What's in a Typical Household Budget?

February 3, 2017

Between income and expenses, there’s constantly money moving in and out of your accounts — but if you're not following a budget, you might be surprised to learn where that money actually goes. "Budgeting is important for making sure your spending aligns with your values," says Amber Berry, a Sacramento-based Certified Financial Education Instructor. But what are the components that make up the average budget?

Monthly Income

The most important part of a budget is the money you have available, so take a close look at your income. While your overall salary is important, look at take-home pay, including your base pay and any incentives or bonuses, as your starting point. 

Housing and Utilities

Housing, including related expenses like utilities, property taxes and regular maintenance, is likely your largest budget item. The average American paid $1,483 monthly in housing costs in 2014, according to the United States Department of Labor. Ideally, housing should be no more than 25 to 30 percent of your total budget, explains Berry. If you live in a pricey area, renting out part of your home or tightening other expenses can help keep your spending in check.

Health Care

Even if your employer provides health care benefits, it's important to budget for additional expenses, such as prescription medications, co-pays and long-term care insurance. The average American spent $358 per month on health care in 2014. But, not surprisingly, older Americans pay more on average — those 65 years of age or older paid $422, while those under 25 paid just $79. 

Savings

One non-negotiable item: Set up an emergency fund that covers your basic expenses in case of unemployment or injury. Save at least six months' worth of expenses if you're raising a family, and at least two to three months' worth if you're single, Berry advises. 

You'll also want to save for the future. If you're new to saving or you're paying off debt, aim to save 5 to 10 percent of your pay. As you start earning more, increase your savings to 15 to 20 percent. 

Paying Down Debt

Student and consumer debt often make up a significant part of your budget, especially if you're young and beginning to pay off student loans. If you're just starting to pay off debt, make the minimum payments due, then aim to pay a little more, advises Berry. If you're able to pay off debt more aggressively while still meeting your savings goals, you might save hundreds or thousands in loan interest.

Food

Everyone has to eat, and Americans spent an average of $563 each month on food in 2014. While your individual food budget depends on your family size and eating habits, don't shy away from splurging on high-quality groceries. "It’s an area where you can spend a little more because food is good for you," says Berry, who recommends allocating 10 to 15 percent of your budget to food.  

Transportation

The average American spent about $756 per month on transportation in 2014, including transit passes, gasoline, insurance, monthly car payments and maintenance. Berry recommends setting aside an auto emergency fund for repairs — at least $500, and capping car payments to between 5 and 10 percent of take-home pay. 

Clothing and Personal Care

Americans spent an average of $203 each month on apparel and personal care in 2014. This category includes clothing, shoes, haircuts, personal hygiene, laundry supplies, dry cleaning and tailoring. How much you spend depends on individual circumstances, but this category should take up no more than 2 to 5 percent of your budget, says Berry. 

Entertainment

Once you've met all other financial responsibilities, you deserve to have a little fun! Americans spent a monthly average of $227 on entertainment in 2014, or 5 percent of their total monthly expenditures. In addition to the obvious entertainment expenses, like streaming services or movie tickets, your entertainment budget can also include saving for larger expenses, like family vacations or special events.

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