The Best Things To Spend Money On – How Do You Stack Up?

Most of us don’t work for the fun of it. We work because our jobs give us money, and we can exchange that money for goods and services. 

But what should we spend it on?

The Best Things To Spend Money On

Money management is a skill you can acquire. It’s natural to want to spend your hard-earned cash on fun stuff for you, but that’s not always the best course of action. 

Before spending money, examine your needs, determine your wants, and set spending priorities. 

If you’re like most people, your spending likely doesn’t align with your priorities. 

What Do People Spend Their Money On?

Every year, the Bureau of Labor Statistics (BLS) publishes a report on consumer spending, showcasing how Americans spend their money. The report is typically released in the fall and covers the previous year’s spending. 

The most recent data, published in September of 2023, shows consumer spending for 2022

Here’s a pie chart showing the percentage of income Americans allotted to eight major spending categories in 2022. 

A pie chart showing what people spend money on from the BLS 2022 consumer expenditures survey.
Photo Credit: Made in Canva using data from BLS 2022 Consumer Expenditure Survey.

How Americans Spend Money:

  • 33.3% – Housing
  • 16.8% – Transportation
  • 12.8% – Food
  • 12% – Personal Insurance/Pensions
  • 8% – Healthcare
  • 4.7% – Entertainment
  • 3.8% – Cash Contributions
  • 2.7% – Clothing/Apparel
  • 1.8% – Education
  • 1.3% – Vices (alcohol & Cigarettes) 
  • 1.2% – Personal Care
  • 1.6% – Miscellaneous 

People spend the bulk of their money on housing, cars, food, insurance, and healthcare. 

What Should We Spend Money On?

People need a place to live, a way to get to work, food to eat, clothes to wear, and insurance to protect themselves from catastrophe. 

But are we spending too much money on specific line items? Is there anything missing from the list? 

Where Are Savings and Investments?

Personal savings and investments don’t appear on the list. 

The personal insurance/pensions category includes social security but doesn’t include other retirement savings. The cash expenditures column captures things like child support, donations, gifts, and giving money to people outside the household (college students, friends, etc.). 

None of the categories capture savings/investment.

What’s Left for Saving and Investing?

Savings technically aren’t “spending,” so it makes sense that they’re absent from a consumer expenditures report. 

The Bureau of Economic Analysis (BEA) claims the average savings rate hovers around 4%, but the math doesn’t check out. 

The average household income in the consumer expenditure report is $94,003 before taxes. Their federal tax burden, based on 2023 tax brackets, is about $16,000. State taxes vary wildly by state, but for this example, we’ll assume a lower-end rate of 5%, meaning they’ll pay about $4,700 in state income taxes. 

After taxes, their total expendable income is about $73,303 per year. The consumer expenditure report says that, on average, consumers spend about $72,967 annually, leaving only $336 for savings and investments. 

That’s not enough. 

Why Are Personal Savings Important?

Personal savings are crucial to a happy life

Emergencies can happen at any time: cars break down, pets get sick, and hail storms break windows. Having money set aside for these random occurrences is a lifesaver, allowing you to handle them right away with little stress. 

Savings are also essential because we don’t want to work forever, and saving money means you won’t have to. 

Averages Don’t Tell the Full Story

How can the BEA claim a 4% average savings rate while the BLS shows average households only have a few hundred dollars left after spending?

Averages can’t tell the whole story. There are lots of reasons why the data points can’t match up. Neither data set can account for every situation. They’re good to know, but understanding their limitations is also imperative. 

The BEA data may be misleading because people with extremely high incomes may be stacking the savings rate, making it appear higher than it is by saving 30% of their income. 

The BLS data could be misleading because tax burdens vary wildly. We didn’t consider all the potential deductions, so many families may pay far less than $16,000, even if they make the same $94,000 per year. 

What Do People Spend Too Much Money On?

The statistics show that people spend far too much on housing and cars. 

Experts say we shouldn’t spend more than 30% of our income on housing. 

Experts clearly haven’t noticed that housing prices have skyrocketed nationwide in recent years. It’s harder and harder to find housing that only costs 30% of our income, so the national average of 33.3% isn’t that bad. 

Of course, if you can cut back, you should, but with rising costs, it’s not always feasible. 

We do, however, spend way too much money on cars. 

People see cars as status symbols. Millions of people with office jobs and indoor hobbies overpay for giant pickup trucks they don’t need. Others buy fancy sports cars, luxury SUVs, and the fully loaded option of the once-affordable mid-size sedan. 

With the average new car loan rate inching towards 7%, people are paying over $700 a month for their new cars. 

That’s too much. 

People also overspend eating out and vices. 

Fix Your Spending

How does your spending compare to the average? Is your savings rate closer to the BEA 4%, or are you spending most of your income?

If you live paycheck to paycheck and cannot save, it’s time to fix your spending. 

Examine Your Budget

Knowing is half the battle. 

First, take a long, hard look at your budget. See where your money goes. 

Armed with your actual expenditures, you can make changes to fix your spending. 

Set Priorities

Spending money is about desire, so you must determine what you want. 

Do you want a gorgeous house in the best neighborhood, or do you just want somewhere safe to live? Do you want a decked-out top-of-the-line Ford F150 pickup truck, or do you want a reliable car that gets you to and from work safely?

What’s more important, the nice car or the big house? A secure retirement or a big pickup truck?

There is no wrong answer. Only you can decide what you value most in life. 

Align Your Spending With Priorities

Now that you’ve set priorities, it’s time to align your spending with your priorities. 

That may mean cutting back on things you thought you valued but realized aren’t necessary. 

Trade in the nice car, downsize your home and stop wasting money on things that don’t matter to you. 

You may also find that you’re spending a lot of money on vices like alcohol, cigarettes, or fast food. It’s time to cut that fat from your budget. 

Save and Invest

If you haven’t prioritized saving and investing yet, you need to. Life happens, but a fat nest egg will help you roll with the punches. 

It may be boring, and you may ache to spend that juicy savings on something new and shiny, but it’s not worth it. 

Think of saving as a bill. Pay it before spending any money on non-essentials. 

Spend Money on What You Love

When you cut back on living expenses and unnecessary expenses, you’ll have more money for the things you love. 

Put it to good use. 

Book that trip. Buy that book. Take your friends out to dinner. 

The best way to spend money is on the things you love. 


Author: Melanie Allen

Title: Journalist

Expertise: Pursuing Your Passions, Travel, Wellness, Hobbies, Finance, Gaming, Happiness

Melanie Allen is an American journalist and happiness expert. She has bylines on MSN, the AP News Wire, Wealth of Geeks, Media Decision, and numerous media outlets across the nation and is a certified happiness life coach. She covers a wide range of topics centered around self-actualization and the quest for a fulfilling life. 

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