By Melanie Allen, , Originally posted on Partners in Fire.
Life is expensive. Basic living can cost thousands of dollars between food, housing, utilities, and a little bit of enjoyment. We set out to answer the pressing question “how much does life cost” to give you an idea of the average cost of living for most Americans.
When we first dug into the research back in 2020, we found that life costs approximately $45,000 annually. Keep in mind this figure is a national average. Many places are far more expensive, while others might be cheaper.
However, with inflation at 9.1% in 2022, we realized these numbers are now outdated even though they’re only two years old.
Here’s the truth about how much life costs in 2022 and some tips on mitigating these costs!
Table of Contents
To determine how much life costs, we will consider basic living expenses and the extras most people use. Basic living expenses include food, shelter, and the things you need to maintain those, while extras include transportation and entertainment.
The basics are food and shelter because those are the two things you can’t live without in the most technical sense. Utilities are also included as a basic living expense because they are a big part of having shelter.
How much do basic living expenses cost in 2022?
Housing is the most significant expense for most people. According to a study by World Population Review, the average American pays $1326 per month in rent. That number doesn’t tell the whole story. Those looking to move will see a massive increase, with the average asking rent a whopping $1900.
Averages rarely tell the entire story, but the outlook is even direr when you look at the median. According to a redfin study, median rents have surpassed $2000 for the first time. Keep in mind these prices are skewed by in-demand cities like Austin, Seattle, and Nashville. Smaller towns will have lower rents.
Choosing to buy a house can be even more expensive. According to Business Insider, the average mortgage cost in 2022 is $2064 per month. Keep in mind this cost is for new homes purchased in 2022. To better understand what most Americans are paying, we can look to the median mortgage cost in 2019, which was $1609 per month. Americans lucky enough to purchase a home before the massive price increases may have lower monthly payments.
Keep in mind that buying a home includes additional costs, such as homeowners insurance, HOA fees, PMI (primary mortgage insurance), and maintenance costs.
Since homebuying is out of reach for millions of Americans, we will base the approximate housing cost on average rents. To be fair to Americans staying put with cheaper rents and those looking to move, we will average the price between the two for an average monthly rent of $1613.
Annual Cost: $19356
Annual Cost when first published in 2020: $16860
Total Increase: $2496
The average price of renting soared by over $2000 in the past two years. Many Americans are looking for any way to save money on this enormous cost.
Before diving into cost-cutting methods, you must consider how much money you should allocate to your housing needs.
Nathan Mueller, MBA, Financial Planner, recommends spending less than 28% of your total gross income on housing. To determine your current percentage, divide your monthly housing cost (including mortgage/rent, insurance, property taxes, HOA, etc.) by your total gross monthly income.
For example, if your rent is $2000 per month, and you make $5000 per month, divide 2000/5000. In this example, your answer is .4, which means your housing cost ratio is 40%.
Mueller recommends moving into a smaller place or finding a cheaper neighborhood to save on housing if your costs exceed 28%. Other ways to save include renting a room, getting a roommate, living with family, or even moving to a lower cost of living state.
If house hacking or moving is not in the cards, you can also consider increasing your income with side hustles or asking for a promotion at work.
If you aren’t lucky enough to score a housing situation with utilities included, those will be the next most important thing on your list. Electricity, gas, sewage, water, and trash pick-up all cost money. Many rentals include some utilities (usually sewer and trash) with the rent, but homeowners are responsible for all of them.
The yearly cost of utilities for the average American is approximately $4194. This figure was derived from data on average utility costs by Average Everything and average trash removal costs by Moving.com. The data includes average electric, water, sewer, gas, and trash removal costs across the country and excludes cable, internet, and phone services as those are not necessities.
Remember that not everyone pays all of these costs, and prices vary widely by state. Electrical charges for those running central air in the Southwest will be far higher than those using window breezes in the North East. Gas and Oil for heating will be far more expensive in Northern regions than in Southern areas. The costs listed are averages across the entirety of the US.
Annual Cost: $4194
Annual Cost in 2020: $3900
Total Increase: $294
There are many ways to save money on utilities. Consider raising or lowering the temperature a degree or two to save on energy costs. Keep it at 74 instead of 68 in the summer, or 68 instead of 74 in the winter. Heating and cooling are two of the top energy-sucking budget busters.
In addition, consider running your heavy appliances at night when less power is used and use cold water cycles for your laundry. Invest in energy star appliances and insulated windows to keep your energy in your home.
The final cost under the housing umbrella is insurance. If you own your home, it is a must. However, insurance to protect your personal belongings is also critical if you are a renter. Some landlords won’t let you rent if you don’t have a policy!
On average, homeowner’s insurance costs about $1899 per year, and the average cost of renters insurance is significantly lower at $180 per year.
If we average these two numbers together, we see that Americans are paying approximately $1039 per month to protect their homes. Remember that homeowners are paying far more than renters for this essential living expense.
Average Cost: $1039
Annual Cost in 2020: $635
The difference between 2020 and 2022 is around $400, but it’s important to note that homeowners pay the brunt of this cost. In 2020, renters insurance was slightly more expensive than it is now, coming in at $187 per year. If you rented in 2020 and 2022, your insurance costs are likely similar.
The best way to save money on insurance is to shop around. Many companies offer lower introductory rates for new customers. Others offer great deals if you bundle home and car insurance.
You may consider the whopping difference between homeowners insurance and renters insurance and decide to switch to renting. However, viewing the total cost of living is essential before making a drastic move. If you purchased your home before 2020, you are likely paying less overall than you would if you switched to renting in 2022.
You have to eat to stay alive, right? Food isn’t necessarily cheap. You can do extensive meal planning or live on rice and beans, but the average American doesn’t do that. According to a survey by Super Market News, Americans spend approximately $611 per month on groceries. This number includes personal care items as well as food.
Everyone doesn’t always eat at home all the time, so it’s vital to include meals out as part of the yearly overall food costs. The US Bureau of Labor Statistic’s July Consumer Index Report indicates that Americans spent an additional $329 per month on food away from home.
Annual Cost: $11280
Annual Cost in 2020: $8691
Total Difference: $2581
The difference in food costs from 2020 to 2022 is staggering, and consumers are unlikely to see much relief. To save money on food, consider cutting back on meals out, skipping expensive sugary drinks, and switching to generic products.
Although pre-made foods are convenient, they are more expensive, so if you have time, opt for dried beans and fresh vegetables rather than canned goods or pre-sliced perishables. Buying in bulk may also provide relief if you can afford it. There are many ways you can save money at the grocery store.
As you can see, the average cost for living expenses is $35869 per year, $5000 more than it was in 2020. That’s just for basic survival!
We all know those aren’t the only things we have to buy. When figuring out how much life costs, we have to determine how much everything else costs too.
The average American also has a car, internet, cable, and likes to have fun now and then. They also have to pay for miscellaneous items and maintenance for their cars or homes (or selves) over the year.
Determining how much these extras cost will give us a better idea of how much life really costs.
Transportation costs are becoming more and more of a necessity. Unless you live within walking distance of your job and a grocery store, you will probably be paying for transportation in one way or another.
To calculate how much life costs, I’m going to assume that the average American has a car. I know that many people rely on public transportation, and those costs are generally lower, but I’m not doing a scientific study here. We are working with generalities and averages.
According to Lending Tree, the average American can expect to pay around $644 per month for a new car and $488 per month for a used car. I couldn’t find any data on the combined average, so I’m just going to average those two numbers and assume that the average price overall is the average of those two. That means that, on average, Americans are spending $566 per month on auto loans, which is $6792 per year.
Lending Tree’s numbers are 2021 averages. According to Kelly Blue Book, new car prices continue to increase. Consumers who buy in 2022 can expect to pay even more.
Annual Cost: $6792
Annual Cost in 2020: $5670
Total Difference: $1122
You may want to reconsider car ownership if you live in a walkable city or town with robust public transportation. You can save money by keeping your older car for longer. Conduct proper maintenance to ensure your vehicle lasts.
Another option is refinancing. Although interest rates are on the rise, there may be deals to find if you refinance a car.
Refinancing may also be an option if all these rising costs are busting your budget. It may cost you more money in the long term, but sometimes we must do what we must to survive in the short term, and a lower monthly payment for your vehicle may offer the breathing room you need to beat inflation.
The cost of gas varies widely not only from state to state but from month to month as well. Gas prices soared in late spring but decreased slightly in recent months. According to the Bureau of Labor Statistics, Americans spent an average of $393 per month on gas in May and $432 per month in June. Last year, the May average was only $270.
June gas prices in 2022 are the highest on record. In July, prices lowered slightly from an average of $5.02 a gallon to $4.67 per gallon. According to my calculations, Americans spent approximately $401 on gas in July.
It’s not appropriate to use the highest gas has ever been to determine how much gas costs for a year, so instead, I’ve averaged the May and July 2022 costs for a rough estimate of monthly gas costs, which is $416. Even with taking away the highest month, if we don’t see more relief at the pump soon, we can expect to pay nearly $5000 in gas in 2022.
Annual Cost: $5000
Annual Cost in 2020: $1000
Total Difference: $4000
Four thousand dollars is a massive difference over two years. Keep in mind this is an estimate based on two of the highest priced-summer months. Gas in January and February was much more affordable, so your total yearly costs will be lower unless prices continue to rise.
To save money on this essential expense, consider driving less. Explore rideshare and carpooling options, take public transportation if available, and try to limit your trips to grocery stores.
The cost of car insurance also varies widely by state (and by driving record, age, etc.). However, according to a study by US News, the average cost is $1553. Some states, like Florida, have much higher overall rates, while others are much cheaper.
It’s important to note that insurance is one of the few areas where the yearly cost decreased from 2022.
Annual Cost: $1553
Annual Cost in 2022: $1621
Total Difference: -$68
With all the other huge expenses increasing in price, the small amount you’re paying for car insurance may not be a huge deal. However, if you want to save money in this area, consider driving a cheaper car, raising your deductible (if you can afford a higher deductible!), and taking a defensive driver’s course.
Many insurance companies also offer discounts if you bundle their products. Shop around and get quotes from various providers to find the best deals.
Everyone who has a car knows that problems will arise every year, even if you do get the oil changed regularly. Tires get flat, brake lights go out, and interiors get dirty. And it will always need a significant repair or tune-up at the most inconvenient time.
According to Car Insurance, the average monthly maintenance cost for all vehicles is $100 a month. The cost varies widely depending on how old the car is, how well maintained it is, and the make & model.
Annual Cost: $1200
Annual Cost in 2020: $408
Total Difference: $792
On average, older cars cost more to maintain than newer cars. However, if you don’t have a car payment, trading in an older car with higher maintenance fees will not likely save you more money. The best thing to do is ensure you pay for regularly scheduled maintenance like oil changes, tire rotations, and tune-ups as soon as they are due. These routine repairs can save you a lot of time and heartache.
Sedans are also less expensive to maintain than luxury cars and pickup trucks. Trading in a luxury vehicle or gas guzzler for a cheaper, more functional car can save you money on car payments, gas, and maintenance over the vehicle’s life.
The last significant cost of life is entertainment. Most Americans spend at least a little money doing something fun, whether it be cable, internet, or going out and doing things. I include this because I don’t think life is worthwhile if you aren’t enjoying it at least a little bit, and unfortunately, most ways to enjoy life cost money.
According to a study by Allconnect, the average monthly cable package costs $217.42 per month. Keep in mind that most companies package cable and internet, so the figure estimates what people are paying for both services.
Annual Cost: $2609
Annual Cost in 2020: $1764
Total Difference: $845
Cable is over-rated. You can watch most cable shows on Youtube or via streaming services later. Those who opt to ditch cable and only pay for internet pay an average of $64 per month, a drastic difference.
Remember that if you ditch cable, you will likely opt for a streaming service to replace it.
According to a survey by Finance Buzz, the estimated cost of monthly streaming services varies widely. Some Americans claim to pay over $100 monthly for various streaming services.
However, the median falls into the $25-49 monthly range. We will use the average price in that range ($37) to calculate the average annual cost.
Annual cost: $444
Annual Cost in 2020: $348
Total Difference: $96
Streaming isn’t that expensive in the grand scheme of things. If you really want to save, you can ditch streaming services altogether and rely on Youtube or basic cable for your television needs.
Another option is to rotate your streaming services. Sign up for Hulu, watch everything you want to watch on the platform, then cancel it and sign up for something different. This way, you only pay for one streaming service at a time.
According to the Fool, Americans spend approximately $243 per month on entertainment, for a total of $2916 per year. The Fool’s entertainment category includes pets, toys, hobbies, recreational equipment, and tickets/fees for recreational activities.
The total yearly entertainment cost is lower in 2022 than in 2020. Two likely culprits are inflation, which eats away at entertainment budgets, and the lingering pandemic, which has prevented people from engaging in crowded activities for the past two years.
Annual Cost: $2916
Annual Cost in 2020: $3203
Total Difference: -$287
In 2022, life costs over $56,000 annually, which doesn’t even include taxes, health insurance, life insurance, or child care. It also doesn’t give much wiggle room for enjoying life – three thousand dollars seems like a lot, but that’s only sixty dollars a week. That means you might be able to go out to a movie once a week, save up and go to a theme park once a month, or vacation twice a year.
Also, because this is a breakdown of what things cost, it doesn’t include any savings! We all know that financial emergencies happen and that we should have an emergency fund ready to handle these. We also know we should save and invest to achieve our financial goals. Life gets even more expensive after you include all the “extras” that aren’t the bare bones of living.
The cost of living is high and is likely to keep rising. Some of the ideas on this list will help you save money in the short term, but the best way to successfully afford life is to make more money.
Passion Fire is an idea spawned out of the high cost of living. Traditional financial freedom may be out of reach due to the insane costs of just surviving, but if you can find a way to do what you love while making enough to live, that’s a win. Consider a side hustle you can start today that will get you on track to follow your passions for a living. Even if you don’t end up quitting your job and pursuing it full time, you’ll be thankful for the extra cash flow as living expenses continue to rise.