Pinnacle Wealth Advisor Ryan Ovenden, CFP®, CKA®, recently reviewed the average annual expenditures of Americans based on data from the Consumer Expenditures Survey 2023 by the Bureau of Labor Statistics. The data offers an important perspective on how Americans allocate their income and highlights areas where financial awareness and strategic decision-making can make a significant impact.
“The extent to which it’s gotten out of hand was interesting to me,” said Ryan.
Nearly half of American consumer spending goes toward housing and transportation, with housing costs increasing 12.4% since 2021, slightly outpacing inflation.
More than ever, Americans are using debt and credit cards to fund their purchases. In the second half of 2024, household debt hit a record $17.9 trillion. At the same time, credit card debt surpassed a historic $1 trillion, climbing by 8.3% over that time period.
Ryan sees the costs of some necessities as market-driven and largely out of our hands. But he also sees areas where we need to be smarter and much more disciplined consumers. Here Ryan shares insights into the current data, offers advice on the expenditures we do have some control over, and reinforces the tried but true financial mantra to live within your means.
HOUSING
The pie chart here, reproduced with permission by Visual Capitalist, illustrates the average American household is spending a whopping 33% of its annual income on housing. That’s an average of $25.4K a year for both renters and buyers.
When it comes to buying a home, Ryan points out banks typically suggest that your mortgage, interest, tax, and home insurance combined should not exceed 28-30% of your income. However, Ryan recommends aiming for a lower percentage, ideally between 20-25% of your adjusted gross income.
“This percentage range allows for quicker debt payoff, which is very important, and frees up some resources for increased financial stability,” he said. “If 33% of your income is tied up in housing, it’s going to be very difficult if not impossible to cover your other expenses without the risk of accruing significant debt.”
Adults in their 20s and 30s are finding it increasingly difficult to afford homes, and Ryan warns that may not change. He suggests a shift in mindset may be in order.
“Overcoming the issue and achieving home ownership will require sacrifices, patience, and a shift in expectations compared to previous generations,” said Ryan. “In order to get into a home, young adults will need to consume less, save more, and for a longer period to come up with that down payment. Many believe they can start off where their parents currently are, with the big house and nice car. And that’s just not realistic.”
TRANSPORTATION
The second biggest expenditure for Americans currently is transportation, taking up an average of 17% of our annual income, an average of $13.2K a year. The majority of that is in the form of car payments.
“Transportation is one of the areas where we can clearly make some changes to strengthen our financial picture,” Ryan said, explaining the difference between appreciating and depreciating assets.
While borrowing money to purchase assets that appreciate in value, like a home or education, can be considered a smart financial move, borrowing for a car is a different story.
“The moment you drive a new car off the lot, its value immediately drops by 20%, and it continues to depreciate by about 15% every subsequent year. Meanwhile, you’re still making monthly payments and paying interest on the original loan amount,” Ryan explained. “In the end, the car you purchased for $25,000 could cost you nearly $40,000 over five years, leaving you with an asset worth only $10,000.”
Ryan says it’s important to rethink our transportation choices and worthwhile exploring alternatives. He supports downgrading to a less expensive vehicle or
considering car-free options like public transit or shared services, all actions that could help reduce this hefty expenditure.
FOOD
With housing and transportation making up 50% of American annual expenditures, Ryan says it makes the most financial sense to focus hard on those two areas for potential cost savings. However, he also sees savings potential in other areas, like our food expenditures.
With food price inflation outpacing overall inflation, American households are now spending approximately $10,000 annually on groceries and dining out. That’s 12% of our income – and a 20.5% growth since 2021.
What stands out to Ryan here is spending on food away from home outpaced food-at-home expenditures in 2023, increasing by 8.1% and 6.1%, respectively.
“We’re eating out way too often. We’re eating on the fly, on the way to our kids’ ball games,” he said. “We would all benefit by adopting some meal planning and food prepping in advance of our busy weeks. And when we have to be away from home at mealtime, let’s bring along water bottles and healthy snacks like carrots to go along with the burgers we decide to purchase. Those are healthier choices than pop and French fries, and the cost savings can really add up over the course of a month.”
SAVINGS & DEBT
The Bureau of Labor Statistics 2023 data show the current national savings rate is only 3% of annual income. Ryan advises aiming for a savings rate of 10-20% to build financial stability over time.
“The book The Millionaire Next Door highlights a study that found a key habit distinguishing millionaires from non-millionaires: millionaires prioritize saving first and spending second,” said Ryan. “In contrast, non-millionaires spend first and save only what remains at the end of the month, often leaving nothing to put away.”
Americans’ low savings rate reflects a larger issue, according to Ryan —people are spending too much on their present lifestyle and not enough on their future. Whether that future means a home, retirement, or other long-term
goals, Ryan reminds us that saving consistently allows for the power of compounding interest to work in our favor.
Another surprising statistic: American credit card debt has surpassed one trillion dollars. This is a clear sign of a consumer-driven mentality that leads to poor financial decisions.
Ryan stresses the overuse of credit cards is destroying families; too many may never be able to get out of that level of debt. He says we must break free from impulsive spending decisions, which are often driven by emotional “want” rather than thoughtful planning. He advocates for living a more content and intentional life, where every expenditure is made with mindfulness and purpose.
“I think we make too many financial decisions when we’re in a “want” mode, or an emotional state. And I would suggest that living a content life and planning every expenditure, being very intentional, mindful, and thoughtful about those decisions go together, and in the long run will really put us in a much more secure financial state.”
Ryan continues his advice, “If you feel stuck in your finances right now, it’s small changes and a strong commitment that will right the ship. It’s the small tweaks in our habits that can truly change our course and steer us in the direction of financial health. I see it happen for my clients all the time.”
In short, by being deliberate with financial decisions, you can secure a much stronger financial future – even in times of high inflation. Ultimately, creating a solid savings habit not only prepares us for future expenses but fosters long-term financial security.
