You Probably Spend Too Much And Earn Too Little. Here's How To Fix It

The Bureau of Labor Statistics reported in September 2023 that United States consumers spent $72,967 on average to pay for expenditures in 14 major categories, including groceries, health care, transportation, and personal insurance and pensions. The highest of these categories was housing, which accounted for 33.3% of the total. The $72,967 represented a 9% increase from the year before. The average U.S. income before taxes for 2022, meanwhile, was $94,003, a 7.5% year-over-year change. In other words, spending for the year outpaced Americans' average pay by about 1.5%.

This, according to Jason Tartick, bestselling author, finance expert, and podcast host, shouldn't be surprising, given that many Americans fall into a similar group: spending too much and earning too little. Said Tartick, "We are not being paid in connection with cost-of-living adjustments in our city and inflation, and we know that Americans overspend for what they earn." While overspending is tied, for many of us, to persistent inflation these days, there are some areas where many of us could probably reassess and make some changes to our current spending habits. As Tartick explained, it isn't just about spending and earnings, but also about how we manage our money and the need to have a conversation.

Do a monthly spending analysis

An October 2023 Empower survey about spending on personal luxuries and/or comforts found that 29% of the 1,000 consumers surveyed admitted they felt they overspent on non-essential items. Of the things the respondents said they spent too much on, accessories was first with 40%, followed by clothing and shoes at 37%, and alcohol at 32% (on that note, here's how much the average American spends on alcohol in a year). Twenty-four percent said they spent too much on travel; however, this was also the expenditure that brought consumers the most happiness.

Empower estimated that a person could save, on average, $97 a month by cutting out spending on just one non-essential area that returned a lower level of happiness. This kind of spending analysis is what Jason Tartick recommends everyone do to get a better handle on their inflows and outflows — i.e., their spending and earnings. "We need to be paying very close attention to [both our inflows and outflows and] what we have after that, what we're doing with it, and are we making the most of it," he said.

As with the latte effect, taking a closer look at your spending habits, particularly your unconscious spending, like paying for various streaming services each month even though you only watch one, is a proven way in identifying areas and ways you can save more. Note that Empower says that doing this, breaking down your monthly non-essential spending, only takes 10 minutes or less.

Seriously talk about money

Jason Tartick said that beyond a spending and earning problem, though, consumers also have two other problems: a money-management problem, as well as a talking-money problem. "We have all of the above," he said. And in order to get a real handle on our finances, we have to address them all. That conversation can begin with doing a spending analysis as noted above.

Out of the four money problems, how much we earn is the one we have least control over (though, here's how to talk to your boss about getting a raise); with this said, we do have control over how we spend our pay, and if we do start to earn more, we have a say in what we do with the new "inflows" in our bank account. This, of course, leads to how we manage money overall; not just what we spend per month on essentials and non-essentials alike, but how much debt we take on and how much we pay off, plus how much we save and how we save it (e.g., an emergency fund, retirement portfolio, or sinking fund for a future expected expense).

Tartick's fourth problem, talking about money, is one that Americans definitely struggle with. In another Empower survey from April 2023, the financial services company found that Americans tend to refrain from this topic, even while a majority of the respondents believe that open conversations about money can be a game changer when it comes to positives like building generational wealth (66%) and improving the gender pay gap (62%).