It’s no secret that Americans shell out for life’s little luxuries. From cars and massive mortgages to lavish vacations and frequent dinners out, these “creature comforts” can add up to amounts that exceed many salaries. According to the Bureau of Labor Statistics, the average American household spends approximately $53,000 each year – a number that is close to 75% of the mean American income.
This raises the obvious question: Where, exactly, is all of this money going?
Here are a few of the most common money-sucks.
Americans are more than willing to shell out for a shiny home, and the availability of long-term, fixed-rate mortgage loans makes this possible. Though financial gurus like Dave Ramsey suggest spending no more than 25% of net take-home pay on a mortgage, Americans tend to spend closer to one-third of their earnings on a comfortable dwelling. And with a larger mortgage and fancier home inevitably come other costs, like a higher tax bill, more maintenance, and a larger footprint to heat and cool.
To reduce your housing costs, consider downsizing or spending less than a quarter of your take-home pay on your mortgage. Keep in mind that you can always upgrade later – but once you commit to a large mortgage and high tax bill, you are locked in for the foreseeable future.
For many Americans, simply getting safely from Point A to Point B is not enough – and manufacturers are capitalizing on this. Companies like Tesla are rolling out everyman’s versions of their vehicles that still cost a pretty penny, and as families strive to “keep up with the Joneses,” they are happy to keep these companies in business. According to Experian’s State of the Automotive Finance Market report, as of 2018, the average new car loan was approximately $31,000, translating to an average monthly payment of more than $500.
Go against the grain by wearing out your old vehicles, particularly if they are in good shape. Cards are assets that depreciate quickly and as such, they are not a wise investment. Consider, instead, funneling the cash you would spend on a hefty car payment into your IRA or emergency fund.
Yes, we all need to eat – but food has become more than a mere necessity for Americans. In fact, according to one source, food is the third-largest expense in most American budgets.
Fortunately, though, this is also one of the easiest expenses to cut: Eating at home is much cheaper than dining out, and discount stores or wholesalers like Costco and Sam’s Club can prove to be much more cost-efficient for large families than specialty shops like Whole Foods.
Insurance takes the cake on this one, costing up to thousands a year in premium amounts. Fortunately, options like high-deductible or catastrophic insurance plans can help families lower their costs, allowing them to bank cash to cover a potential future emergency.
While it is important to have fun, Americans spend a substantial portion of their income on entertainment. One source claims that entertainment costs eat up more than five percent of most family budgets. Nonetheless, practices like couponing and creative planning can cut down on these costs, allowing families to plan fun outings without breaking the bank.
Going Against the Grain
Keep in mind that just because others spend their money in these ways does not mean that you have to. In fact, consider better places to divert those disposable funds, from padding your IRA to pouring into those lingering credit card debts. By choosing to swim against the cultural current, you can set yourself up for long-term financial freedom.