Americans Spend Nearly 50% of Their Income On These Two Things

pumpkinpie

Nope, unfortunately the biggest expense isn’t pie as the above photo suggests (though food does take up a significant part of the budget). If you’re like most other Americans, housing and transportation are the top two expenses – and by quite a bit. Nearly 50% of the average American’s income is being put towards housing and transportation costs.

The Atlantic recently published an article compiling stats from the Labor Statistics Bureau and examined what they called the “weird, enduring love affair with cars and houses.” They further used the data to compare how we stack up with a select few other countries. The conclusion? Americans spend more on housing and transportation than other nations. It seems we do kind of have a unique thing for cars and houses. They charted a breakdown of expenses:

spendingpiechart

From “America’s Weird, Enduring Love Affair with Cars and Houses” by The Atlantic

While both housing and transportation are expected costs for most adult individuals and families, it does raise the question – should we be concerned with the high numbers? And are there any ways to go about lowering the average percentage of our budget that’s being funneled towards these two costs each month?

Should we be concerned?

Our budget and how we maintain a spending plan are all very subjective and personalized. Depending on your age, your location, and your earning trajectory you may fall within the previously mentioned average percentage – or you may pay more or less on either. The concern then arises not necessarily from high spending on these two but instead from what that spending means for the rest of your budget. If you have few other expenses you might find it perfectly reasonable. But if you’re pressured by debt (student loans, credit card, etc.) the high percentage could have you feeling less than secure in your financial budget. It’s then that it becomes necessary to reevaluate your budget and do what you can in order to make your expenses work within your financial circumstances.

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Are there alternatives?

Yes – absolutely! With some research or compromise you’re likely to uncover at least one way to decrease spending in housing or transportation (or both). The hard part? They’ll require some concessions. It’s a tough sell considering that part of the reason so many Americans are willing to pay higher prices is that they find value in convenience and independence. However, if you’re struggling to break even each month and you’ve cut back on other spending expenses, you could very well benefit from reducing your housing or transportation costs.

Lower your monthly costs

If you’re able to move to an apartment with lower rent, that is definitely something to consider – especially if it will free up enough of your income to achieve your long term goals (i.e. creating an emergency fund, saving for retirement, buying a house). If you’re renting, you could also look for a place with a roommate – it will have a drastic impact on your monthly rent check. And if you’re currently looking to resettle, be sure to stick to your budget! There’s nothing more tempting than finding a place that you love, only to realize that it’s 500 dollars above budget. Give yourself a strict “top” budget and don’t view/visit apartments or homes that go above it.

If you’re currently paying a mortgage, think about lowering your monthly housing costs by subletting an extra room. Or if the option of moving to a less expensive neighborhood (or a smaller house) is available to you, that is something to think about as well. Not to say you should give up a comfortable living situation, but it’s a good idea to make sure you’re not house rich and cash poor because that’s not sustainable.

In terms of transportation, carpooling can be an excellent way to save on driving costs. Looking for bundled public transportation cards can also be a great way to save. If a big percentage of your paycheck is going towards your car payment, it might be time to think about whether that’s the best use of your money. If you need to get out from under an excessive car loan, there are ways to do that. For more tips on saving on transportation, visit here.

Increase your overall income

On the flip side, increasing your income is another option if you want to favorably increase the ratio between your spending and your savings. By adding another source of income you can increase your cash flow and have a larger cushion for retirement contribution or an emergency fund. For a list of ways to boost your earnings, check out our article on 30 Ways to Increase Your Income. Or research ways to earn extra money from your own home.

It’s about balance

It always seems to circle back to this, but ultimately your spending is about creating a balance that’s sustainable within your life. If you’re confronted with high rent or transportation costs then making concessions elsewhere in order to balance your monthly expenses could be critical in achieving financial independence. Experimenting with some of the alternatives above could allow you to shave off some of the percentage points in either area, and allow you to use your income in other worthy areas.

How much do you spend on your housing and transportation? Have you decreased in either area in order to boost your savings?

Image credit: chuckplace

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  • http://thebrokeandbeautifullife.com/ Stefanie @ brokeandbeau

    In New York City, I shudder to think what percentage of income people spend on their rent. I’ve been able to cut back on transit costs quite a bit with the introduction of the new bike share program, Citibike.

    • Claire Murdough

      Nice!! Citibike is just unrolling here in San Francisco. I’d be so interested to hear about your experience with it!

  • http://stopworryingaboutmoney.com/ Adam Kamerer

    This is one of the reasons it’s so vital to think carefully about what you really need. The number one reason I hear from young couples for why they want to upgrade to a larger home is “we don’t have enough space,” usually after the birth of a new child.

    These same people tend to have homes full of possessions they’ve accumulated, but that have no real use — a good declutter and some organization would go a long way towards making their current home feel roomier.

    Same with cars. Most families don’t need more than two vehicles, and in every case where they own a brand new vehicles, a perfectly good used one could have been acquired for much, much less.

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      That’a a good point, Adam! I agree that many people would be much better off with a solid used car than a fancy brand new one. And most of us have more stuff than we really use, so it’s a good idea to clean house and de-clutter sometimes.