How Does Your Budget Stack Up?
Creating a budget is generally one of the best ways to help ensure that you keep your finances in order. But where to start? One approach is to track your expenses over time and build a budget that reflects what you actually spend but that also can be adjusted if you discover your spending and saving priorities are not where you want them.
You might also want to compare your spending patterns to those of other people. The figures below, taken from a 2006 government survey, will give you a good idea of how your budget measures up.
The survey says . . .
The average American household spent $48,398 in 2006, according to the Consumer Expenditure Survey from the U.S. Department of Labor. Here's where the money went and some suggestions for reining in each expense category:
Housing: 34 percent
This was far and away the biggest expense. The average household spent $16,366 on mortgage/rent, utilities, public services, furnishings, housekeeping supplies and other housing-related items.
Tip: Many utility companies provide free or low-cost energy audits. Schedule one to identify utility savings opportunities in your home.
Transportation: 18 percent
The average household spending in 2006 on transportation, including car purchase and maintenance costs, was $8,508.
Tip: Follow your car’s maintenance schedule, remove unneeded items from the trunk and keep your tires inflated to the recommended pressure. These steps could increase your gas mileage by 5-10 percent or more.
Food: 13 percent
Americans are eating more and more food away from home. The average household food expenditure of $6,111 in 2006 includes $2,694 for food consumed away from home. That was up 11 percent from just two years earlier.
Tip: Start trimming back with the small food purchases you might make every workday — coffee, soft drinks and snacks. Bringing these items from home can save money and give you better choices.
Insurance/Retirement: 11 percent
In 2006 the average household allocated $5,270 to safeguard its future with contributions to Social Security and retirement programs, in addition to premiums for life, accident, disability and liability insurance policies.
Tip: Review the deductible amounts on your homeowners and auto policies. If you have the resources to cover a higher deductible, it could substantially reduce your premiums.
Health Care: 6 percent
At $2,766, health care costs for the average household are just slightly more than the amount spent on food eaten away from home during the year. Employer-sponsored coverage pays about 75 percent of health insurance premium costs for an eligible family.
Tip: Switch to generic drugs when they’re available, and talk with your doctor about treatment options that might reduce your costs without impacting your care.
Entertainment: 5 percent
From pets to TV sets to movie tickets, spending on entertainment averaged $2,376 per household. The good news: That’s actually a little below the expenditure in 2005.
Tip: Go to the library — online. Many public libraries now have websites where you can reserve books and movies and even read some books and magazines. Taking advantage of these options can cut down on wasted trips.
Clothing: 4 percent
The average household spent $1,874 on shoes, coats and other clothing, including costs for dry cleaning, alterations and repairs — another category where expenses dropped slightly compared to the prior year.
Tip: Avoid impulse purchases of shoes and clothing. Try to wait 24 hours to think over any major purchase.
Everything Else: 9 percent
The remaining portion of household spending went to items like charitable contributions, education, and personal care items. These costs accounted for $5,129 in the average family's budget.
Tip: If you want to deduct contributions on your tax return, get receipts for all gifts, no matter how small. New tax laws require a bank record or written statement from the charity.
Take the next step...
How Much Can You Save? Take time to gather your records and make a budget. Our budgeting calculator can help you get started.
