It’s no secret that Americans overspend. A lot. We live in a consumer society, and most people love to spend their money every time they get a chance. Yet, people claim not to have enough for retirement.
It’s one thing to occasionally celebrate and indulge in some of life’s luxuries, but it’s a whole other thing to constantly splurge month after month. Spending and spending, not realizing how much is going out the door. In the USA, that’s what most of us do. That is average.
The Research
There have been two research studies published within the past year on American’s spending habits. One survey was commissioned by the online life insurance company, Ladder. Results were published in May 2019. The second survey was commissioned by the finance site, GoBankingRates, with results published in March of 2019. The surveys polled 2,000 and 1,000 adults, respectively.
Each of the surveys list the top categories for non-essential spending, or in other words, discretionary spending. While the amount spent doesn’t exactly match between the two surveys, the categories do. Variance might be due to the low number of people polled.
Without further ado, here are the categories from least spent to most spent:
7. Alcohol ($349)
Going out to the bar with co-workers after work. Having a few drinks with friends. Let’s say going out and having just one drink plus tip costs on average $15. That would equate to going out twice a month.
Or another scenario where you buy two drinks, instead of one. That would mean going out once a month. Hey, that’s not very often. You can see how this starts to add up quickly.
6. Events (Concert, Sports, Etc.) ($355)
Hey, you go to one football game, and you’ve probably already spent the yearly average of $355 for this category. Add on any concerts or other sporting events, and it really begins to add up. It’s not cheap to go to events like these. Parking, concessions, merchandise, the ticket itself; the costs can really add up quick.
5. Cable & Subscription Services (~$550)
Perhaps America’s favorite pastime; coming home from work, plopping down on the couch, and turning on the TV. Even if we’re doing things, the TV is probably still turned on. Growing up, my parents didn’t have cable, and it was always a surprise to my friends to hear that. They would wonder what we did without it. Believe it or not, there are other things to do.
That was before the time of cable internet, back in the day where you heard the modem open a phone line and start making funny noises.
“Pshhhkkkkkkrrrrkakingkakingkakingshchchchchchchchcchdingdingding”
Now we have subscription services. Hulu, Netflix, Sling, and the list keeps growing and growing. It’s not uncommon to have both cable and one of these services, or to have, “cut the cord”, and have multiple subscription services.
$550 seems on the low side here. I’d imaging it to be much more than what the surveys reflect, unless bundled with internet or some other service.
4. Coffee ($718)
If I had to guess, I’d say its America’s number one addiction. Coffee shops are EVERYWHERE! One inside the grocery store, and two in the parking lot, it seems. It’s in every restaurant, grocery store, gas station, airport, office building, and almost every American home. No surprise that this is number four on the list.
3. Clothing & Accessories ($758)
Got to look good, right? Growing up, I was allowed $100 at the beginning of the school year to purchase whatever clothes I needed. In today’s dollars, that is probably closer to $150 or $200, but that’s still way under the average here. I’m a guy, and my clothes last forever. I guess I can see how the average person is able to spend that much a year. It’s unnecessary, but I can see how.
2. Ride-Share & Taxis ($993)
This one is a little surprising, as I hardly ever use this type of transportation. Sure, there are some valid reasons to spend this much, such as not owning a car. According to AAA, the monthly cost of owning a car, assuming you don’t have car payments, is $355. So not owning one and using a ride-share service would be a lot cheaper it seems.
However, I’d say the average American owns a car. In that case, why are they using ride-sharing services so much? Is it for convenience? Is it tied in to going to Events (#6 on the list) to avoid having to pay parking? Or maybe it’s tied into being intoxicated (#7 on the list)?
1. Eating Out & Food Delivery ($2167)
No surprises here. Eating good food is one of my favorite things to do. Who doesn’t like to eat? Eating out is easy to do. No dishes to clean. You get to hang out while someone else makes the food. Perhaps enjoy a drink while you’re waiting on the food. Oh, don’t forget the free chips and salsa bar.
If it’s too much work to go out and get the food, it’s now easier than ever. Most places offer some sort of food delivery service, and they’ll bring it straight to your door. I’m waiting for the day where something like Key from Amazon will come along, and the delivery person will even come in and unpack your food. You’ll never have to get off the couch!
It’s okay to spend on those
There’s not really anything wrong with the items on this list, but it shows that our priorities are out of order. One of the surveys mentioned that 42% of American’s have less than $10,000 saved for retirement. Yet, people claim they don’t make enough to save, or they can’t find any extra money.
If we cut all of this discretionary spending and put it in a Roth IRA (roughly $6,000 a year), it would grow to $668,609 over the course of 35 years, assuming it grew at a mild 6% per year. I’m not saying you should cut everything and live like a hermit, but at least cut some of this spending and invest in your future.
How do I fix my spending
It’s time to take control. Start making progress for you and your family. Start to control these non-essential items, and you’ll find you have more margin. More money to put towards paying off debt or investing.
You don’t have to start by cutting everything all at once. Although, you can if that’s how you want to do it. However, that’s not going to work for most people. It’s a recipe to go back to how you were spending before.
It can be a gradual process. We want to stop doing this thing that is overall hurting us, and start doing something that is going to help us. Take your time and start moving in the right direction. Start scaling back and create forward momentum.
Track Spending
The first step is to actually know how much you’re spending. If you walked up to a person and asked them how much they spent on food last month, how many people could actually tell you? If you don’t know how much your spending, you don’t know where to put your focus.
Make a Budget
Secondly, create a budget. Create the budget at the beginning of the month before the money comes in. It acts as a spending plan, and you will know how much money you have left in each category and when you need to stop spending on certain items.
If you’re having trouble keeping track of our spending, there are a few good tools out there. I personally use Mint. It’s great for categorizing and tracking each transaction. It also allows you to setup a month budget and will automatically put each transaction into its respective category. It’s not perfect, but it does a decent job.
Goals
Those of us aiming for FIRE likely have different spending habits, as we’ve adjusted our goals so that we will actually have enough to retire. And to even retire early! First off, we’re actually setting goals. If you don’t have any financial goals, try writing some down.
It doesn’t have to be anything elaborate, but having the goal is the key. It gives you a target, something to aim for, instead of shooting blindly. That goal could be as simple as saving $5 a month, or you could stretch for a loftier goal, such as determining your Financial Independence number. Most retirement experts recommend saving 15% of your income.
FIRE Away!