How much money is enough to live comfortably these days? If you’re like most Americans, the answer is simply “more”. Considering lackluster wages, rising prices on necessities, and lifestyle inflation, you could always use more greenbacks in your pocket.
New data from the Social Security Administration (SSA) reveals Americans made more money in 2014 than the prior year, but the majority of the country is still below average on the pay scale. The raw average wage last year was $44,569.20, computed as net compensation divided by the number of wage earners. That marks an increase of 3.5% from 2013. Yet the average is not quite as optimistic as it may seem. The SSA notes about 67.2% of wage earners had net compensation less than or equal to the $44,569.20 raw average. Meanwhile, the median wage is estimated to be only $28,851.21 for 2014.
Perhaps the most sobering finding from the SSA is that 51% of all American workers made less than $30,000 and 38% made less than $20,000 in 2014. While having a dual-income household can help make these figures more hopeful, a household making $60,000 a year still appears to be scraping by when you consider spending habits. The Bureau of Labor Statistics (BLS) reports average expenditures per consumer unit in 2014 were $53,495, a 4.7% increase from 2013.
No matter how much money you make, it never feels like enough. Let’s take a look at five major categories that account for the majority of what Americans spend all their money on.
Uncle Sam is the most stringent bill collector in the land. Taxpayers paid a total of $3.25 trillion in federal taxes for fiscal year 2015, according to the recent Monthly Treasury Statement. Individual income taxes accounted for nearly half of the total at $1.54 trillion. Social Security and other payroll taxes contributed $1.07 trillion, while corporate income taxes and other taxes added a mere $344 billion and $299 billion, respectively.
Every year the Tax Foundation puts the nation’s tax situation in perspective by calculating how many days Americans have to work to cover federal, state, and local taxes, called Tax Freedom Day. In 2015, the day was April 24, or 114 days into the year. While Tax Freedom Day peaked more than a decade ago, it’s still late on a historical basis. For example, World War I taxes pushed the date from January 24 in 1917 to February 8 in 1921.
In 1932, Americans only spent 10 days paying federal taxes and 46 days paying state and local taxes. By 1940, Americans worked 33 days to pay each. World War II brought increased federal spending and borrowing, with Tax Freedom Day arriving in April for the first time on record in 1943. The federal tax burden never returned to pre-war levels. Today, Americans spend roughly one-third of their income on taxes, more than food, clothing, and housing combined.
Whether you rent or own, the roof over your head is a major source of budget headaches. The nation’s top 25 metros for rent hikes are experiencing double-digit year-over-year gains, according to RentRange. Popular areas like Cape Coral, San Francisco, Los Angeles, and Denver posted increases of 23.6%, 17%, 16.3%, and 14.6%, respectively. However, renters looking to lock-in a portion of their housing costs with a mortgage also face an uphill battle.
The price of homeownership continues to rebound from the depths of the Great Recession and then some. According to the National Association of Realtors, the median existing-home price for all housing types hit $221,900 in September, 6.1% higher than a year earlier and the 43rd consecutive month of year-over-year gains. The median sales price on new homes reached $296,900 in September, the highest level of the year.
Of course, the advertised price of the American Dream is only the beginning. Homeownership comes attached to property taxes, home insurance, higher utility bills, and never-ending maintenance. In total, Zillow estimates these hidden expenses average $9,477 per year, and range anywhere from $7,550 in Phoenix to $13,930 in Boston.
Nothing tells the world you know how to spend money like driving around on a fancy set of wheels. Americans love their cars. So much so that we’ll supercharge loan terms to showcase faux wealth. The average monthly payment for a new vehicle in the second quarter of 2015 was $483, according to a recent report from Experian. Even used vehicles averaged $361 per month. These payments are in it for the long haul. The percentage of used vehicles financed for 73 to 84 months reached 16.1%, the highest level on record. The percentage of new vehicles financed for the same term length hit 28.8%.
On average, consumers financed $28,524 for a new vehicle and $18,671 for used. Collectively, Americans owe more than $1 trillion in outstanding auto debt. However, much like with homeownership, the purchase price isn’t the only hit to the budget. A recent analysis from Bankrate finds the average driver spends $2,223 on gasoline, insurance, and repairs each year. Due to driving 68% more than the national average, drivers in Wyoming spend an average of $1,588 per year on gasoline alone.
America didn’t become one of the most gluttonous countries in the world with a modest food budget. The BLS finds the average American household spent $6,759 on food in 2014, with $2,787 of that total on food away from home. In fact, one survey finds we spend an average of $1,200 on fast food every year. From celebrating a special occasion to simply taking a break from cooking at home, people enjoy eating out. Nonetheless, that doesn’t mean you should let food costs ruin your budget.
A recent survey finds food costs are the most common area where Americans break the budget. According to the Principal Financial Group, 22% of respondents say they go over budget on dining-out expenses, followed by 18% who spent more than planned on grocery bills. Adding more salt to financial wounds, separate research shows 76% of American households throw away leftovers at least once a month, while 53% do so every week. Government figures estimate households waste roughly $900 a year in food.
5. Health care
Health care expenditures totaled $4,290 for the average consumer unit in 2014, with $2,868 of that coming from insurance expenses. Making matters worse, health care expenses tend to rise every year for a significant amount of Americans, sometimes by double-digits. The National Business Group on Health estimates one in three large employers will increase insurance premiums employees pay next year and about one in four will raise deductibles.
Health truly equals wealth during retirement. Fidelity estimates a couple, both aged 65 and retiring this year, can expect to spend roughly $245,000 on health care throughout retirement, up from $220,000 last year and an increase of 29% since $190,000 estimated in 2005. Longer life expectancies and annual increases for medical and prescription expenses are two contributing factors for the additional spending. Nursing home and long term care expenses are not included in the estimate.