Why We Spend the Way We Do: A Behavioral Guide to Household Expenses
- Curry Forest
- May 9
- 16 min read
Smart spending strategies for low-income households, backed by behavioral economics.
Living on a tight budget means every dollar carries weight, each moving us closer or further from our goals.. But what if your brain’s natural tendencies are influencing those choices more than you realize?
Traditional financial advice tends to focus on numbers – budgets, goals, logic. But real life doesn’t always follow a straight line. Behavioral economics invites us to look deeper, to understand the feelings, habits, and impulses that shape how we spend. It reminds us that we’re not just calculators, we’re human. And that understanding ourselves is just as important as understanding our finances.
Behavioral economists like Daniel Kahneman and Richard Thaler have shown that we don’t always act “rationally” with money. Our mind is shaped by the winds of evolution that nudge us into taking mental shortcuts, influenced by biases that shape how we pay for essentials (rent, food, utilities) and discretionary items (streaming, eating out, treats).
When we begin to recognize the forces that shape our spending, we uncover the deeper reasons behind our choices, why certain purchases feel urgent, or why some decisions slip away from us.
This isn’t a failure of judgment; it’s simply how human brains work. Kahneman’s research highlights that we tend to feel losses much more intensely than gains, meaning that the sting of spending can feel sharper than the pleasure of saving. Thaler’s work reveals that we also tend to mentally "bucket" our money (called mental accounting), treating it differently depending on its purpose, rather than seeing every dollar as the same. These quirks are part of the way we navigate the world, guiding our spending decisions in ways we might not even notice.
Understanding our mental quirks can open a path to better choices. When money is scarce, the weight of unpaid bills or an empty fridge doesn’t just strain the wallet, it steals our mental bandwidth, narrow our mental focus, leaving less room for long-term planning. It’s not a flaw, but a survival instinct, our attention drawn to the most urgent need, like a plant leaning toward light.
At the same time, we’re wired to favor the present. A small joy today, a coffee, a sale, a night out, often feels more real than the distant reward of saving. This "present bias" is part of being human, shaped by generations that didn’t always have the luxury to think far ahead. But when we notice these patterns, we can gently work with them.
With this awareness, we can gently guide ourselves toward wiser, more thoughtful habits. It’s a gentle invitation to reflect on our relationship with money, offering simple ways to navigate the ebb and flow of daily expenses with more care and intention.
One helpful approach is to make spending decisions ahead of time—when emotions are lower and long-term goals are easier to see. This could mean writing out a grocery list (and sticking to it), deciding in advance how much to spend on entertainment each week, or automating bill payments when possible. These small shifts take advantage of “pre-commitment,” a behavioral strategy that protects against spur-of-the-moment overspending.
In the sections ahead, we’ll explore how these biases play out in everyday budgets, and offer practical ways to spend and save with more clarity and care, and grounded suggestions, rooted in the insights of behavioral economics. We'll start with essential expenses like rent, utilities, groceries, transportation, and move to discretionary expenses like eating out, entertainment and travel.
The Landscape of Household Expenses for Low-Income Americans
Managing household expenses can feel overwhelming, especially when the resources available seem to barely cover the basics. Understanding where your money goes, and why, is an important first step in finding a way forward.
For many households across the United States, the average monthly expenses total around $6440. Of that, a significant portion goes toward housing, transportation, and food. Housing typically costs around $2120, transportation about $1098, and food about $832. But when you're living on a low income, these figures might feel like they don’t apply to your situation.
The reality is that, for many, these expenses take up a far larger chunk of what you bring home each month.
If you’re in a position where you’re living paycheck to paycheck, a large portion of your income is likely spent on necessities: food, rent, utilities, and transportation. Research shows that, for families who are just getting by, nearly 75% of their income goes toward the most basic needs. That leaves little room for anything else, like saving for a rainy day or enjoying a treat every now and then.
You may be familiar with the term “cost-burdened,” which happens when more than 30% of your income goes toward housing costs. Unfortunately, for many low-income households, the reality is much more extreme. Studies show that nearly half of renters in the US spend more than 30% of their income on housing, and for those at the lowest income levels, this burden can exceed 50%. This leaves little room for the other essentials you need to take care of your family like – food, transportation, and healthcare. The pressure can be constant, with no space to breathe.
These struggles are compounded by the rising costs of everyday life. Housing and utilities, for example, have been increasing steadily, and even a small change in price can create a significant financial strain. For many, it feels like the harder you work, the tighter the situation becomes. Lower-income families often end up paying more for essentials than those with higher incomes, from higher utility rates to grocery costs that seem to rise faster than wages.
Without a cushion of savings, any unexpected expense can feel like a crisis. A medical bill, a car repair, these are the kinds of things that can easily push you further into debt or make it impossible to meet other needs. And the numbers are clear: many low-income families struggle just to cover their basic expenses. There’s no buffer, no safety net, and when the unexpected comes, it can feel like there’s nowhere to turn.
Below is a snapshot of how the average household in the lowest income quintile spent their money in 2022. It shows the essential expenses that take up a large portion of the budget, leaving little for anything else.
Expenditure Category | Average Monthly Expense for Lowest Income Quintile (2022) |
Housing | $1115 |
Food | $542 |
Transportation | $409 |
Healthcare | $278 |
Apparel and Services | $108 |
Entertainment | $138 |
Personal Insurance & Pensions | $168 |
All Other Expenditures | $480 |
Total Expenditures | $3239 |
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Note: Data compiled from BLS Consumer Expenditure Survey, 2022.
As you can see, housing and food alone make up a large chunk of the budget. This doesn’t leave much wiggle room for anything else, and that’s a reality many low-income households face. The struggle to cover basic needs is real, and it can sometimes feel like you’re walking a tightrope, trying to stay balanced without falling. But even in the hardest times, there are steps you can take to make sure you’re not only surviving but building a more stable financial foundation for yourself and your loved ones. It’s all about recognizing where your money goes and finding ways to take control of what you can.
While these numbers might feel overwhelming, it’s important to remember that every step, no matter how small, can make a difference. By understanding how these expenses affect your life, you can begin to make choices that help ease the strain and bring more balance to your financial situation. You’re not alone in this, and there are always ways to work toward a more secure future, even when things feel tight.
Essential Expenses: Paying the Bills and Buying Food
Essentials are the non-negotiables: rent, utilities, groceries, transportation, basic clothing. These are the costs that come first. They aren’t just numbers on a spreadsheet, they carry emotional weight, because the consequences of missing them can be severe. Losing your housing due to missed rent or having the power shut off isn’t just inconvenient, it can be frightening. That fear is part of what behavioral economists call loss aversion: we feel the pain of losing something we already have far more intensely than the satisfaction of gaining something equivalent, like securing a new place to live or catching up on bills.
When money is short, our attention naturally shifts to immediate needs, and a scarcity mindset can take over, pulling all our mental energy toward short-term survival. It’s not a failure of willpower, it’s how the mind copes when there isn’t enough. If you're worried about how to cover this week’s food budget, it’s incredibly hard to think about saving for a future goal. The urgency of now takes over.
That’s why having even a small buffer, like a $100 emergency fund or a week’s worth of rice and lentils, can offer powerful peace of mind. It reduces mental load, freeing up bandwidth for planning ahead. Even modest systems, like a visual bill tracker or a reminder notebook, can help create structure amidst chaos.
One way to work with how our minds handle money is to use what Richard Thaler calls mental accounting: setting aside specific amounts for specific needs. It’s a way to create structure and clarity. You might say, “This $300 is for rent. This $200 is for food,” and keep those amounts separate – whether in envelopes, labeled jars, or dedicated bank accounts. That simple act of division helps protect the essentials. When the rent money is clearly marked, it’s less likely to be chipped away by impulse or accident.
Decision fatigue is real, especially when everything feels urgent. Using a standard weekly menu, a consistent payment schedule, or designated shopping days can reduce the mental energy required and make it easier to follow through on good intentions.
It also helps to be mindful of default choices, the ones we make without really deciding, just because they’re easy. In this case, defaults can work in your favor. Automating bill payments can reduce stress and help avoid late fees. Many banks let you schedule transfers right after you get paid. You can even automate savings, treating those transfers like any other bill you owe. It’s not about being rigid, it’s about setting up small supports that help you follow through, even when your attention is stretched thin.
Planning ahead can lighten the load. Writing a meal plan and making a grocery list based on what you need keeps you focused in the store, so you're less likely to wander the aisles and pick up extras. Financial experts often recommend this, not because it’s complicated, but because it works. The fewer decisions you have to make on the spot, the easier it is to stick to your budget.
Simple habits like cooking in batches, using store coupons, or sticking to one dependable brand can also ease decision fatigue. These aren’t just time-savers, they’re tools that give your attention room to breathe. And it’s just as important to lean on the supports around you.
Many families use food pantries or assistance programs not as a last resort, but as part of how they get by. These aren’t tricks or shortcuts, they’re practical, grounded ways to ease the pressure when money is tight.
Healthcare is often unpredictable, which makes it extra challenging on a tight budget. Co-pays, prescriptions, or an unexpected doctor’s visit can derail even a well-planned month.
Behavioral economics reminds us that loss aversion, the tendency to fear losses more than we value gains can lead us to delay or avoid preventative care, just to save a few dollars now. But this often leads to higher costs down the line. A $30 check-up today could prevent a $300 emergency room visit next month.
It helps to reframe healthcare as an investment in your future well-being. Using free or subsidized clinics, exploring Medicaid eligibility, or staying up to date on preventative services can be part of your long-term financial and physical health plan.
Sometimes, the line between essential and discretionary isn’t so clear. Is organic food a necessity or a luxury? What about vitamins, sustainable furniture, or ergonomic shoes? These choices often come wrapped in emotional language: words like healthy, safe, or responsible, which can stir a sense of urgency or guilt. They are often framed as necessities for health or responsibility, but whether they’re truly essential depends on context, values, and available resources. What makes the decision harder is that many of these products activate identity-based spending – choices that signal who we are or who we want to be. Behavioral economics helps us slow down and sort through these feelings. It explains why these decisions feel complex. One key factor is framing: the way information is presented can change how we evaluate it. For example, a product labeled “organic” or “doctor-recommended” can feel non-negotiable, even if a similar, less expensive alternative meets the same need. This taps into the affect heuristic, where our emotional response influences how necessary or urgent something feels. Another dynamic at play is attribute substitution: when we subconsciously replace a hard question (“Is this purchase essential given my current needs and budget?”) with an easier one (“Do people I admire buy this?” or “Does this feel like the healthy choice?”). This substitution can be particularly strong when marketing appeals to values like health, safety, or environmental responsibility.
Behavioral tools like mental accounting, delayed decision-making, or prioritization checklists can help. It encourages us to pause and ask: Is this meeting a real need, or responding to a well-crafted message? Tools like deliberate comparison, written priorities, and even cooling-off periods before a purchase can help bring clarity. When values like health or sustainability matter, you don’t have to say no, you can simply find a version of “yes” that fits your budget and your life. You might reframe the question: “Is there a lower-cost version that still supports my value?” or “If I didn’t see the marketing, would I still think I needed this?” These approaches offer clarity, not by dismissing your values, but by helping you act on them in a way that respects both your goals and your budget.
Discretionary Expenses: Treats, Entertainment, and Extras
Discretionary spending covers the things we enjoy but don’t strictly need: movies, streaming services, dining out, new clothes, or hobbies. Even when money is tight, these little pleasures can provide a much-needed lift. But behavioral economics reveals how easily we can overspend on these non-essentials when we feel we "deserve" a break, especially after stressful weeks. Our minds are wired to focus on immediate rewards, pulling us toward that sale or coffee craving as a way to ease tension in the moment.
Think about the ease of using a contactless payment at a café. The swipe of a card or tap on your phone can make spending feel more abstract, with less of the “pain of paying” you get from handing over cash. In the moment, it feels great, but this convenience can lead to unnoticed accumulation of small expenses. Thaler’s research on mental accounting helps explain this. We might keep a “fun money” account, thinking we’re sticking to a strict budget, but then treat extra windfalls, like a tax refund or unexpected bonus, as “found money” to splurge on things like entertainment or travel. The study from Georgia Tech’s behavioral journal calls this the windfall effect, a classic example of how we mentally separate money and justify treating it differently.
Social norms also influence our fun spending—what friends are doing or posting can shape what we feel we should be doing too. Recognizing this pressure can help you opt out consciously. Maybe a potluck night with friends or a library movie night scratches the same itch for less. Behavioral economics reminds us that joy doesn’t always have to carry a price tag.
Another habit is subscriptions. It’s easy to sign up for streaming platform services, or a gym membership, and then forget to cancel or hesitate to cancel the subscription. This is the default effect at work: once we opt into something, we tend to stick with it, often without actively deciding to continue. If you’re on a tight budget, it’s helpful to review these recurring charges regularly. If your circumstances change, turn off auto-renewals or downgrade your plan. Even a few dollars saved each month can be redirected to your essential expenses or a savings fund.
But, as always, it’s important not to feel guilty about setting aside a bit for yourself. The key is balance. By defining clear limits for fun spending, you can make sure it doesn’t interfere with your essential needs. For example, set aside a $20 entertainment fund each payday. Or come up with a subscription budget of $10 a month, and rotate through your subscriptions each season. With that money already accounted for, you can enjoy your indulgence without feeling like you’re overspending. This is a positive use of mental accounting: budgeting a small amount for fun ensures you get the psychological reward of treating yourself, without compromising your financial stability.
Discretionary Spending on Personal Care and Wants
Not all discretionary spending is about pleasure. Sometimes, it’s about belonging. A bottle of lotion, a new shirt, the right haircut – these are our stories, not just price tags. They help us feel seen, accepted, part of something larger than ourselves. In a world that often judges by appearances, personal care items become more than objects; they become our efforts to fit in, to be okay in the eyes of others.
But this yearning is not ours alone, it’s shaped. Marketers are skilled at reading that longing and bending it. They lean on urgency: “Only a few left!”, “Don’t miss out.” These messages stir our ancient fear of being left behind, prompting us to act fast, not necessarily wise.
Behavioral economics gives us a language for this. It helps us step back and ask: Is this choice mine? Or is it the echo of someone else’s desire, cleverly disguised as my own?
Mindful consumption doesn’t mean austerity. It means listening closely – to your needs, your resources, your deeper values, and choosing what serves you with intention. It’s not about denying beauty or joy, but about letting those things in only when they nourish rather than drain.
Tips: Spend Wisely with Behavioral Hacks
The following tips draw on behavioral research mentioned above to help you make everyday spending choices a little easier and more intentional. You don’t need anything complex, just practical shifts that fit into your routine that can make a difference:
Make Lists and Plans. Before you shop, whether it’s groceries or anything else, write down exactly what you need. Studies show that having a shopping list keeps impulse buys in check. At home, break your budget into categories like “food,” “bills,” and “fun,” and stick to those boundaries. Planning ahead engages your System 2 (slow, deliberate) thinking your slow, deliberate decision-making, helping you fight the pull of impulsive urges. Go beyond a basic grocery list. Plan your meals for the week, then list only the ingredients needed. Categorize your list by store section to avoid impulse buys. For your budget, create specific categories (e.g., "Groceries - $50/week," "Entertainment - $20/week") and track your spending within them using a simple notebook or app. Regularly check if you're staying on track.
Automate Savings and Bills. Turn saving into the default. For example, as soon as you get paid, set up a fixed amount to be automatically moved to savings or paid toward debt. Think of it as paying your future self first. This commitment device (like Odysseus tying himself to the mast) makes it harder to skip saving later. Many banks offer recurring transfers – use them to your advantage. Also, set up autopay for rent, utilities, or loan payments so you don’t risk forgetting and facing a penalty.
Use “Prepaid” or Separate Cash. If digital payments feel too easy, try creating a physical limit. Load a separate debit or prepaid card with only your fun money, or go old-school with the envelope method (cash for groceries, cash for entertainment). When the envelope is empty, you’re done. This tangible boundary turns abstract budgets into real limits, reducing overspending. This works especially well if you combine it with visual cues. Labeling envelopes or jars can create a strong mental link between the money and its purpose, making it easier to resist borrowing from one category to cover another.
Trim Unnecessary Defaults. Review all your subscriptions and memberships. Cancel or pause anything you don’t really use, whether it’s magazines, streaming services, or gym memberships. Every subscription that auto-renews is a default you’ve agreed to, and they add up. Cutting even $5–$10 a month can free up cash for essentials or savings. Anchoring is when we rely too heavily on the first number we see. If your first impression of a good pair of shoes is $100, then a $60 pair seems like a deal—even if it’s still a stretch for your budget. Flip this tendency in your favor by anchoring your decisions around your actual budget first. Know your max before shopping, not after.
Reframe Your Goals. Instead of thinking, “I have to give up a coffee to save $3,” try, “I’m choosing to give my future self an extra $3 for something meaningful.” Reframing saving as a gain, like security or a future treat, rather than a loss can be motivating. You could also gamify saving: allow yourself a reward when you reach a goal. Some people imagine a moment in the future, like moving into their own place, taking a long-awaited trip, or finally being debt-free, and use that image to stay focused on their goals.
Reframe Savings with a “Hardship Avoidance” Lens
One powerful nudge for low-income households is to frame savings not just as a step toward future rewards, but as a shield against future hardship. Due to loss aversion, we feel potential losses more acutely than potential gains. So instead of thinking, “I’m saving $100 for a future trip,” it may be more motivating to think, “This $100 could keep the lights on if something goes wrong next month.” This kind of framing makes the value of saving more immediate and emotionally resonant, especially when every dollar is already stretched.
Patch Mental Leaks. Be mindful of the “pain of paying.” Since swiping feels easy, try paying with cash sometimes. Even if you prefer digital payments, periodically review your bank or credit card statements line by line to feel the impact. Also, try to group smaller purchases into one larger transaction. Kahneman’s research suggests that combining small losses (like multiple bank fees) into a single transaction helps to reduce the repeated pain. For everyday spending, a simple rule is: if an expense bothers you, consider cutting it out. That might mean skipping the daily soda or signing out of shopping sites to prevent mindless browsing.
Simplify to Reduce Mental Load
Too many decisions can wear you down. Reduce the strain by consolidating financial accounts, automating what you can, and setting just a few focused goals at a time. This frees up brainpower and makes it easier to follow through, especially when life is already demanding.
Conclusion:
Our minds tend to follow what’s familiar and easy. The behavioral lens shows us that our brains use shortcuts, but once we know what they are, we can design our environment to help. We see patterns, not to judge ourselves, but to gently guide our choices. When you set up simple supports, like a clear budget or automatic transfers, you’re not taking away freedom, you’re offering yourself steadiness. Like training wheels, these tools are there to catch you, not to hold you back. These aren’t just spending tactics, they’re ways to reduce stress, feel more in control, and protect your mental energy. Financial resilience isn’t only about having more money; it’s also about designing a system that works with your brain, not against it.
Behavioral economics isn’t just academic theory, something abstract that is distance from real life. It’s a practical guide for your day to day expenses: your groceries, your rent, your hopes for next month. When you understand how the mind leans toward the present or treats unexpected money as extra, you can work with that—not against it. You can predict your own tendencies and “nudge” yourself toward better habits. You can pause before spending, sort your money with intention, and leave room for joy without risking what matters most.
Saving and spending wisely doesn’t mean living without pleasure. It means choosing which pleasures to keep close, and making sure your foundations are strong. It’s not all-or-nothing. It’s one thoughtful decision at a time, building a rhythm you can live with, especially when times are tight.
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