What Do We Spend Our Disposable Income On?

Disposable income in the UK is up by £400 per household compared to last year, according to government data, but once our largest expenses are taken care of each month, where does the rest of our cash go?

According to data from the ONS, the median annual income per household is around £29,400, with eating out, putting money away for a holiday and buying new clothes topping the list of things most likely to put a dent in our bank balance. Last year, average weekly household expenditure was £572.60 a week, or over £29,700 a year – £300 more than what we bring in.

Breaking the Home Budget

Two of the major costs that most of us have in common are transport and housing. Transport costs the average household £4,202 a year, while housing costs an average of £3,957. After this, recreation and culture come in as the third biggest drain on our finances, with the average British spending habit costing a total of £3,879 a year on things like package holidays, TV subscriptions, cinemas, games, newspapers, books, stationery and more.

Here’s how much the UK spends on recreation and culture:

Recreation and Culture Spend Avg. spend a year
Package holidays £1,399
TV subscriptions, satellite rentals and TV licenses £364
Pets and pet food £291
Cinemas, theatre and museums £161
Games and hobbies £161
Gambling payments £135
Garden equipment and plants £135
Newspapers and books £68

 

Unsurprisingly, London-based households spend the most. Compared to the national average of £28,699, Londoners spend around £34,231 a year, with a large chunk of this going on housing, fuel and power. Households in the capital also spend the most on alcohol, at over £9 a week. The area that spends the least, on average, is North East England, with an annual spend of just £23,790 per household. The largest chunk goes on recreation and culture.

Noteworthy right now is that on the run-up to Christmas, the average household spends an extra £500, with the bulk going on gifts, followed by food and drink, socialising and travel. This has a major impact on the average disposable income in the UK as we head into the new year.

A Nation of Impulse Shoppers

As a nation, we love bargains so much that we make up to nine impulse buys a month on ‘good deals’, spending Infographic of the biggest impulse buys in the UKalmost £200. These spontaneous sprees end up costing us big time – around 6,500 impulse buys a lifetime add up to a cool £144K.

Research shows our top impulse purchases include:

  1. Chocolate
  2. Clothes
  3. Takeaways
  4. Coffee
  5. Lunch
  6. Books
  7. Beauty products
  8. Shoes
  9. Magazines
  10. Underwear
  11. Plants
  12. Toys

Are we addicted to spending money? One in 10 people experience a high during an impulse purchase, and these often go to waste. One study of the high shoppers get when splurging revealed that up to £9,000 of the money we spend a year is wasted on items that we don’t even use – around £628 of this is on rarely used TV packages, £528 on unused mobile phone credit and £733 on clothes we’ll never wear.

  • Unwanted subscriptions: Around half the country has been caught out by free trial subscriptions, either by forgetting to cancel or being unable to, and it cost us around £800 million in the last 12 months. One in eight people has paid for an unwanted subscription for over four months before cancelling, with 23% paying for up to three months.
  • Mobile data: Most mobile users waste around 2GB of data a month, and 71% of mobile customers are overpaying for data they don’t use, at a total cost of £800 million per year.
  • Clothing: A study commissioned by Vanish revealed that one in 10 Brits admits to throwing away clothing that doesn’t fit rather than returning it, while the average person throws away eight items a year, adding up to around £500 of wasted cash per person. One government report states that 300,000 tonnes of clothing ends up in household bins in the UK each year.

Infographic explaining the top money wasting items and services per year in the UK

Hey, Big Spenders and Savers

Gen X: When it comes to the most financially influential generations in the UK, young Generation X-ers, or those between 41 and 45, earn, spend and contribute more to the British economy than any other age group. They are also predicted to be the highest earners and spenders in 2020, spending around £803.91 per week. Interestingly, this group is also among the biggest savers.

Millennials: As one of the nation’s largest spending groups, millennials often dominate the conversation when it comes to topics around shopping and saving. Despite a strengthening of the millennial pound as this group moves up the career ladder, millennials are also famously known as the generation least likely to be able to own their own homes, with many calling the group ‘generation rent’.

This is also a generation scrutinised for its frivolous spending habits, so much so that an Australian luxury property developer, Tim Gurner, once implied that more millennials could get onto the property ladder if they simply stopped buying avocados.

Research has shown this criticism unfair, with most millennials spending the largest chunk of their money on rent or house deposits and savings, with things like clothes, technology and entertainment falling further down the list.

The Property Squeeze

Housing is predicted to account for the largest proportion of spending by 2020, accounting for almost 20% of total spend across all generations. This is largely due to consistent growth in private rental prices, mortgages and high energy bills. It is also one of the main drivers behind alternative schemes like Shared Ownership becoming popular among those looking to step onto the property ladder without the burden of saving a substantial deposit.

Infographic explaining the biggest costs for UK households

For those looking to buy their first home on the open market, spending less on subscriptions, clothes and food each month will go a long way in helping their savings balance increase, but even if millennials save 20% of their wage each month, it will still take an average of eight years and four months for one person to save enough for a house deposit!

In 2019, the average deposit put down by first-time buyers on the open market in London was an eye-watering £110,182. For those looking to buy their first home on the open market, spending less on subscriptions, clothes and food will go a long way in helping their savings balance increase, but even if millennials can save 20% of their wage each month, it will still take an average of eight years and four months for one person to save enough for a house deposit.

“In stark contrast, saving to buy a Shared Ownership home can prove to be much more achievable for first time buyers. For example, if a couple are able to put aside £400 a month, then they could save for a deposit in a third of the time needed for a deposit on the open market.” – Nick Lieb, Head of Operations at Share to Buy

Try this tool: Shared Ownership Mortgage Calculator

How to Save Money: Basic Ways to Boost Your Savings

  • Learn how to budget: To learn how to stop spending money, keep a list of debt and savings targets in your wallet to stay on track with a planned budget for the month. This is a good way to see how much you really spend on entertainment, travel and more.
  • Stick to a list: One of the simplest money-saving tips is to decide what to prioritise by creating a list before you go shopping. The trick is to stick to it to avoid impulse purchases like chocolate or clothes.
  • Prioritise spending: From health and beauty to takeaways and tech, prioritise spending habits from highest to lowest across each major category, and see where you can cut down. Try to spend money across just one of the categories each month.
  • Create a waiting list: Help to reduce impulse spending and increase disposable income savings by creating a two-week waiting list for bigger purchases to see if they really are worth the spend.
  • Use technology: Finance apps like Money Dashboard and Tandem can help you stay one step ahead of your finances by tracking how much you save and spend.
  • Recheck all your subscriptions: Stop wasting your disposable income through unused gym memberships, magazines, TV channels and more. Do an audit of every group or service you belong to and cut everything you no longer engage with by using a helpful app like Emma.
  • Set short-term goals: Alter your spending habits by creating specific goals you can work towards, like cutting your entertainment budget from £300 a month to £200. If you’re looking to step onto the property ladder, use this mortgage comparison tool to discover what kind of mortgage you could afford to begin setting your goal. Whether you fall into the average disposable income in the UK or not, any amount of savings is a good start!

Infographic explaining the basics ways to boost savings

Discover more about how Shared Ownership is helping first-time buyers put their disposable income to good use by getting onto the property ladder with a reduced deposit.