In a nutshell

With grocery prices still on the rise, establishing a budget helps you avoid overspending and gain better control over your finances.

• On average, Americans allocate over 11% of their after-tax income to food, according to the U.S. Department of Agriculture.
• To maximize your grocery budget you can plan meals, buy store brands and bulk items and use coupons, discounts and rewards programs.

Inflation and the cost of groceries

If you’ve been grocery shopping lately, you’ve probably noticed prices climbing. Take milk, for example: Back in 2018, a gallon cost around $2.90. That same gallon will set you back about $3.86 today, a more than 30% increase in just six years.

The U.S. Department of Agriculture reports that average annual prices for groceries at home were 5% higher in 2023 compared to the previous year. To put this in perspective, over the last two decades, food prices have typically increased by about 2.5% annually. However, the rate of increase slowed down in 2023 compared to the sharp rise of 11.3% in 2022.

Given these rising costs, it’s more important than ever to set a clear grocery budget. This will help you keep your spending in check and make smarter shopping choices.

USDA estimates for family food budgets

According to the latest data from the U.S. Department of Agriculture, in 2022 Americans spent an average of 11.3% of their after-tax income on food, the highest since 1991 when it was 11.4%.

When it comes to budgeting for groceries, the USDA offers a range of plans to suit different needs and preferences. These budgets include thrifty, low-cost, moderate-cost and liberal plans, which gives you the flexibility to choose a budget that fits your situation.

These categories provide estimates tailored to a range of spending habits. For example, a family of four with kids aged 6 to 8 and adults aged 19 to 50 would budget approximately as follows:

• Liberal budget: For a more generous budget, a family of four might spend around $1,537.80 per month.
• Moderate-cost plan: Opting for a moderate-cost approach would mean budgeting about $1,270.90 monthly.
• Low-cost plan: If you’re looking for a lower-cost option, it’s recommended that you plan to spend around $1,046.20 per month.
• Thrifty plan: Choosing a thrifty budget would mean spending about $943.90 monthly. It’s worth noting that the Thrifty Food Plan is used to determine benefits under the Supplemental Nutrition Assistance Program (SNAP).

To determine your own grocery budget based on USDA guidelines, you can use Iowa State University’s Grocery Budget Calculator. Just enter a few details about your family, and it will give you a starting point to create your own personalized grocery budget.

How to budget your monthly grocery spending to save more

Figuring out your grocery budget is just the beginning. The real challenge lies in sticking to it. Here are some strategies you can use to help you manage your monthly grocery spending effectively and save more.

50/20/30 rule

A helpful guideline for managing your grocery budget is the 50/30/20 rule. This approach lets you tailor your spending based on your after-tax income and other financial needs. According to this rule, you aim to allocate:

• 50% of your net monthly income to essentials like groceries, housing, transportation and health care.
• 30% for wants such as dining out, entertainment or travel.
• The remaining 20% is earmarked for savings or paying off debts like credit cards or a mortgage.

Remember, budgets can be adjusted to fit your specific situation. For example, if your housing costs account for over 50% of your income, you might need to use more of your discretionary spending allowance for groceries.

Create meal plans

The average U.S. family of four discards about $1,500 worth of uneaten food each year, the U.S. Department of Agriculture reports. This not only wastes food but it takes a toll on your grocery budget. One way to tackle both issues is by planning your meals.

First, choose which meals you’d like to cook for the week and make a shopping list based on your choices. This way, you stay organized, reduce impulse purchases and minimize food waste. It’s a win-win for your wallet and the environment.

Consider store brands and bulk purchases

When it comes to grocery shopping, buying in bulk can be a game-changer for your budget. Purchasing larger quantities often means avoiding the extra costs of fancy packaging and marketing. This translates to big savings, especially on things you use regularly.

Remember, though, that the cheapest price tag doesn’t always mean the best deal. To make the most of your budget, it’s crucial to check the unit price — how much you’ll pay per ounce, pound or unit. This allows you to compare different sizes or versions of the same product, helping you find the best value.

Swapping name-brand items for store brands is another way to cut down on your grocery bill. Often, you won’t notice any difference in taste or quality, but you will notice the savings. Some store-brand items worth considering include cereal, eggs, soft drinks and condiments.

These products allow you to stretch your grocery dollars without sacrificing quality or flavor.

Take advantage of coupons, discounts and loyalty programs

Here are some effective savings strategies to make the most of your trip to the grocery store.

• Store rewards programs: Numerous grocery stores offer free membership programs with benefits like bonuses, discounts and gas points. These perks are usually automatically applied at checkout, so there is no need to clip coupons.
• Coupons: Coupons can stretch your grocery budget further, whether you’re sorting through newspaper clippings or downloading them on your phone. You can also use free apps like Flipp to compare prices at nearby stores and find in-store deals and coupons. Just remember, don’t buy something just because you have a coupon, especially if it’s a product you’ve never tried before.
• Shop on sales days: When grocery stores start a new sales cycle, it’s usually the best time to find great deals, as their new specials kick in. Sales cycles typically begin in the middle of the week.

Use a cashback reward credit card

A rewards or cash-back credit card is another great way to get more bang for your buck at the grocery store. These credit cards offer cash back, points or miles on eligible purchases, making grocery spending work harder for you.

For example, if your family spends about $7,000 annually on grocery shopping and your card offers 3% cash back, you’d get $210 back. Just be sure to consider any other costs that come with your card, like an annual fee.

Track your spending

Keep an eye on your grocery spending to really help you manage your money and reach your financial goals. When you know exactly where your dollars are going, it’s easier to make changes to your budget.

No worries if you don’t stick to your budget perfectly the first few times you shop. You’ll get the hang of it — over time, you’ll find ways to refine your list and resist those impulse buys.

The AP Buyline roundup

Your family’s specific needs and financial situation will determine how much you should allocate for groceries. Guidelines like those recommended by the USDA provide a helpful starting point, but setting your own grocery budget allows you to better manage your spending and make wiser shopping decisions. Meal planning, buying store brands and bulk items, and utilizing coupons and rewards programs can effectively stretch your grocery dollars.

Frequently asked questions (FAQs)

What is a realistic grocery budget?

According to USDA guidelines, a monthly budget for a family of four with kids aged 6 to 8 and adults aged 19 to 50 would be $943.90 for a thrifty plan, $1,046.20 for a low-cost plan, $1,270.90 for a moderate-cost plan and $1,537.80 for a liberal plan. These guidelines are a good starting point for setting up a food budget, but keep in mind they don’t account for all the variables that can impact your actual spending.

How much of your income should you spend on food?

It’s recommended that you try to keep your spending on food and groceries, including dining out, within 10% to 15% of your take-home pay, which aligns with the national average. For example, if your household brings in $6,000 monthly after taxes, aim to spend $600 to $900 on groceries and restaurant meals each month.

What is the 50/30/20 rule?

The 50/30/20 rule provides a straightforward way to budget your money using percentages. This rule suggests you allocate 50% of your income to essentials like housing and health insurance, 30% to things you want, like subscription services and dining out and the remaining 20% to saving for the future.