How Your Budget Compares to the Average

Not sure how your budget compares to the average American? Here’s what we learned, and what you can do to make sure that you are growing your net worth.

What the Data Says

Housing was the largest budget item followed by transportation then food. 

Data shows that about a third of overall household spending goes toward housing. 

Sadly reading is the smallest budget item, although libraries are free. Child care would probably make more sense, but it only applies to a small segment of the population.

What’s Wrong with the Average American Budget?

My biggest gripe with the data above is there is no mention of savings!!! What about money you spend on your future self? What about the money you invest and let it grow on its own. Or another missing item, debt reduction… All these needs to be accounted for in a solid budget.

The simple act of adding ‘savings’ as a budget line item can lead people toward financial independence. When people have a budget that they follow, they can both plan and track their savings for retirement.

Some find it helpful to break out a budget in terms of needs, wants and savings

  • Needs come first and can’t really be messed with too much. 
  • Wants are at your discretion and can be potentially cut in tight times. 
  • Savings are ideally a priority but can also be adjusted as needed. The best thing I ever did for my budget was to automate my savings.

There’s Nothing Wrong With Getting Rich Slowly:

There are about 12 million households in the USA that have reached millionaire status. Some figures include home equity, others only look at cash, stocks / bonds, rentals, etc. In general it adds up to about 10% of households. Being a millionaire puts you WAY above the average net worth.

Consider that it is possible to become a millionaire, and even a multi-millionaire ($2M+) given steady savings. The only way to do this is to include a category for saving / retirement in your budget. Your savings strategy will impact your net worth as well as your ability to retire.

Why the Average Budget Might Not Be a Representative Budget

If you compare your household budget to the average American’s budget, you might realize that some things are missing from the average American’s budget. We already discussed that there is no ‘savings’ item, but it is also missing important factors including childcare, education (for your kids), and more. Therefore, do not worry if your budget does not look like the average American’s. What is more important is that you are budgeting to achieve you and your family’s goals.

Additionally, your budget will change over time. If you choose to have kids, you may want to start saving for their education early. You may also see an increase in income over time that allows you to move into a larger home. After your kids are grown, you will no longer have an educational expense to save for and might also consider downsizing your home. You may also free up space in your budget when you finish paying off a home. Regardless, your budget will likely change over time and differ from the average American’s budget.

The goal of budgeting is to provide financial security and ultimately increase your net worth. By budgeting, you will be able to track your earnings, spending, and saving. You will be able to adjust your spending as well as savings contributions as needed to reach your financial goals.

The Bottom Line

The average American may or may not have a budget that they follow. However, financial professionals will almost always recommend that a single person or family have a budget and that they evaluate it regularly. This will help people see where they need to cut back on certain line items, and where they can further contribute to their financial goals.

The average American allocates about 30% of their overall spending toward housing costs. The second-largest line item for the average American’s budget is transportation, which likely includes both public transportation, private vehicles, car insurance, and gas costs. 

If you setup a “saving money” and stick to that, over time it can add up to a huge amount of money and a very comfortable financial situation.

Article Credit: https://www.wealthmeta.com/blog/how-your-budget-compares-to-the-average

Published by SULV Foundation

Build and Repeat is our Mission and Purpose, we strive to make the world a better place while creating inter-generational wealth.

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