How We Spend Our Money
October 5, 2016

Do you know where your money goes? [Insert your own joke here.] It is important to assess periodically how much you spend on different expenses throughout the year. You cannot control your expenses if you fail to plan for them and track them.

Expense tracking is a useful exercise at the national level as well, because it gives government agencies and policymakers insight on consumer spending and whether current programs or policies are having positive or negative effects. The Bureau of Economic Analysis (BEA) and the Bureau of Labor Statistics (BLS) serve this purpose for the Federal Government by issuing consumer-spending updates.

To get a broad scale picture of expenditures without seasonal factors or one-off annual expenses, it is best to compare annual consumer expenditures.

The recently released BLS Consumer Expenditures report for 2015 offers a mix of good news and points of concern. In general, Americans are spending more per "consumer unit", defined as a group with shared expenses — a family, singles living alone (or sharing but financially independent of each other), or two or more people in a household that share expenses.

The average spending by consumer units is up 4.6% from 2014 to reach $55,978. Average pre-tax income also increased to $69,629 per consumer unit, but the 4.1% increase did not quite keep up with the change in expenses.

Where do the expenses go? The majority of consumer expenses go toward housing (22.7% of aggregate expenses). Homeowners are gaining a bit of relief, as continuing low interest rates cut the share of mortgage interest and associated payments from 6% of expenses in 2013 to 5.1% of expenses in 2015. In contrast, renters are spending an average of around $500 more annually on rent, up to 6.8% of spending compared to 6.5% in 2013.

Life insurance and pension expenses constituted 11.3% of expenses in 2015, growing 10.9% year-over-year, the largest increase for any major component of spending. Both payroll and non-payroll deductions increased, suggesting that Americans are focusing a bit more on retirement savings.

Education expenses showed the next highest increase, with a change of 6.4%. Education only constitutes 2.4% of overall spending, but its share is rising rapidly and gaining political scrutiny. Meanwhile, for all the negative publicity, the other politically hot topic of healthcare stayed relatively flat from 2014. Healthcare made up 7.8% of 2015 consumer expenditures.

Utility expenses stayed virtually unchanged, with the average family spending $3,885 annually (6.9% of collective 2015 expenses).

Low inflation has kept spending on groceries down relative to other expenses. Groceries made up 7.2% of 2015 spending to become the fourth-highest category of spending. The fifth and seventh-highest categories are related, with vehicle purchases at 7.1% of 2015 spending and transportation costs at 6.1%. The drop in gas expenses (a greater than 15% drop over 2014 expenses, constituting 3.7% of the 2015 spending total) may have been partially directed toward replacing older vehicles.

The windfall from lower gas prices may also have contributed to increases in dining out (5.4% of 2015 spending), entertainment (5.1%), and clothing, home furnishings, and charitable contributions and alimony (each at 3.3% of spending). Miscellaneous spending accounts for the remaining 4.5% of 2015 expenses.

Now that you have reviewed America's expenditures, why not take the time to review your own? It's a good habit to get into, not only to see how you stack up with the average American family but also to look for ways that you can spend less and save more.

If you cannot review your expenses because you do not record them or do not have a budget, start there and make a note to review your expenses monthly. You will probably be amazed at the results — whether you like them or not.

Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.


Photo ©iStock.com/cyano66

  Conversation   |   6 Comments

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Alec | 10.05.16 @ 15:50
My bank offers a pie chart that shows our spending and breaks down exactly what items fall into which category. Aside from bills, our money ends up going towards fast food recently! It's sad how much we spend on fast food but unfortunately I've been sick due to my pregnancy and unable to do much. I'm hoping we get back on budget soon and stop spending on things we don't need!
Zanna | 10.05.16 @ 15:52
With two kids in college, and a junior in high school, education is a huge expense in our house, closely followed by auto costs with cars, repairs and teenager coverage. I know where all that money is going, and tracking it won't help. However, I do think we spend too much on going out to eat and buying things we really don't need. It's time to start tracking that a lot closer!
Carla Truett | 10.05.16 @ 15:56
These percentages are pretty much on point. We have started keeping up with the money coming in vs the money going out. It has helped us stay on budget. This is great advice. A budget has helped us make sense of where it is all going and where we need improvement.
Daniel Dohlstrom | 10.05.16 @ 16:13
Very important info in here pointing out the real need to budget and track spending to really get the most out of your financial planning
Christina | 10.05.16 @ 17:09
After losing my job a few years ago, I had to be very careful about tracking my spending, and cut back on several areas. Even though the period of unemployment didn't last long, it had a huge impact on how I handle my money, and I still haven't gone back to paying for things that I cut during that time.
Nancy | 10.05.16 @ 19:23
I think it's extremely important to review your purchases and expenditures every month just to see where your money is going. It has helped me to narrow down exactly where my problem areas are.
$commenter.renderDisplayableName() | 12.10.16 @ 16:43
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