Here's how inflation escalates your household spending

During times of economic hardship, it’s common for consumers to associate well-being with financial security. The ability to live comfortably and not worry about paying bills continues to grow rarer for American families as the cost of living rises.

More than half (56%) of U.S. adults note that being able to live comfortably — being able to afford day-to-day expenses and still have money left over for savings — is a key component of financial success.

According to the Bureau of Labor Statistics’ most recent Consumer Expenditure Survey, U.S. households spent an average of $6,081 per month in 2022. The annual expenditure of $72,967 indicates an increase of 9% from 2021, in alignment with inflation rates.

Of the fourteen expense categories measured, cash contributions, food, and personal care products and services increased the most between 2021 and 2022.

A breakdown of the top household expenses

The average U.S. household (including one-person households) brought in $94,003 in 2022; nearly 78% of that income was devoted to covering living expenses. Though other categories have increased in price at a higher rate, housing costs remain the most significant burden for U.S. households.

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The top five expenses for a U.S. household are housing, transportation, food, personal insurance and pensions, and healthcare.

Housing

U.S. households spent $2,025 per month and $24,298 per year on housing in 2022 — that's one-third of their average annual income. This marks a yearly increase of 7.4% from 2021. Housing plays a crucial role in household budgeting and financial wellness; the Federal Reserve Board found that renters are more likely to have missed bill payments than homeowners, indicating that renters have less disposable income.

Transportation

Transportation costs are the second highest expense for consumers, accounting for 16.8% of annual household income. The average household spent $12,258 on annual transportation costs, or $1,022 per month in 2022, a rise of 12.2% year over year.

Food

Households spent an average of $9,340 on food, up 12.7% from 2021. Food is the second fastest-growing expenditure, and households spent an average of almost $800 per month on food alone. Seven percent of households surveyed by the Federal Reserve Board noted they didn’t have enough money to eat at some point the month prior, and more than one in four households indicated they couldn't afford the food they’d like to in 2023.

Personal insurance and pensions

U.S. households contributed an average of $8,756 annually and $730 per month to social security and retirement accounts in 2022, an increase of 12% from 2021.

Healthcare

Health insurance and medical services cost households $5,850 annually and $487.50 per month in 2022. This is an 8% increase from 2021 and shows the increasing healthcare burden on U.S. consumers; 27% of adults went without health insurance at some point in 2023 because they couldn’t afford it.

How to budget for household necessities

Despite these rising costs, experts recommend staying within specific parameters for necessities. The 50/30/20 rule has been the unofficial guideline for living responsibly within one's means. However, with prices for most necessities at an all-time high, it may be worth revisiting this recommendation.

Some experts suggest shifting the paradigm to the 60/20/20 rule, devoting a larger share of income to necessities and compensating by cutting discretionary spending. As the average U.S. household already spends more than 30% of its income on housing alone, the 50/30/20 rule may indeed be outdated when it comes to 2024 pricing.

Another popular way to make ends meet and ensure necessities are being addressed is using “reverse budgeting” tactics. In reverse budgeting, consumers transfer money to savings first each month, then work backward to pay bills and budget for recreational spending if there’s any money left over.

This approach ensures that there is no temptation to overspend on leisure and entertainment before necessities and savings goals are met.

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