If you’ve been following along with these budgeting posts, you should be at the point of knowing what your spending looks like. Now, we’ll take time to pause and compare your percentages to other “average” Americans’ percentages. This might make you feel better, or worse, about yourself! I believe knowing where other people are helps us know where we stand.
THE AVERAGE AMERICAN “BUDGET” (actually it’s more like “reported spending,” not as accurate!)
This chart is from a recent U.S. Bureau of Labor Statistics poll:
Here’s my first takeaways from looking over these numbers:
- Housing is the largest area Americans spend their money. Notice that it consumes 32.9% of American’s money – this is much greater than the 28% that is recommended as the top by financial planners and mortgage companies! They know that housing costs that go above this number are too big of a financial strain on people and they’re more likely to default or lose the home. One thing many people fail to consider are the additional “expected” costs of ownership, which range from 2-4% per year for maintenance and home improvement projects. That’s why housing is so important to get right! It’s an expensive, long-term investment of your current money (monthly rent/mortgage payments), future money (you lose the opportunity to invest and have future income from your investments), and the time you invest in maintaining the house. Overspending on housing is a huge obstacle between you and achieving your financial goals.
- “Cash Contributions” is 3.6% – that’s insanely low savings rate! This won’t get it done for anyone! Sadly, it’s fairly in-line with the number we saw in the previous budgeting post that showed the average savings rate for Americans was less than 4% in 2017. Remember, 10% is what I would say is the minimum to save with the goal of hitting 15%. Pay yourself first! In your spending plan / budget, saving should be #1!
- Transportation is a little high, but not bad. Remember, car loans and average payments that hover around the upper $480 per month with the average loans in 2016 averaging over $30,000! A car that cost $30,000 is more than 50% of the median household income in 2017! This is way overspending in this area. If you want to get ahead, buy a good, reliable used car 3-4 years old with an average payment of ~$200-300 per month.
The other categories I think could fall in line in a decent spending plan. Remember, be careful not to make the big mistakes like overspend on a house, car, or other consumer spending! The rest of the categories are relatively small and won’t break you. But, at the same time, don’t let them get out of hand!
WHAT TO DO NOW
After you review your spending and know your percentages in each category, identify the areas for quick wins. While housing and cars are the biggest areas you can impact your finances, they’re also two of the slowest categories to change. You could try to sell a car and downsize, but that takes time. Start looking for the quick wins in the other areas you can cut back on spending, such as eating out, clothing, entertainment, vacations, etc.
See if you can get a couple hundred extra dollars to put into savings. In the next post, we’ll start talking about the Emergency Fund and why we need some cash savings to cover unexpected expenses.