By Mai Nguyen
Americans have more money to spend than they did a few years ago. That's according to data from the Bureau of Economic Analysis, which shows a 4.5 percent increase in total U.S. personal income from 2014 to 2015. It's nice to have that extra cash, but what are we doing with it? Here's where our money goes.
The economy is getting better, and Americans are earning more than we did a year ago, but most of our income still goes to covering the basics — our biggest expense is housing, followed by transportation and food.
According the most recent available data from the Bureau of Labor Statistics, Americans devoted a third of the money we spent in 2014 to housing. Together, transportation and food account for another 30 percent. Data from the Bureau of Economic Analysis shows that Americans are also starting to save a bit more: Personal saving as a percentage of disposable income rose to 5.1 percent in 2015, up from 4.8 percent in 2014.
While still transportation takes up a good chunk of our budget, spending on gasoline dropped significantly, in large part due to the declining price of oil.
Gas prices have fallen steadily over the last year and hovered around $1.70 per gallon in February 2016, the lowest the national average has been since January 2009.
Cheaper gas also helped pad our wallets; Americans saved an average of $540 on gasoline last year — and spent most of it on restaurants or groceries.
Many Americans said they wanted to use their savings on gasoline to pay off debt or save money. But in reality, they actually spent 80 percent of that extra cash according to a 2015 JPMorgan Chase Institute report How Falling Gas Prices Fuel the Consumer.
Interestingly, when we’re spending that extra money, we’re just as happy to spend it on our pets as we are on going out to entertain ourselves. But we spend the most money on having great entertainment experiences at home.
According the Bureau of Labor Statistics, Americans who live in rural areas spent more to have a good time in 2014 — they devoted an average of 6.4 percent of spending to entertainment — including the purchase of TVs, cable, and musical equipment — compared to 5 percent for urbanites. Of course, how you spend your entertainment budget also depends on what kind of spender you are.
Sources: Bureau of Labor Statistics Consumer Expenditure Survey (released September 2015); Entertainment data; Bureau of Labor Statistics Consumer Expenditure Survey (released September 2015); Rural and Urban data; Bureau of Labor Statistics Consumer Expenditure Survey (released September 2015)
Of course, you need to have more money coming in to be able to spend it on fun things like movies and home-theater systems. Single-parent households spend the highest share of their budget on housing.
Single parents living with at least one child under 18 spent an average of $15,175 on housing in 2014 — that's 38 percent of their total budget.
But as Americans start to earn more, we are also starting to put more cash away. The national saving rate ticked up slightly in 2015 after a decline in 2013.
Savings spiked following the recession, but the rate has evened out a bit. However we’re still well above the pre-bubble rates of 2005 and 2006.
And while we’re doing better at saving, we are modest savers compared to other countries.
Americans have a reputation as modest savers, and we save less than the French and Germans — but we save more than Italians and Canadians, and much more than the British.
It's always good to track where your money goes and budget accordingly. That's especially true if you're trying to kickstart your savings. If you're earning more this year, it may be a good time to start saving more. The best time to budget for more savings is when you get a raise or a new job. Extra earnings mean you can stash away a small percentage of your income every month without cutting back on other expenses. "If you automatically save as soon as you get your paycheck, you never miss the money and the commitment is easier," says financial coach Rocky Galvani.
Mai Nguyen is a freelance writer in Toronto who covers business and personal finance.
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