The post Average Monthly Expenses for One Person appeared first on Millennial Money.
Everybody has a unique financial situation. Your location, lifestyle, job, and family size have a profound impact on your monthly expenses.
As such, it can be challenging to see how you stack up against others—especially when it comes to monthly budgeting.
What you can do is compare your monthly expenses with that of the average American, which can help you understand where your money is going and if you’re on track.
This article explores the average monthly expenses for a single person. We’ll also examine the most significant factors contributing to your monthly spending amount.
How Much an Average American Spends
According to a recent Consumer Expenditure Survey from the U.S. Bureau of Labor Statistics (BLS), the average American household spends about $5,100 each month. Annually, that amounts to about $61,000.
By far, housing is the most expensive cost for most people, with an average cost of around $1,647 a month (around 32% of a typical family’s income).
Transportation is the average person’s next highest expense at an average monthly cost of around $800 (roughly 15% of the average household income).
Let’s take a closer look at these top spending categories.
Average Living Expenses by Category
1. Housing costs
Unless you have the luxury of living in an inherited home or with your parents, you have to pay for housing. It’s a basic necessity and chances are it’s your highest monthly cost.
It’s important to be selective about where you live if you want to keep your costs down. Ideally, there should be a progression where your first apartment sets you up to move to a nicer apartment. After that, you may buy a condo or apartment. And eventually, you might even wind up buying a house.
If you overspend on your first apartment, you could fall into debt trying to make monthly payments, setting you back years financially.
At the same time, housing is important. You should feel safe, comfortable, and happy where you live. So in some cases, you may feel justified spending more money on housing, especially if you have a decent job that pays well.
The general rule of thumb is that housing shouldn’t take up more than 30% of your gross earnings, or what you make before taxes. This includes rent or mortgage payments, property taxes, homeowners insurance, mortgage insurance (if you can’t afford a 20% down payment), renters insurance, utilities, and maintenance and repairs.
2. Food costs
Food is expensive, but you have to eat to live!
Most people typically allocate roughly 10% of their money to their food budget. If you’re spending more than this on food every month, you should reconsider your grocery shopping strategy and look for ways to cut back.
Chances are there are some small things you can do to reduce your food bills. For example, you can use coupons or buy in bulk from a wholesale club like BJ’s, Costco, or Sam’s Club to lower the average cost of food. Or you can limit the amount of take-out that you order on a monthly basis.
Again, this is an area that you don’t want to skimp on. If you shop wisely, you should be able to buy enough food on a budget to last you through the month.
Eat healthy, be smart about ordering out, and your food budget should stay in check.
3. Transportation costs
When it comes to transportation, you generally have a bit more say over how much you spend on a monthly basis.
Many people drive cars that are too expensive or they simply drive too much. By making small changes to your lifestyle or routine, you can potentially cut back on transportation costs and pump more money back into your savings and investments.
If you live in a city, you should seriously think twice before buying a car. Use public transportation, buy a bicycle, or use rideshare and carpooling services to get around. Or you could try walking whenever possible.
According to a recent study, the national average commute is more than 52 minutes each day. You may even want to consider finding a job that lets you work from home to eliminate this time and lower your transportation costs.
Either way, you should try to keep transportation costs at roughly 10% to 15% of your total budget. This includes car payments, insurance, parking, maintenance and repairs, and gas.
If you really want to fast-track your financial freedom, I recommend spending no more than 5% of your monthly income on transportation.
4. Communications Costs
If you’re like most people, you depend heavily on communications for everything from work to staying in touch with friends and family.
Communications costs may include high-speed internet, mobile service, and television. You may also need a landline telephone for work.
Most people spend roughly $70 to $100 per month on their cell phone and another $100 or so for internet and cable. If you’re spending more than $200 per month on communications, break down your costs and look for ways to lower your bill. You could be overpaying.
It’s also worth considering additional communications expenses that may be eating into your budget. For example, you may be paying for cloud services, an Office 365 subscription, or apps. Do a communications audit and make sure you aren’t throwing money away carelessly every month.
5. Entertainment costs
Here’s some bad news: If you’re like the average American household, you are most likely spending too much on entertainment, which is about $414 per month (5.3% of a family’s monthly income).
This is an extra cost you can likely cut back on. If you have Netflix, you may not need Hulu and Prime Video too, for example. It may also be time to cut the cord and stop spending so much on video game equipment.
By capping your entertainment budget and reducing the amount you spend on frivolous fun, you can put yourself many years ahead financially. If you invest and save an extra 5% of your budget—or even just 4%—you will likely add tens of thousands to your net worth over the next ten to twenty years.
6. Debt costs
If you’re in debt, you need to get out as soon as you can.
Start by checking your credit cards and student loans to figure out how much debt you have. If you have multiple accounts with interest rates averaging 20% or higher, you should treat it as a financial emergency and start making aggressive payments.
How much you put towards debt largely depends on your debt load. If you’re in deep, you may want to put 20% to 25% of your income toward debt.
It may also be a good idea to consider a private loan to pay off your credit cards and consolidate your payments. You may receive a lower interest rate, and it’s easier than paying down multiple cards each month.
Remember, you’ll usually get a better return from paying down high-interest debt instead of putting your money into a high-growth account. There’s little point in saving or investing if you’re losing money each month to debt payments.
Above all else, don’t lose sight of the light at the end of the tunnel. If you’re in debt, you can get out. You just need to make it a financial priority… even if it hurts in the short-term.
7. Saving and investing
It’s also critical that you prioritize saving and investing when determining your monthly expenses and setting a budget.
If you’re living paycheck to paycheck, you may not like the idea of putting money into the bank for an emergency fund. It’s worth it, though, even if it means cutting out your entertainment expenses or reducing transportation costs to make it work.
Far too often, young people don’t make saving and investing a priority. As a result, they wind up paying for it in the worst way possible: with time.
Unfortunately, time is the most important factor at play when planning for the future and growing money. You can never get back lost time for saving and investing. The more you put away for growth today, the better off you’ll be in the long run.
Tips for Controlling Expenses
Consider using budgeting rules
There are several budgeting frameworks you can follow to help allocate money appropriately.
For example, the 50/30/20 rule says you should spend up to 50% of after-tax income on necessities like food and shelter. After that, you can put 20% into savings and debt and 30% into anything else you want.
There is also the 70/30 budget rule, which says you should take your monthly earnings and put 70% into monthly expenses, 10% into savings, 10% into investments, and 10% into donations.
You can take these types of rules and modify them to fit your lifestyle and unique budgetary requirements. The point is, you need a plan and using a framework is a great place to start.
Check out some of the best budgeting apps for 2021.
Start a side hustle
Work as much as possible when you’re young and save up as much as you can. There are so many different side hustles to choose from to supplement the earnings from your full-time job.
You can walk dogs, babysit, paint houses, manage social media, or wait tables. You can also choose to drive for a service like Uber or deliver groceries for a service like Instacart.
The more you make, the easier it is to handle monthly expenses and still meet your savings and investing goals.
Consider roommates
Living on your own can be rewarding, but it can also be very expensive. When you have roommates, on the other hand, you can split bills evenly, which reduces your monthly expenses and gives you more money to put aside.
If you have a two- or three-bedroom apartment, you may want to consider renting it out and slashing your monthly housing bill in the process. This strategy is called house hacking.
Consider your location
Living in expensive cities like San Francisco, New York City, and Los Angeles offers lots of advantages. However, the cost of living in these places is also jaw-droppingly high.
If you’re looking to save money, it may be a good idea to consider moving to an area where your dollars will go further, or find a job that lets you work from home full-time.
Look for states with little or no income taxes and lower housing and food costs. You may find it easier to get by in a city or town that aligns with your budget.
Frequently Asked Questions
Are childcare costs expensive?
If you’re expecting a child, you need to put as much money aside as possible. Kids can typically cost around $1,000 per month or more when factoring in all the care and services they need.
At the same time, you also need to factor in putting money aside for their future. It’s a good idea to have at least two sources of income to make sure the child is adequately cared for. The last thing you want to do is run short on financing with a kid. Should that happen, you could wind up in a tough situation.
Should I lower my insurance premiums?
It depends on how healthy you are, how much you drive, and how much you make.
If you’re single and healthy, you probably don’t need an expensive health insurance plan. If you don’t drive much, then you probably don’t need a premium car insurance plan, either.
However, there are risks to lowering your insurance premiums, and it could come back to bite you. Good insurance can really pay off when you need it, even if it means overpaying when you don’t.
Do I need life insurance?
It depends. If you have a family or people who depend on you, you probably should have life insurance. If that describes you, your best bet is to lock it in while you’re young and healthy so that you pay less for premiums. If you wait too long, you could develop a health issue, which likely makes your premiums cost much more.
On the other hand, if you are a single person with no dependents, I would say that life insurance is more of a nice-to-have. Either way, if you are in a position to save lots of money, you may not need it because you can self-insure.
Think of it this way: Let’s say you save over $1,000,000 in investments. You can access these funds at any point during your life, and they get passed down to your loved ones after you pass away. This makes life insurance a little unnecessary. Your life insurance agent would probably disagree with this opinion, though!
The Bottom Line
Now that you know what factors into your monthly budget, it should be obvious that your situation is unique to you and you alone, and only you can control it.
Form your own custom monthly budget based on your household income and expenses. Stick to it, and you’ll inch closer to long-term financial independence every day.
Sure, it might seem like you can’t control some things, such as where you live and how much you make. But in today’s golden era of remote work and side hustles, you have more power than it may seem. It might even be as simple as knowing how to negotiate a raise.
Don’t be afraid to think outside the box and look for ways to get ahead. You’ll be happy that you did down the road.
The post Average Monthly Expenses for One Person appeared first on Millennial Money.