. You benefit by getting a huge discount on name brand items.

      They also have high quality bulk foods that can save you lots of money.

  17. Financial Freedom Countdown

    I just ignore social security in all my future calculations. I’m quite pessimistic that we would receive even half of the promised amount.

    Agree that increasing income is the best route. Housing and car are one time costs. Food can be cut, but even food is expensive in SF due to additional restaurant taxes.

    Glad the markets are up and automated investments eliminated much of the decision fatigue due overvaluation “noise” by all the CNBC talking heads.

    1. The great thing about SS is that it will probably come. But maybe only with a 70% payout. It’s going to feel like free money when we finally get it, if we don’t ever expect it.

  18. With $95000 in expected combined annual pensions, it appears my wife and can spend like maniacs until I retire in 9 years.

  19. Great insights! I agree that it’s harder but more beneficial in the long run to work to increase income alongside managing expenses versus just reducing expenses. Every bit counts. Even if you can only negotiate a small raise here and there, those increases are worth every penny and are also great motivators to find more ways to increase income like side hustles.

    Once I got beyond my “1 job for 40 hours a week is enough” mentality, many more doors and opportunities opened. It’s important to feel a healthy work life balance but I was able to manage 50-70 hours a week with 1 main job and 1-3 side hustles simultaneously for many years and it really paid off.

  20. Good data to ponder on. With all the health kicks, food costs can go up too. Organic whole foods, salads, salmon, clean protein sources etc. are usually more expensive than cheeseburgers and fries. It costs money to look and feel good. Yes, long-term it may be better by avoiding health problems and associated costs.

      1. Jack Sheppard

        Average national price for chicken per pound: .94 cents

        Average national price for boneless chicken breast per pound: $3.33

        Already the “look good / feel good” ingredients are costing more money. I side with SMM on this.

  21. I agree with Peter about the income taxes. It’s like listening to Dave Ramsey when he tells someone who makes $5000 per month “oh your take home pay is $4000 “, he doesn’t take into account that with the taxes in California your take home is not $4000, if you’re single your take home pay is more like $2500. I don’t know how you were able to max out your 401k. I make $100k with overtime as an RN. I am debt free except for my mortgage, and I wouldn’t be able to pay extra to my mortgage if I maxed out my TSP (government 401K).
    My question to you is….would it be better to max out the TSP, so it comes off the top of my income and not have the house paid off in 3 years (I owe 129K) or to just keep putting 19% of my pay to the TSP and have the house paid off in 3 years?

    1. The expenses are after tax numbers.

      There is a $17,000 gap between the average income and the average total expenditures. $17K/$78k = 21.8% effective tax rate.

      Perhaps I’m missing something. But I assume all expense line items are after tax except for pre-tax retirement savings like the IRA or 401k, given we can’t pay for things like rent or a car with pre-tax money usually.

    2. California taxes are high, but they are not 30% (for anyone, much less someone making $60k/yr). Someone who makes $5000 per month (pre-tax) in California (filing as single) would have after-tax income of $3822.96 per month.
      Fed taxable income after std deduction = 47800 –> 6743.50 federal income tax
      CA taxable income after std deduction = 55764 –> 2791.00 CA state income tax
      FICA (SS+Med 7.65%) = 4590
      CA SDI (1%) = 600
      Total taxes = 14124.50/yr, 1177.04/month

        1. ERIC MEYERS

          I make $65k in San Diego, CA and my take home after all the things you listed here without Union Dues is about 4k a month. I’ve been maxing out my roth 401k, so I only see about 2500 of it after the automatic contribution. I hate how high the taxes are, but government and Cali aren’t taking 50% all together. you might want to look into what is going on there.

          1. $65k per year / 26 pay periods = $2500 per pay period, which means you only pay $1000 for State/Fed taxes , medical/dental, vision per month then you also contribute $730 per pay period to max out 401k ($19,000 per year)? And you still end up with $4000 per month???
            Please tell me how you do that. How are you filing your W2?
            Thanks, any help is appreciated.

            1. I get that someone making $65K filing single in CA would owe a grand total of 16106.66 in taxes (that’s Fed+CA+FICA+CASDI). On a monthly basis that would be (5416.67-1342.22=) 4074.75 after taxes. The monthly contribution to max out the 401k is 1583.33, so that would leave net pay of 2491.11 before whatever the employee’s share of benefits is. (Mine cost $128/mo, but that is of course dependent upon the generosity of one’s employer.)

  22. Interesting to see Education expenditures fall ~6% YoY after going up 12% the year before.

    Would you guess that to be a quirk of the data collection or do you think the tide really turned last year on private school/college spending?

    1. Great highlight!

      I think Americans are wising up to the fact that paying an arm and a leg for education is proving to be a worsening investment.

      With everything being free online and the massive student loan debt figures, Americans are getting smarter about education spending.

      I am pretty certain that in 20 years, people who go to the most expensive private schools Will not want to tell anybody where they went to school. Because if you do go to one in 20 years, it’ll just signal that you are extremely wealthy to afford that type of tuition and time compared to everyone else.

      Related: https://www.financialsamurai.com/the-rapid-depreciation-of-a-harvard-education-how-private-school-grads-can-still-save-themselves/

  23. I always thought they should change the category names from Income and Expenses to Income and Outgo. That should clear things up for the people who don’t understand why savings and investments are classified as an expense. Agree?

  24. I think it’d be tough to slash much. If you look at the number in $ instead of %.
    After slashing to your recommended level –
    Housing: $13,300/year
    Transportation: $6,500/year
    Food: $6,000/year

    This budget is really tight. Housing in particular. I don’t think most people in big cities can slash much.

    This year we spent under $50,000. But $10,000 of that was for my parents. I guess that’s under other.

    1. You’re right that the target expenditure percentages are aggressive. The missing variable is making more money.

      To be above average financially, we need to spend below average and earn above average. There’s just no way around it.

  25. You can’t ignore income taxes. When you start with avg. income before taxes and ignore taxes, based on your analysis, people do not have any money for savings, To go from $78,000 and end up with $2k without considering taxes shows the average family is working on a tight budget.

    1. $78K income average
      $61K spending average

      What would you attribute the difference to be, if not taxes?

      There is a line item for Personal Insurance and pensions (savings) are 11.9%.

      1. The data for this is in the more detailed BLS tables.

        The average income after-taxes is $67241 and average expenditures were $61244, so there is average savings of about $6k. More than all of the savings is being done by the top two quintiles, however. The lowest quintile had after-tax income of $11695 and average expenditures of $26399; the 2nd quintile had AT income of $31199 and expenditures of $39968; and the middle quintile had AT income of $51211 and expenditures of $51729. By contrast the top quintile had average after-tax income of $161954 and expenditures of just $118781, so they saved more than $30k on average.

  26. I was shocked by the data presented. Something doesn’t make sense.

    On one hand this data is saying that average people actually do live below their means and have a much higher savings rate than I thought would be the case.

    And on the other hand there is previous data that says that the average retiree has less than $100k in retirement at the age of 65 and that most people cannot handle a financial hit of $1k or so without having to borrow or sell something (so no emergency fund).

    This seems to be contradictions to each other so not sure what gives.

    1. I truly believe that Americans on average are much wealthier than we think. There is a lot of hidden wealth in terms of housing equity, pensions, and Social Security people do not properly calculate into their net worth.

      Just go to the mall during this time period. Packed. Just take a flight anywhere during this time period. Packed. Consumer retail sales figures are up as well.

      1. Agree. Spending just seems to go up and up. People don’t realize how much we take for granted and how high the average American spending really is.

    2. Patrick J Wilson

      Social Security “contributions” are being included in the personal insurance and pensions number. And Social Security is never included in the “people have less than $100K” in retirement figure.

    3. Well, one misleading aspect of this data is that it uses average (mean), instead of median, which would be more appropriate for this sort of data. BLS does not report median household income, but they do report data for quintiles, and whereas the overall mean household income before taxes is $78635, the mean income of the third (middle) quintile is just $54900. So the “average” household — as in 50th percentile — is making much less than $78k, it’s just that the average is inflated by very high incomes at the top.

      The middle quintile’s average after-tax income is $51211, and their average expenditures are $51729, so in fact people in the middle are not “living below their means,” indeed they are just scraping by, and not even quite at that.

    4. Earnings are $78K and spending is $61K but I dont see where income taxes (federal and state withholding) are factored in. I imagine that would make this budget tight if not impossible. So then you think about something happening like a big medical bill or car repair and that would easily push the average person into debt.

      1. They have more detailed tables that include taxes here:

        (I looked at “Quintiles of income before taxes” under “Average expenditure, share, and standard error tables”. The data for the middle quintile does not support Sam’s argument that the average American is doing great.)

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