Yesterday, I came across this article on The Atlantic that nicely summed up the most recent stats from the Bureau of Labor Services regarding American spending in 2012. The results were graphed so the information was easy to read and understand (props, Atlantic writer Derek Thompson). It made for an interesting read – here’s my take on the stats.
While the article was focused more on how these statistics were culled from households with a range of different incomes – “rich and poor,” as it was put, though I think that’s oversimplifying things – I was more interested in how, on average, we allocate portions of our incomes. Of course, I was also very curious as to how these numbers compared to my own spending. I looked at both the breakdown of my own budget and this graph and played a game of spot the difference.
Apparently, the average American is spending an entire third of their income on housing expenses. Yikes! I’m assuming the explanation for the high percentage is because it includes folks who bought overvalued homes at the height of the housing bubble and are still paying massive mortgages today, but I’ll also assume this includes the cost of utilities for that housing. Good timing helped me out here; I was able to get into a home a the very bottom of the market which allowed me to score a deal. But, I still had to understand how much house I could truly afford and I had to stick with that number. If you’re looking to buy a house, do your research. In my opinion, your housing costs should not exceed 28% of your income (although others advise anywhere in between 28-33%, I say play it safe). Understand that you must not only pay your mortgage every month, but also your taxes and insurance. Don’t forget to factor in closing costs, HOA fees, and other additional costs where applicable.
Average Percentage of Income Spent: 33%. Common Sense Millennial Percentage of Income Spent: 26%
Transportation costs eat up the second-biggest piece of pie. This category can vary so much from person to person, depending on a variety of factors, that I cannot even begin to guess why it takes up so much of our average income. However, I do think there are some easy solutions to an overly expensive transportation category. If you must drive, do not purchase a new vehicle. Look for a small, efficient, in-good-condition used car instead. Pick something that does not require special maintenance or premium fuels. Shorten your commute as much as possible: move close to work, school, or family (which will depend on your situation), carpool when you can, and take care of multiple errands in one trip with the least amount of stops you can make. Take advantage of pubic transportation when it is available to you, and consider using a bike instead of a car if you don’t have far to go. How it’s done in the CSM household: we both own paid-off tiny sedans that get anywhere from 350 to 400 miles of gas to a 12 gallon tank (Mazda3s), we live less than 8 miles from work (and even closer to almost everything we need and enjoy), and we walk whenever possible.
Average Spent: 17%. CSM Spent: 10%
Next up: food! I was actually glad to see this wasn’t a skimpy category, but I can only hope it’s because people are investing in real, whole foods. I’m not convinced that is the case – I’m afraid this is made up of a whole lot of indulging with dine in and carry out meals. If you’re guilty of eating out more often than you cook at home, it’s time to hit up Google and search for some delicious recipe ideas. If you’re finding that you’re still spending an awful lot on food even when you’re diligent at purchasing all your food for meals at the grocery store, make sure you’ve cut out all the processed junk that is only masquerading as real food. When you’re buying whole foods and skipping the processed food products and frozen meals, you’ll find that you’re spending less and eating better.
Average Spent: 13%. CSM Spent: 12%
Insurance is next in line for how the average American is spending money. Again, this is one that is really going to vary depending on your situation. Be sure to shop around for the best deals on homeowner’s, renter’s, and car insurance, and ask about discounts. Make sure you also have the appropriate insurance for you and your household; you may be paying for coverage you don’t need, and therefore could save a bit of money here by changing a policy.
Average Spent: 11%. CSM Spent: 7%
Now we’re into the “everything else” category. For the BLS stats, this includes health care, entertainment, cash contributions, apparel and services, and a catchall category labeled all other expenditures. Although it’s difficult to tease out where I differ from the average here, I can immediately say that I absolutely do not spend 7% of my income on health care. I am very grateful to have my health, and I plan to keep it that way. I’m hoping that this is where my investments in the form of exercise and a whole food, plant-based diet are going to come in and help me out. Edit – I originally thought “cash contributions” accounted for savings, but a closer look at the BLS site shows that this is actually a category for donations. This graph looks at spending, so income going to savings is not accounted for here. I think it’s wonderful that the average American is generous enough to make room for charity, but don’t let that generosity be at the expense of your savings. Your saving and investment contributions are bills you pay yourself – you wouldn’t forgo paying the electric bill in order to give $50 to a charity, so don’t limit your savings to make a certain amount in donations. Remember how every little bit counts? The same is true for charity. Even $10 to a cause you support is fantastic and you can feel just as good about that contribution as you can about a $100 donation.
I thought it was interesting that no specific category in the chart has been dedicated to paying off debt. Is this included in “all other expenditures”? Do people file that away under transportation if they have a car loan? Where does consumer debt go, and what about outstanding student loans? These questions make the 8% of obvious luxury spending seem outlandish. I also start to question the large portions of the pie being given over to housing.
I want to end by pointing a few things out about The Atlantic’s original article where I found the nicely done graph, because the charting of the statistics was about the only useful thing about it. If you actually read the original article, all the way to the end, you might have seen where the author contends that people who have “very little” tend to think and behave in a way that will result in always having very little. First of all, never once does the article define what income brackets it is considering “rich” and which ones are “poor;” it only uses those two particular adjectives which I found to be a bit misleading. If we’re going to try to read into these statistics from the BLS as some sort of commentary on the different levels of wealth or an income gap in America, as the author is clearly attempting to do, then the readers should have clear access to the income levels the author is lumping into rich and poor to make accurate conclusions about what the information means. Secondly, as someone who strives to make the most out of a small income, I strongly reject the idea that because I don’t have massive amounts of capital now that I will never have much. All I have to do is look around, in my neighborhood, in my social circle, and especially in the blogosphere, to find people who live well on less and are happy and successful. These people, myself included, “have little” in the way of income right now, but we’re working hard at increasing and diversifying our earnings and putting that money to work for us and our futures by saving and investing.
Now that we’ve cleared that up, what do you think about the average American’s spending habits? Do these look similar to your own or have you cut back in one area and boosted another?