In a previous post, we discussed the basics of budgeting for expenses. This time, we’re diving into what you should ideally spend on housing, food, transportation, and healthcare according to the Bureau of Labor Statistics. The average U.S. household spends $63,036 annually while earning $82,852 before taxes. That’s roughly $5,253 a month, showing a comfortable lifestyle increase, especially with incomes seeing a 5.4% rise from 2018 to 2019, compared to expenditures rising by 3%.
It’s clear that Americans are saving more, with a projected 12% increase in these figures for 2024. I want to focus on the major expenses which are housing, transportation, food, and healthcare. According to data, here’s how the average expenditure breaks down:
– Housing: 32.8%
– Transportation: 15.9%
– Food: 12.9%
– Healthcare: 8.1%
This totals to 69.7% of the average budget.
Interestingly, personal insurance and pensions, which includes Social Security and private savings, average 11.9%. A higher percentage here suggests better financial security. Some people disagree with counting retirement savings like 401(k) and 529 plans as expenses, but they are crucial for future financial stability.
How Does This Compare to Ideal Spending?
If you’re aiming for financial freedom, consider adjusting your budget to:
– Housing: No more than 20%
– Transportation: No more than 10%
– Food: No more than 10%
– Healthcare: No more than 8%
This suggests a total ideal expenditure of 48%, substantially lower than the average. By managing these costs effectively, especially in housing, transportation, and food, you can increase your savings rate significantly.
What About Income?
Reducing costs is challenging with an average income. To really make a dent, focus on increasing your income through promotions, side hustles, or changing industries.
Living Better Than Average
Americans are generally living well, but if you aspire to live exceptionally well, tightening your budget and boosting your income are key. Consider saving aggressively, like stashing away 100% of one paycheck each month or saving all of your year-end bonus. For couples, try saving one partner’s entire income.
The Role of Income
Without a significant income, it’s tough to slash housing, food, and transportation costs by nearly half while trying to save 30% or more of your income. The solution isn’t just in cutting costs but in growing your income significantly.
Investing in Real Estate
Investing in housing remains a wise choice as building costs and general inflation are likely to push expenses higher. You don’t necessarily need to buy property directly but can invest through platforms like Fundrise, which allows investments in real estate with a minimal initial investment.
In conclusion, achieving financial independence isn’t just about cutting back. It’s about making smart choices with your expenditures and seeking ways to increase your income to support a savings rate that accelerates your financial goals.
