Are Americans Spending More Than They Save?

By Lindsay Frankel
Inside Subprime: Oct. 5, 2020

According to a CFP Board survey, more than one in three Americans spend more than they save. And two in five admitted they’ve never established a budget. Coupled with the nation’s high debt load, it’s no surprise that most Americans are living paycheck to paycheck

But spending everything you earn creates a precarious financial situation without a cushion to protect you in case of an emergency expense. That’s why it’s important for all Americans to establish and maintain a budget, particularly low-income families who have less discretionary income to cover unexpected costs. And since most Americans aren’t on track with their retirement savings (one quarter have no savings at all), it’s clear that households need support with budgeting in order to reach their savings goals. 

If you’ve been struggling to save, it might be time to evaluate your budget. Follow these six steps to get control of your financial future. 

Track Your Spending

If you’ve never had a budget before, it’s a good idea to get a handle on where your money is going. You can track your spending manually or use an app that links to your financial accounts. You’ll want to categorize your transactions so you can create spending limits for various categories down the road. 

Establish a Budget

Now that you have an idea of how you’re spending your money, you’re ready to establish a budget. Here’s how:

  1. Add up your monthly post-tax income from all sources
  2. Subtract your recurring bills, like your rent/mortgage and car payment
  3. Allocate what’s left over to various spending categories, based on your past average spending, and savings

There are several budgeting strategies you can utilize if you’re unsure how to divide up your income.


  • Envelope budgeting is a cash-based strategy that involves placing money in envelopes for different spending categories and savings goals. You can also use an app that organizes an envelope budget for you digitally if you want to still use credit cards. 
  • Zero-based budgeting is a way to ensure every dollar has a purpose. You tackle necessary expenses like grocery and rent first, followed by financial goals such as savings and investments, and then use whatever’s leftover for discretionary spending.
  • The 50/30/20 budget advises that you put 50 percent of your earnings toward needs, 30 percent toward wants, and 20 percent toward savings goals. You can modify the shares to make this budget work for you, but the 20 percent savings goal should remain constant. 
  • The spending freeze is a simple way to manage debt repayment or job loss. You budget for your needs only, and devote the rest towards debt repayment or saving. 


Cut Unnecessary Expenses

Now that you have a budget, look for areas where you can cut back on spending. Treating yourself once in a while is okay, but research shows Americans spend approximately $18,000 per year on nonessential spending. At the same time, 38 percent of respondents reported that they couldn’t afford to put money into a retirement account. Here are some ways you can cut back on your monthly spending and contribute more to your savings:

  • Set strict limits on dining out and cook at home instead
  • Avoid alcoholic beverages and coffee
  • Quit smoking cigarettes
  • Impose a waiting time on any potential impulse purchases
  • Negotiate with your telecommunications providers
  • Cancel your cable service
  • Cancel your gym membership and workout at home
  • Cancel unused subscriptions and narrow down your streaming services to one option
  • Clip coupons, wait for sales, and use cashback apps and websites
  • Buy generic products whenever possible
  • Sell your car, avoid ridesharing, and take public transportation

If cutting back on spending sounds too difficult, you can also look for ways to boost your income, such as picking up a side hustle or generating passive income from renting out your car or a room in your home. 

Automate Your Savings

Experts recommend saving at least 15 percent of your pre-tax income in a retirement account, and you should also maintain an emergency fund stocked with three to six months worth of expenses. In the current economic downturn, you should err on the side of caution and save more rather than less. 

A common piece of financial advice is to “pay yourself first.” In other words, deposit a portion of your income into a savings or retirement account before you spend a cent of it. A good way to ensure you stay consistent is to enroll in payroll deductions through your workplace 401(k) plan or set up recurring deposits into an interest-bearing account each month. If your income fluctuates, try using an app like Digit, which will analyze your income and expenses to determine the appropriate amount to set aside for you. 

Increase Your Credit Score

A low credit score can cost you thousands of dollars annually in higher interest rates and fees, so keeping your credit in check will help you divert more money toward savings. To get started, check your credit report for errors at If you find any mistakes, you should dispute them with the major credit bureaus. From there, evaluate your score and take the following steps to improve it:

  • Make consistent on-time payments
  • Pay your credit card bills twice per month
  • Sign up for Experian Boost to build credit from phone and utility payments
  • Pay off as much debt as possible
  • Avoid closing old accounts
  • Ask for a higher credit limit (check with your credit card company if this will cause a hard credit inquiry, which may lower your score)
  • Only apply for new credit when you need it

While there’s no quick solution to poor credit, you can raise your credit score over time by following these steps. 

Pay Off Your Debt

If you’re drowning in debt, you may need to take steps to reduce your debt burden before you put money in a savings account. Whether you should prioritize debt repayment or saving depends on a number of factors, including your interest rate. If you have high-interest debt, you might be able to lower the cost of the loan by using a balance transfer card or taking out a personal loan. However, you’ll typically need good credit to benefit. 

To pay off debt faster, choose the spending freeze budget and select a repayment strategy. The debt avalanche method is the quickest and cheapest way to pay off debt. It involves prioritizing your highest interest debts while making the minimum payments on everything else. That means if you have any outstanding payday loans or title loans, you’ll want to pay those off first. 

For more information on the middle income consumer, subprime loans and payday loans, see our city and state financial guides including states and cities like California, Texas, Illinois and more.