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Average American Spending

Maintaining a balanced budget can be tricky, especially if you have limited income. But even high income earners often struggle to keep their expenses in line with what they earn. Here’s a simplified look at American household spending from the 2015 Bureau of Labor Statistics annual report:

Compare spending with average American spending statistics

Breaking down income and American spending habits

Increases in average spending across the board

According to the data, the average spending across all types of expenses increased in 2015. Expenditures for food, housing, apparel and services all rose between 3.4% and 3.9%. That’s in spite of the fact that the Consumer Price Index remained largely unchanged at 0.1%. In other words, the increase in spending does is not the result of inflation. Instead it shows American households are simply spending more this year than they did the last.

On the bright side, cash contributions also increased this year by 1.7%. Most of that increase comes from average contributions to non-payroll retirement accounts like IRAs, which rose to $795. That’s a 45.2% improvement over last year.

Differently family units spend money differently

Keep in mind as you look at these numbers that your household may have slightly higher or lower numbers.

For example…

  • Single parents with at least one child under the age of 18 spend the most on Housing (36.8%) and Food (13.4%). This leaves less money available for things like Healthcare (5.2%) and Personal Insurance (8.9%)
  • Meanwhile, married couples with children under the age of 18 in the house tend to spend the most on Personal Insurance (13.3%)
  • And married couples without children spend the most of their budgets on Healthcare (10.2%)

The key point is to maintain a balanced budget where you’re not using all of your income each month. You should have income leftover after you’ve covered all of your expenses. This is key to financial stability.

Better budget balance, better cash flow

Another positive sign for household budgeting comes in how much free cash flow the average household has. Free cash flow is the money you have leftover once all of your regular budgeted expenses are paid for. Free cash flow improved this year, continue increases from lows seen at the end of the Great Recession in 2013.

 Avg. annual incomeAvg. yearly expendituresAvg. free cash flow

Why free cash flow is key

Free cash flow is typically the money that households use to gain financial ground, either by adding to savings and investments or by paying down debt. It’s the extra money you divert to make a higher credit card debt payment so you don’t get stuck in a minimum payment trap. It’s also the money you use to build savings that eventually gets turned into cash equivalents and other investments.

It’s also critical to have free cash flow in case you have an emergency or unexpected expense. If you’re living paycheck to paycheck, one financial challenge can send you into a tailspin. Free cash flow allows you to create the emergency savings you need to weather financial storms.

What to do if you don’t have free cash flow

If every penny of income is spoken for as it’s earned, then you have a budget problem and you need to balance your budget before it becomes an issue. There are two common sense ways to fix your budget:

  1. Increase your income
  2. Decrease your expenses

And don’t worry! This doesn’t mean you have to cut everything fun out of your budget like dining out and entertainment. Often, budget problems can be fixed by doing things like reducing the amount of income you have to spend on debt payments.

Why solving credit card debt may be the answer

Revolving debts like credit cards can be tricky for your budget. You can go from having no bills if you have zero balances to bills that eat up way too much of your income if you overcharge. At most, credit card debt payments should take up about 10% of your monthly income. What’s more, that amount should be able to pay off your debt in-full within one billing cycle or at least in a few if you’ve had a major purchase.

If you spend more of your income on credit card debt, then this can be a big contributing factor as to why you’re struggling to make ends meet. Solve the credit card debt and you solve the imbalance in your budget.

Is it time to get help?

Calculate how much you’re spending on credit card debt payments every month? What percentage of your budget do debt payments take up? If it’s more than 10% click the button below to get a free debt and budget evaluation.

Consolidated Credit can help you make a plan to eliminate your debt. Talk to a certified credit counselor today to find the best way to get out of debt in your situation.