You’re undoubtedly used to those bills coming in every month, such as your housing costs, food, and car insurance, but you may sometimes wonder if there’s a way to better manage them. Budgeting for your recurring living expenses can help you take control of your cash and spend and save smarter.
While there are various techniques you could use, a good starting point can be to first get a handle on your needs vs. wants and next determine which budget technique will work best for you.
Key Points
• Living expenses include costs that are vital to daily life, such as housing, food, clothing, transportation, and healthcare.
• It’s wise to differentiate between needs and wants when budgeting for living expenses.
• Budgeting methods like proportional budgets, line-item budgets, and envelope budgets can help manage living expenses.
• Average living expenses vary across the US, depending on factors like location, cost of living, and household size.
• If income doesn’t cover living costs, options include reducing expenses or increasing income through side hustles or career changes.
What Are Living Expenses?
Basic living expenses, as the name implies, are ones necessary for daily living, with main categories including housing, food, clothing, transportation, healthcare, and relevant miscellaneous costs.
Although not everyone would define basic living expenses in the exact same way, here is a breakdown of expenses to consider.
Housing
For homeowners, this can include their mortgage payment, property tax, and insurance payments, along with monthly utilities and basic maintenance costs.
If living in a condo, this includes condominium fees. For renters, it can include the monthly rent payment, utilities, renters insurance, and any other housing-related costs they’re responsible for paying.
Food and Beverage
Basic expenses would include buying groceries for the family, but not restaurant food or other optional food or drink expenses. So while, yes, dinner at a sushi restaurant is technically food, dining out doesn’t count as a basic living expense. You could do without it.
Recommended: Ways to Save Money on Food
Clothing
This includes clothes for work and school for the family, plus footwear, underwear, outerwear, casual clothing, pajamas, and so forth. Designer clothing and other pricier items are typically not categorized in basic living expenses. The same holds true for buying a cool sweater that’s on sale but you don’t truly need it.
Healthcare
Expenses in this category can range from monthly payments for healthcare insurance, to co-pays and additional bills from doctors, dentists, specialists, and so forth. It also includes co-pays for prescription medications and over-the-counter meds.
Transportation
Transportation expenses can include car payments and insurance, gas, and maintenance. It can also include Uber and taxi expenses, public transportation tickets, parking fees, and so forth.
Other Expenses
Cleaning supplies for the home or apartment, personal care items, cell phone and internet bills, and similar items can also be included in a list of basic living expenses.
Minimum Debt Payments
Not to be overlooked are making sure you stay current on such things as student, car, and personal loan payments, as well as at least the minimum due on credit cards.
💡 Quick Tip: Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.
Average Living Expenses in the USA
The average living expenses can vary greatly depending on where you live and your household size. Here is a snapshot of a few locations across the country and how much monthly living expenses are, using data from the Economic Policy Institute.
| Location | Household size | Housing | Food | Transportation | Healthcare |
|---|---|---|---|---|---|
| Rapid City, SD | 1 | $577 | $278 | $803 | $662 |
| Rapid City, SD | 2 (couple) | $664 | $510 | $980 | $1,324 |
| Rapid City, SD | 4 (2 parents, 2 children) | $875 | $805 | $1,152 | $2,014 |
| Seattle, WA | 1 | $1,523 | $326 | $854 | $344 |
| Seattle, WA | 2 (couple) | $1,599 | $597 | $1,057 | $688 |
| Seattle, WA | 4 (2 parents, 2 children) | $1,906 | $941 | $1,274 | $1.032 |
| Tallahassee, FL | 1 | $778 | $294 | $816 | $439 |
| Tallahassee, FL | 2 (couple) | $843 | $539 | $1,042 | $879 |
| Tallahassee, FL | 4 (2 parents, 2 children) | $1,024 | $850 | $1,170 | $1,327 |
| Washington, DC | 1 | $1,387 | $374 | $472 | $411 |
| Washington, DC | 2 (couple) | $1,419 | $686 | $601 | $822 |
| Washington, DC | 4 (2 parents, 2 children) | $1,618 | $1,082 | $747 | $1,378 |
Wants Versus Needs
The challenge, in many of these categories, can be to successfully determine which of these expenses are truly needed and which are extras that would be more appropriately categorized as “wants.” In and of itself, there’s nothing wrong with paying for “wants” that fit within the budget but, for the purposes of making a basic living expense budget, it’s important to tease them apart.
Paying a cell phone bill, for example, could be considered important for safety and to facilitate communicating with work and family. Getting the latest and greatest cell phone for its bells and whistles, meanwhile, is crossing over into a want, not a need.
In the 1970s, something called the Growth-Share Matrix was developed, and it may help people who are wondering how to categorize living expenses and then prioritize them. The process includes listing all expenses, and then putting wants in one column and needs in another. Each column can then be divided into high or low priority. So, when budgeting living expenses, there would be four categories:
• High-priority needs
• High-priority wants
• Low-priority needs
• Low-priority wants
Another way to name these categories is:
• Must have
• Should have
• Could have
• Won’t have
This makes it easier to see what must be paid and what is optional. When budgeting, it can make it easier to choose where to put any discretionary funds. In other words, these methods may be able to help people answer these questions: “What are living expenses that must be paid? Which ones are more optional?”
When making a budget, it’s important to also account for any credit card payments, personal loan payments, student loan payments, and other debts that must be paid. After documenting all these expenses, figuring out how to calculate living expenses is as easy as some quick math. Figuring out how to budget for these expenses is the next item on the agenda.
💡 Quick Tip: Bank fees eat away at your hard-earned money. To protect your cash, open a checking account with no account fees online — and earn up to 0.50% APY, too.
Allocating Your Income
Although no two financial situations or budgets are exactly the same, there’s been a long-standing rule of thumb when making a budget that says people shouldn’t spend more than 30% of their after-tax income on housing.
According to the U.S. Bureau of Labor Statistics’ most recent analysis of how people spend their income, the percentages stack up as follows:
• Housing: 33.8%
• Transportation: 16.4%
• Food: 12.4%
• Personal insurance/pensions: 11.8%
• Healthcare: 8.1%
• Apparel and services: 2.6%
This accounts for nearly 85% of what people, on average, have been spending. It shows that, on average, people are slightly above the recommended percentage for housing expenses.
Get up to $300 when you bank with SoFi.
Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!
3 Types of Living Expense Budgeting Methods
There are numerous ways to craft a budget; in fact, we’ve created a guide to cover the different types of budgeting methods. One of the keys to effective budgeting is picking a strategy that allows for consistency. The following methods can help an individual create a budget.
1. Proportional Budget
For people who have divided up their expenses into needs and wants, proportional budgets may make sense. This is a budgetary strategy where monthly income is divided into three categories:
• Needs
• Wants
• Savings
In one type of proportional budget — the 50/30/20 rule featured in the book “All Your Worth” by Senator Elizabeth Warren and Amelia Warren Tyagi — 50% of income would go towards needs; 30% towards wants; and 20% towards savings. It typically makes sense to do this calculation with after-tax income, which is take-home pay.
Advantages of a proportional budget include that it’s a simple formula, which may make it easier to stick to. Plus, it keeps a focus on the big picture, clearly distinguishing between needs and wants. It can also be a useful method for people who want to save money in a straightforward way.
This budget method may not work well for people who are still working on separating needs from wants. And, if a person’s needs currently take up more than 50% of income earned, then the 50/30/20 percentage breakdown may work as a goal vs. something that can be fully implemented right away.
Recommended: Check out the 50/30/20 calculator to see the breakdown of your money.
2. Line-Item Budget
A line-item budget is a granular method where you track expenditures, line by line, in relevant categories. This can be helpful for people who want to keep their focus on spending money on basic living expenses because they can easily see how much of their money is going into what category.
This is also an easy method to create and use. However, it doesn’t necessarily have a focus on savings, and it is more time intensive to manage.
3. Envelope Budget
The envelope system is another way to create a household budget, and it may be the most hands-on way to manage money. People using this method withdraw enough money from the bank each month to cover each budget category. Then, they put the appropriate amount for each category in a separate envelope: housing expenses in one, grocery expenses in another, and so on.
Once a particular envelope is empty, then no more money can be spent in that category for that month, unless cash is taken from another envelope, which reduces the amount that can be spent on that envelope’s category. This method can work well for people who appreciate a tactile way of handling money. The need to get cash from the bank each month does add a step to the process and, like the line-item method, it doesn’t address savings.
This method can be adapted for those who don’t use cash. Instead, you can use your debit card and keep track (by hand or via an app) on how your category spending is going.
Recommended: Tips for Aggressively Saving Money
Budgeting Tips
Here’s some advice as you create and live on a budget:
• When creating a budget, look for expenses that can be eliminated or at least reduced. For example, you might cut a streaming service or two or drop all that you subscribe to and find free entertainment through your public library’s resources.
• It also generally makes sense to incorporate savings into a budget. First build an emergency savings account and then save for other personal goals, including for retirement.
Although the proportional budget described above has savings as an integral part, the line-item budget and envelope budget don’t. But, a line can be added for savings towards retirement or other goals — and an envelope can be added to the monthly pile.
• Consistency also counts, big time. When budgeting is a part of daily life, it can make it much easier to reach financial goals than when it’s a sporadic activity. If budgeting fades from focus for a month, don’t quit. Get right back on track.
• Finally, when help is needed, ask for it, whether from trusted friends and/or relatives or a qualified financial advisor.
What If Your Income Doesn’t Cover Your Living Costs?
If your income doesn’t cover your living expenses, you have two options (or you could do a combination of both):
• Reduce your expenses. You might take a roommate, move in with a family member for a while, start shopping at warehouse clubs, or decide not to eat out much less.
• Increase your income. This might mean looking for a new job, training up for a different career, or starting a side hustle.
These methods can help you cover your living costs. Worth noting: If part of the issue is considerable debt that is negatively impacting your spending power, you might meet with a non-profit credit counselor for advice on eliminating that drain on your funds.
Budgeting and Saving With SoFi
Budgeting for daily living expenses can help you better understand your financial situation and then meet your money goals. Your financial institution may offer tools to help you track your money and budget successfully too.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
What are considered living expenses?
Living expenses are the minimum expenditures needed to survive, so typically they include housing and utilities, food, clothing, healthcare, insurance, and minimum debt payments.
What is the average living cost in the U.S.A.?
The current average cost of living in the United States is $61,334. That’s how much the average household spends on expenses, with almost 35% going to housing and housing-related costs.
What salary is needed to live comfortably in the U.S.A.?
The salary needed to live comfortably in the U.S. will depend on many factors, such as cost of living, location, and household size and configuration. One recent study found that, when looking at America’s 25 most expensive cities, a salary of at least $68,499 would be required for an individual to live comfortably. For larger households, the number will rise.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
SOBK0723026
