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Our spending habits are influential enough to dictate how our lifestyles will be in the future. If you really want to prepare for your future, it is evident that you have to practice proper financial management skills. That includes how you spend your money.
We made a lot of mistakes in the past and to really get over that predicament, it is imperative that we do something to stop our bad spending habits. Of course, that is easier said than done. We all have to change a lot of things if we want to correct these habits. When you say habit, it means these are activities that we do almost impulsively. That could either be borne out of necessity or simply the pleasure of the act.
Where do Americans spent their money in 2012
Before we can correct the bad spending habits, it is important to analyze the actual figures that indicate where our money goes to. The best place to get that is through the Bureau of Labor Statistics.
In September 10, 2013, the BLS.gov website released a report about how the average American spends their income. This data was based on the spending habits of consumers in 2012. Here are the important breakdown of expenses for the whole year of 2012:
Housing: 33% at $16,887
Transportation: 17% at $8,998
Food: 13% at $6,599 (at home 59% and eating out 41%)
Insurance: 11% at $5,591
Other expenses: 7% at $3,557
Healthcare: 7% at $3,556
Entertainment: 5% at $2,605
Cash contributions: 4% $1,913
Apparel and services: 3% at $1,736
These all add up to the whole annual spending list of the average American household in 2012. Here are other important notes about these statistics as found on the BLS website:
Except for apparel and services, all of these categories increased compared to the 2011 statistics.
Health care expenses are mostly on health insurance at 60%
The cash contributions refer to church, charity and other forms of donations.
Transportation has the highest increase in amount from 2011 to 2012 at $705 while the highest percentage increase goes to cash contributions at 11.2%
So what does these data say about our spending?
It reveals the top three priorities in our spending: housing, transportation and food.
While most people cook their meals at home, a huge expense is still being made for meals outside.
Having the entertainment expense below the housing, transportation, food, insurance and healthcare means consumers know how to prioritize their expenses.
The lower spending for apparel and services compared to the 2011 statistic could also mean a smarter spending habit.
Consumers are making more socially responsible spending decisions given the rise in cash contributions.
Overall, you can see that consumers have done a great job in prioritizing their expenses. It is hard to say where the debts fall into but we can be sure that the housing category mostly refers to mortgage payments - that is why it is too big. Usually, a fully paid home will only cost you the annual property tax and the maintenance costs - which will hardly merit the top spot.
Other categories that could be debt payments are apparel, services, entertainment, transportation (car loans) and other expenses. Both insurance and healthcare (which is mostly health insurance) can hardly be considered as debt payments. Food can be a part but it is only when grocery expenses are paid in credit.
Best practices when it comes to spending your money
It is hard to assume that we are all practicing smart spending habits with the statistics given by the Bureau of Labor Statistics. However, it is comforting to know that the important expenses can be found on top of the list. This goes to show that debt ridden or not, we are not being irresponsible when it comes to our spending priorities.
To help keep you from wrong spending habits, here are important tips that you can follow:
Practice budgeting. You can ensure that you will have the funds put aside for all the priority expenses that you have.
Limit your credit spending. Adding to your debts is not really a good idea especially if you hardly have enough to pay for your expenses. Spend in cash as much as possible and if you have to use your credit card, make sure it is included in the budget. That way, when the billing statement comes, you know that you have the funds to pay for it immediately.
Create a payment plan for your debts. Debt payment take up a huge portion of your budget and you want to make way for the more fun expenses - at least until after you have boosted your savings.
Grow your savings. Speaking of savings, it is very important to have adequate savings for your emergency fund. That way, when your income is compromised, you can at least afford to spend for your priority expenses.
- Think before you spend. In the data provided above, you notice that the other expenses make up a huge part of the budget. It is hard to say what these expenses are but we hardly see any other important category that is not indicated already. That leaves us to assume that these expenses may be discretionary or variable expenses. To be on the safe side, just be very careful about where you put your money. Even if it is something that you can afford, you may want to opt to grow your savings instead.