How Do Average Americans Spend Their Paychecks?

According to a joint survey by the Association of Young Americans and AARP, 55% of Americans spend equal to or more than they earn, which means that more than half of Americans are not able to save any money at all on a regular basis. But where does this money go? What are the common ways Americans spend their paychecks?

To find out, I referenced the 2019 Consumer Expenditure Survey by the U.S. Bureau of Labor Statistics. This department gathers data on how American households make their money and how they spend it on an annual basis. I was interested in breaking this down by income level, since I assumed that high-income households would spend money differently than low-income households. You can see income broken down by quintile (20 percentile) below. Feel free to compare your own spending to the income level closest to yours.

	0-20	20-40	40-60	60-80	80-100	Overall
Income before taxes	$12,029	$32,768	$56,773	$93,390	$218,670	$82,852
Income after taxes	$12,236	$32,945	$53,123	$83,864	$174,777	$71,487
Total expenditures	$28,672	$40,472	$53,045	$71,173	$121,571	$63,036
Savings	-$16,436	-$7,527	$78	$12,691	$53,206	$8,451

As you can see, people don’t generally break even until the 40-60 percentile range, which matches with the survey results that 55% spend more than they earn. I’m showing income both before and after taxes because generally people are more familiar with their pre-tax income, but it’s the after-tax income that really matters since this is the money you actually have to spend. Interestingly, households in the 0-40 percentile range end up with slightly more income after taxes due to refundable tax credits for low-income households.

How do these households spend their money?

I’m going to list expenditures from biggest to smallest according to the overall average, providing the annual expense, monthly expense, and percent of income after taxes.

	0-20	20-40	40-60	60-80	80-100	Overall
Housing	$11,531/yr $961/mo 94%	$14,805 $1,234 45%	$18,075 $1,506 34%	$22,611 $1,884 27%	$36,302 $3,025 21%	$20,679 $1,723 29%
Transportation	$4,581 $382 37%	$7,160 $597 22%	$9,850 $821 19%	$12,910 $1,076 15%	$19,166 $1,597 11%	$10,742 $895 15%
Food	$4,400 $367 36%	$5,859 $488 18%	$7,505 $625 14%	$9,080 $757 11%	$13,987 $1,166 8%	$8,169 $681 11%
Personal insurance and pensions	$619 $52 5%	$2,006 $167 6%	$4,633 $386 9%	$8,647 $721 10%	$19,861 $1,655 11%	$7,165 $597 10%
Healthcare	$2,855 $238 23%	$3,950 $329 12%	$4,694 $391 9%	$6,036 $503 7%	$8,415 $701 5%	$5,193 $433 7%
Entertainment	$1,109 $92 9%	$1,845 $154 6%	$2,268 $189 4%	$3,388 $282 4%	$6,828 $569 4%	$3,090 $258 4%
Apparel and services	$818 $68 7%	$1,246 $104 4%	$1,530 $128 3%	$2,245 $187 3%	$3,571 $298 2%	$1,883 $157 3%
Cash contributions	$649 $54 5%	$1,157 $96 4%	$1,328 $111 2%	$2,175 $181 3%	$4,657 $388 3%	$1,995 $166 3%
Education	$767 $64 6%	$491 $41 1%	$687 $57 1%	$1,189 $99 1%	$4,072 $339 2%	$1,443 $120 2%
Miscellaneous	$411 $34 3%	$682 $57 2%	$869 $72 2%	$846 $71 1%	$1,683 $140 1%	$899 $75 1%
Personal care products and services	$363 $30 3%	$552 $46 2%	$707 $59 1%	$897 $75 1%	$1,411 $118 1%	$786 $66 1%
Alcohol	$209 $17 2%	$331 $28 1%	$441 $37 1%	$658 $55 1%	$1,255 $105 1%	$579 $48 1%
Tobacco products and smoking supplies	$299 $25 2%	$327 $27 1%	$368 $31 1%	$397 $33 0.5%	$209 $17 0.1%	$320 $27 0.4%
Reading	$61 $5 0.5%	$62 $5 0.2%	$90 $8 0.2%	$94 $8 0.1%	$153 $13 0.1%	$92 $8 0.1%

The expenditure categories are generally rather broad. Here is a brief description of each:

Housing: shelter (owned or rented), utilities, household operations, housekeeping supplies, and household furnishings and equipment

Transportation: vehicle purchases and financing, fuel, maintenance, registration and licensing fees, insurance, and public transportation costs

Food: both food at home and food away from home

Personal insurance and pensions: life and other personal insurance and contributions to Social Security, pensions, and other retirement programs

Healthcare: health insurance, medical services, drugs, and medical supplies

Entertainment: fees and admissions for sports, movies, concerts, and plays, gym memberships, audio and visual equipment and services (including cable), pets, toys, hobbies, and playground equipment

Apparel and services: clothing, footwear, accessories, diapers, dry cleaning, clothes repair, and clothes storage

Cash contributions: cash contributed to people or organizations outside the household, including alimony and child support, money sent to students, and contributions to religious, educational, charitable, or political organizations

Education: tuition, fees, textbooks, supplies, and equipment for preK-12, college, and other schools

Miscellaneous: anything that doesn’t fit in the other categories

Personal care products and services: products and services for hair, oral hygiene, and cosmetic purposes

Alcohol: alcoholic beverages

Tobacco products and smoking supplies: tobacco and/or smoking products

Reading: newspaper and magazine subscriptions and purchases of physical or digital reading material

How do priorities change by income level?

You can see in the table above that the overall averages are pretty heavily skewed by the higher income quintiles, so I wanted to examine how expenses differed among these income levels. Here you can see the expenditure categories ranked from biggest to smallest among each income quintile.

0-20	20-40	40-60	60-80	80-100
Housing	Housing	Housing	Housing	Housing
Transport	Transport	Transport	Transport	Personal insurance/ pensions
Food	Food	Food	Food	Transport
Healthcare	Healthcare	Healthcare	Personal insurance/ pensions	Food
Entertain-ment	Personal insurance/ pensions	Personal insurance/ pensions	Healthcare	Healthcare
Apparel and services	Entertain-ment	Entertain-ment	Entertain-ment	Entertain-ment
Education	Apparel and services	Apparel and services	Cash contribution	Cash contribution
Cash contribution	Cash contribution	Cash contribution	Apparel and services	Education
Personal insurance/ pensions	Misc	Misc	Education	Apparel and services
Misc	Personal care	Personal care	Personal care	Misc
Personal care	Education	Education	Misc	Personal care
Tobacco/ smoking	Alcohol	Alcohol	Alcohol	Alcohol
Alcohol	Tobacco/ smoking	Tobacco/ smoking	Tobacco/ smoking	Tobacco/ smoking
Reading	Reading	Reading	Reading	Reading

The largest expenditure is the same across the board: housing. This is unsurprising as many people spend more on housing than they can really afford for one reason or another. What’s more surprising to me is that the lowest income group spends 94% of their after-tax income just on housing. This clearly illustrates the need for more affordable housing if you have people who can’t even afford food after paying for shelter.

The next biggest expenditure for everyone except the highest income group is transportation. People need vehicles or public transit to get around. This provides a big opportunity for people to save money, though, by purchasing less expensive cars.

For the highest income group, their second biggest expenditure is personal insurance and pensions, likely due to larger contributions to retirement accounts and higher Social Security tax on their higher income. In 2021, Social Security tax is equal is 12.4% of all wages and self-employment income up to an income of $142,800 (plus the Medicare portion of 2.9% on all earnings), although employers pay half of that amount. Personally, I wouldn’t consider Social Security tax to be an after-tax expense (or, for that matter, contributing to retirement accounts to be an expenditure), but I’ve included this category for completeness because it’s listed in the Consumer Expenditure Survey. This category is also one of the top expenditures for the other income groups aside from the lowest, coming in at the 4th or 5th largest.

The third biggest expenditure for most people is food, which makes sense because it’s a necessity. This expense increases as the size of your household increases, as you have more mouths to feed. You can read about tips for saving on grocery bills here.

This is followed by healthcare, particularly for lower-income households. Healthcare costs do not increase much relative to income levels, which means that healthcare costs are the biggest burden for the poorest households.

That rounds out the top 5 expenditures for all income levels except the lowest (which has much lower personal insurance and pension costs).

The next largest expenditure for all income levels is entertainment, with the biggest portions coming from audio and visual equipment and services (likely the monthly cable bill) and pet expenses.

That’s followed generally by apparel and services and cash contributions. Unsurprisingly, cash contributions are ranked slightly higher for higher-income households.

Surprisingly, education is actually ranked highest for the lowest income group, followed by the highest and second highest. Meanwhile, it’s the 4th smallest expense for the 20-60 income percentile range. I’m not sure the reason for this, but I did find it noteworthy. The lowest income group actually spends more in raw dollars than both the 20-40 and 40-60 percentile groups, despite having significantly less money to spend.

This category is followed by personal care, alcohol, tobacco/smoking, and finally reading. Interestingly, tobacco/smoking is a bigger expense than alcohol only for the lowest income group. Reading expenses are practically negligible across the board, and apparently have been since at least 1984.

Conclusion

Overall, I found it interesting that there was not actually as much variation in top expenditures between income levels as I expected. This suggests that priorities remain relatively constant even as income increases. Everyone needs housing, transportation, food, and healthcare. Even wants remain in a similar order across income levels. The difference is how much each household can afford to spend on these categories, and unfortunately, many spend much more than they can afford.