Living Expenses: A Beginner’s Guide

When you pay your bills every month, you probably notice that certain expenses rarely change by much. These costs, often called living expenses, include things like your rent or mortgage, food, utilities and maybe more. Living expenses are also necessary to maintain your home and stay in good health.

Just like any other expense, it’s important to know how much you spend on living expenses every month. Knowing this will make it easier for you to create a budget and live within your means.

What Are Living Expenses?

Your living expenses are the items you can’t cut out of your personal budget. This list includes things like your housing, food, water, electricity and any existing debts like student loans.

In comparison, there are probably other items you’d like to add to your budget that aren’t considered necessities. For instance, you may occasionally splurge on eating out or succumbing to impulse purchases at your favorite store. But these items aren’t an essential part of your budget and can often lead to overspending.

What Are Necessary Living Expenses?

If your monthly budget was cut in half tomorrow, your necessary living expenses are the items you couldn’t cut out.

Determining your necessary living expenses may sound straightforward, but you probably have a lot more on that list than you realize. In general, necessary living expenses fall under the following five categories:

Housing Expenses

According to a September 2023 report from the United States Bureau of Labor Statistics, the average American household spent $24,298 on housing costs in 2022 – that’s a 7.4% increase from the previous year. But your living expenses go beyond your monthly rent or mortgage payments. It also includes things like utilities, waste removal services, homeowners insurance and property taxes.

Plus, if you own a home, you’ll have to spend money on maintenance costs. These can include things like mowing the lawn, paying for general repairs, fixing your roof after a hailstorm and other necessary renovations.

Food And Groceries

Your food costs include trips to the grocery store along with paying for vitamins and supplements, cleaning supplies and personal care items like shampoo and conditioner.

Transportation

Everyone has transportation costs, whether you drive a car, ride the bus or your bike, or take and Uber to your destination. If you own a car, your transportation costs will likely be higher than if you take public transportation. You’ll have to pay for gas, auto insurance and regular maintenance. If you don’t own a car, it’s likely you still pay for public transportation or shared car services, like Uber. Make sure to factor these costs into your budget as well.

Health Care Costs

Health care costs add up quickly, and there’s no way to get around paying them. By skimping on this budget item, you could seriously compromise your health, or end up paying more than you need to, especially if you’re unable to obtain health insurance. 

According to the Centers for Medicare and Medicaid Services, national health spending grew to  $13,493 per person for health care costs in 2022. These expenses include things like insurance premiums, office copays for general practitioners and specialists, pharmacy copays and over-the-counter medications.

Clothing

Clean and appropriate clothing is a necessity. Shoes, undergarments and clothes for daily wear fall into this category.

Depending on your job, you may also need to have specific, work-appropriate attire. If you live in an area with a lot of seasonal changes, you’ll want to be prepared with the right clothing.

What Are The Average Living Expenses For A Single Person?

The amount of money you spend on living expenses will vary greatly depending on whether you’re single or have a family. Single individuals may not have as many living expenses as someone with a family to take care of, though proportionally to their monthly income, they may have to pay more in rent or to afford their mortgage.

If you’re single, you may be able to cut down on some of these costs quite a bit. For instance, if you rent an apartment, you won’t have to pay for maintenance costs. You’ll also only have to spend on what you personally need for food and health care rather than for multiple people.

What To Do If You Can’t Cover Your Living Costs

If your living expenses are higher than your income, you have a few choices to adjust your budget: you can increase your income, or you can cut down on your costs. Further, if you’re low-income and have significant difficulty meeting your living expenses, you might also look into the U.S. Office of Community Services. This government organization offers programs and grants to help low-income people with expenses such as energy bills, utilities and diapers.

Living on a low-income budget can be challenging, but there are areas where you may be able to cut back. Here are some quick ideas for lowering your living expenses:

• Take advantage of any work benefits you may have to reduce health care costs.
• Consider a roommate so you can share the rent or mortgage payments.
• Move to a smaller home or apartment, or consider a less-expensive area.
• Shop at less-expensive grocery stores and cook at home more often.
• Ask your doctor to prescribe you generic prescriptions.
• Consider public transportation, biking or walking to work if possible.
• Keep a shopping list to stay focused on buying only what you need.
• Utilize coupons and sales whenever possible.

How To Budget For Monthly Living Expenses – And Beyond

There’s more to creating an effective budget than analyzing your basic living expenses. Budgeting for major purchases and retirement can also be positive steps. Here are some actions that can prepare your personal finances for success.

Determine Your Fixed Expenses And Variable Expenses

Some monthly expenses stay the same, while some might fluctuate. Fixed costs often involve rent, cell phone bills or insurance payments, while groceries, credit card bills and utility costs might vary. Discretionary spending also falls into the variable category.

Knowing the category of your spending might help you identify places to cut back. For example, streaming services and memberships are fixed expenses that you might be able to cut. Dining out might be a variable expense where you could save money.

Choose Budgeting Tools That Work For You

Spreadsheets are a tried-and-true budgeting tool. If you’re not as comfortable with spreadsheets, though, tools like the Rocket Money^SM app can let you build a budgeting plan from your smartphone. Many apps also have lists of savings hacks to help you get more out of them.

The best choice of tool depends on you: If you’re comfortable with the budgeting tool, you’ll be more likely to use it consistently. That should improve your odds of sticking to your budget.

Find The Right Budgeting Method

The 50/30/20 method is a popular personal budget model for beginners. Simply put, you use 50% of your take-home pay for needs, 30% for wants and 20% for savings. But you can also consider one of these other methods.

• The 80/20 “pay yourself first” budget:Following this method, your budget is based on your net income. Your net income is your income after taxes, sometimes called your take-home pay. If you budget in this manner, 20% of your net income goes immediately into your savings account, while 80% is spent on fixed and variable expenses.
• Cash envelope system: The cash envelope system relies on withdrawing your income in cash, and dividing it into envelopes. These envelopes are based on different categories like groceries and clothing. Then, you use the allotted cash per envelope to pay for your needs and wants without overspending. There are ways to do this virtually and with credit cards, too.
• Zero-based budgeting:To follow this method, every dollar should be budgeted before it’s spent. It’s about making the most of all your money and making sure that your income is covering all your expenses.

Put Your Finances On Autopilot

Direct deposit is a convenience many of us enjoy for automatic paycheck deposits. But automatic bill payment is just as important – it ensures that you can pay bills without worrying about being late.

That’s not the only repetitive financial task you can automate: You can direct a percentage of your paycheck into a savings account, ensuring that it grows consistently.

The Bottom Line

Knowing your monthly living expenses is a crucial aspect of budgeting and managing your money. That’s a great foundation for planning for long-term financial health, from having an emergency fund to putting a down payment on a home.

Analyzing and planning your budget doesn’t have to be complicated. Download the Rocket Money app today to simplify your monthly financial tasks.