Let us jump to the chase. The average American household brings in about $68,000 and spends $63,000. After FICA (Social Security and Medicare) tax of 7.65%, the income already drops to $62,798. There you have it, the problem in high definition.

Table of Contents

The average Household is living Paycheck to Stress

We haven’t even factored Federal, State and local taxes to the equation. To offset the losses, families rely on credit cards to sustain the increasing cost of luxuries. I do mean luxuries.

Luxury and Excess

Travel was not a big concept until just recently. Most families in the 90s packed up and headed to the closest Disney world. Now, families venture to Dubai.

We used to have one telephone line in the house. It is not uncommon to find about four cellphones and five WIFI devices on a network that you have to upgrade.

To top it off, instead of one insane cable packages, we have upgraded to Netflix, (Amazon) Prime Video, HULU, Disney Plus, HBO Max etc…

If you even wonder where your money is going look no further than your own home.

Are We Just Spending Much? Nah!

The average American household spends over $5,000 every month.
Housing is the largest single category, accounting for 33% of monthly expenses. Renters in big cities take the brunt of this cost to the tune of 40% for what equates to a closet. DC has a 1-bedroom, 1-bath basement condominium running for over $425,000+. It is insanity.
Transportation was the second-most expensive category at 16%.
Food is the third largest category, bolstered by the decline of cooking at home vs the increase of ordering out. One of the worst cash dumps are now the subscription based plans.

The average US household’s monthly expenses – $5,253

The average monthly spending of one consumer unit in 2019 was $5,253. This is an increase of almost $2,000 from 2018 (2.95%).

According to the Bureau of Labor and Statistics, the average household consist of 2.5 people who bring in about $68,703 in 2019, an increase of 6.8 percent from the 2018 median income of $64,324.

Average monthly spending on housing: $1,723.51 (32.81%)

The average American household spent about $1,724 per month on housing in 2019.

This is always the largest part of the average American’s budget and likely the fastest way to reduce expense and help regulate wealth building.

Too often, we push newlyweds to get into bigger homes with not structure and no long term benefits. I recently got married and already started to hear about having a big home that I cannot honestly afford right now.

Your 20s should be prime roommate living or house hacking mode. Your 30s and 40s, I would recommend having a 2/2 condominium that you and/or your spouse can grow into. As the family unit nears, four people that is time to buy a home that can accommodate space for four with an office. I would even say that it is prime time to get the old Condo up for renters. Reduce your square footage to usable space and no more. Buying stuff is all in your head.

Homeowners are Worth 40 Times More Than Renters

Think of renting as lining up someone else’s wealth strategy. Build your own and quick.

In the Federal Reserve’s most recent Survey of Consumer Finances (in 2019), a blockbuster statistic was revealed. The median net worth of homeowners was $255,000. Renters had a net worth of just $6,300.

In summation, “Try not to rent forever.” This is a game of monopoly. You can only go around the board picking up tax refunds for so long until all the properties run out.

Average monthly transportation spending: $895 (17.04%)

The average American household spent about $895 per month on transportation in 2019. Gone are the days of having one reliable vehicle, now families have an entire parking lot.

Transportation costs have increased year over year. At worst, leasing costs have exploded. Instead of making use of public transit, everyone has opted for their own wacky mode of transportation that is literally sucking their bank account dry.

I recently heard of a car loan for 7 years at four percent. It is insanity at its best. The entire fault falls on consumer appetite and the trill of stunting on everyone else. We can easily lose track of the expense of owning a car, especially when it comes with high insurance cost, gas, additional Uber and Lyft rides, on top of parking payments, and repairs.

Annual draw back for a family – $10,000

Beat this equation by keeping your transportation spending at 8 percent. Anything more than that you can’t afford it. Buy used and remember that it is just a tool that gets you from point A to B and it sits in a garage or in the parking lot 80% of the time. It is just not worth the luxury tax.

Average monthly food spending: $681 (12.96%)

The average monthly food spending per consumer unit in 2019 was $681, a sum that represents about 13% of monthly spending. To be honest, this one hit me as well. My wife and I throw about $450 every month at this and it is not as if we are eating lobster.

The price of food and local goods are going up. Especially with the pandemic, costs have spiked. Nevertheless, beat this equation by diversifying your meal plan and lowering your waistline.

Beware of the New Dinning In

According to a USDA-funded study, Americans’ food waste adds up to almost a pound of food per day, on average, accounting for about 30% of our daily calorie needs. Try to incorporate for soups and more meal preps.

Beware of using meal prep subscriptions since they are a massive drain on your funds. You can learn how to cook using YouTube, after that you will wonder why you used to spend $30 on two glasses of mimosa on Saturdays. Just buy the orange juice and champagne, and go nuts at home.

You can also tip yourself 15% and invest your money instead.

How does your monthly household expenses stack up?

Turns out, 2020 taught us the hard way that we can reallocated our expenses. Household savings hit a peak high of 33% in one month which means that all the previous years at less than 8%, were all just excuses. Without access to spending rapidly, you can save and invest. That’s reassuring because it comes down to you.

I’m not going to pretend that cutting back will be easy. It’s not. However, cutting back is necessary. The average household is swimming in long-term debt with no strategy. I promise you that if you reduce the top three categories of housing, transportation, and food, you will be saving yourself precious time.

Time is the only commodity that counts

The most precious resource we can grant ourselves is time. The way we do that is by working for ourselves and not against ourselves. You should definitely ween off the Amazon purchases. Pay down your debts, your future self will thank you. You can do all of these things to say you time and energy vs being stuck in a perpetual downward spiral.

Don’t be average. You can get rich quicker by investing smarter.