Archives For How we spend our money

Recently, J.D Roth at Get Rich Slowly asked his readers how much they spend on housing, and not surprisingly many people weighed in on the subject.  Housing is one of the hardest things to live without – the hardest of course being food!

While reading through the comments, I thought about how many different housing options we have – from sharing flats, to living with parents, to a house in the country.  Through most of the stories, one item remained true – happiness seems to live somewhere within the 20%-30% range of total income spent on housing.  Spend more than that, and the pinch is on.  In fact, I recommend you only spend 2x your annual income on a house.

So, how much does the average American spend on housing?  I found this great information from the US Census Bureau which details our housing expenses.  The average annual income in the survey is $60,753 (2009); which is above the current average household income at $49,445.

Here’s a look at what the average US household spends on housing:

Monthly Housing Expenses

This is a very comprehensive view of housing expenses which includes everything you can imagine; from mortgage payments and maintenance, all of the way down to postage stamps!  I’d hate to be the guy who tracks how much Americans spend on postage stamps…

According to this survey, the average survey respondent spent $1,408 monthly on home expenses in 2009.  The highest category is shelter which includes mortgage, property taxes, and rent while the lowest category is housekeeping supplies. Not surprisingly, utilities is the second highest category.

The other important part of these stats is the ten year change. Overall, housing expenses have increased 40% in the last ten years!  This is very surprising, especially considering the major real estate downturn which brought home values down.  Granted, the data is from 2009 so it might be a little lower now.

Where are the additional increases in expenses coming from?

The main increases have come from items we can’t easily decrease our spending on.  As noted in the chart above, the highest increase came from “Utilities, fuels, and public services”.  Within that category, “Fuel oil and other fuels” increased by 90%, “Natural gas” by 79%, “Water” by 68%, and “Electricity” by 53%.  We can’t easily cut back on these items, and they’ll continue to rise as oil prices rise.

Items that we do have more control over have decreased.  The most obvious example is “Household furnishing and equipment” which increased by only .47%.  Within that category, “Floor coverings” has decreased by 32%! Apparently we’ve learned to cover our floors much cheaper… we have concrete floors in half of our house so that help explains the decrease!  “Furniture” spending is down 6%.

Have you seen similar increases in your housing expenses?  How have been able to reduce some of the categories?

 

Each year the US Department of Agriculture publishes their report on “Expenditures on Children by Families“.  This report gives us the estimated costs of raising a child until age IMG_352317.  You know, the scary numbers we hear about it costing a quarter of a million dollars to raise a kid – not even including costs of college?!?

Well, it frightens me every time I hear the costs of raising a kid, but I decided to dive into to the numbers to see what they really mean (other than people with kids will be broke!).  There’s good news and bad news; which would you like first?  How about I start with the bad since it already sounds really bad!   The average cost to raise a kid born in 2010 to the age of 17 is $226,920 if you make between $57k – $100k.  If you make less than $57k, the average cost drops to $163,440; if you make more than $100k, the average cost skyrockets to $377,040!!

I’ll give you a second to catch your breath before I tell you the good news.  The good news is you’re probably already spending a lot of that money now even if you don’t have kids but plan to.  I’ll get into the full reasoning as I go through each section, but the major reason is people purchase bigger houses with the intent of filling them up with little ones… and housing costs account for 31% of total child-rearing expense.  Ignoring housing costs, it already brings our $227k down to $159k over 17 years!  Feel a little better?

When do we spend all of this money on kids?

As I pointed out earlier, the amount spent per kids varies widely based on income level.  Costs for non-discretionary items (foods, clothes, etc) tend to be pretty similar among incomes because you can only spend so much on Gerber baby food.  However, costs increase big time when you start looking at discretionary items (housing, education, etc) because people tend to spend a lot more money on these items when they have more money.  Take a look at how costs are incurred when reviewed by age and income level. (Add in expenses by family, food somewhere)

Family expenditures on a child by income level and age - USDA

Not surprisingly, the costs tend to increase as the child gets older.  One basic reason is because the USDA factors inflation into the cost equation.  However, costs also increase because the kids eats more and they want a car.  Oh ya, and maybe a cell phone, iPad, and a new computer.

When we take the average spent per year on kids by income group, it looks like this;   For those making:

– Less than $57,600 – spend $9,614 per year per kid

– Between $57,600 and $99,730 – spend $13,348 per year per kid

– Making over $99,730 – spend $22,179 per year per kid

The good news is many of these costs are controllable.  There’ s a reason costs vary so widely by income level… because they can.  If you only have $5,000 per year to raise a child, I’m sure you’re going to find a way to do it.  However, it’s also possible to let your kid cruise around in a Hummer stroller with 20″ wheels at a much higher price!

Where the heck is all of this money going?

As mentioned before, the biggest chunk of expenses on kids is from housing (31%).  The second highest expense item is pretty close between food and child care/education.  These two categories move inversely from each other because when the child is younger, child care and education costs are higher usually due to day care, but then they eat a lot more when they get older!  It scares me to hear how much some of my friends are spending on day care (over $2,400 per month for two kids); I see why some of them want to transition to a one income family.  My mom also said that we (four boys) drank 12-14 gallons of milk per week while growing up.   Wow, that translates to over $150 a month in today’s dollars!

Family expenditures by category and age - USDA

Transportation costs average $120/month per kid until the child gets older and then jumps to $125/month because apparently they want their own car.  I thought the jump would actually be higher but transportation costs were estimated by the percentage of total transportation relating to child-rearing, which the US Department of Transportation says is 59%.  These numbers may not account fully for the purchase of a new car.  On the other hand many of us bought our own first car.

Clothing stays pretty uniform for a kid at around $60/month (get it, uniform?).  This isn’t a huge surprise as I noted in a previous article that we spend $144 per month on clothes for the average family.

Does it matter where you live?

The short answer is:  Yes, the costs of raising a kid vary widely by region.  It’s highest in the Northeast  where it tops out over $16,000 per year at age 15-17.  It’s lowest in Rural America where it tops out around $10,500 per kid.   I grew up in Oklahoma where private Kindergartens and high aptitude preschools weren’t in vogue so we were definitely on the lower range.

In fact, many parents are taking out pre-college loans in order to pay for their kids K-12 schooling!  That’s one of the most ridiculous things I’ve ever heard… and I thought four years of student loans for college was bad!!

Family expenditures on a child by region - USDA

In Conclusion, maybe it’s not that bad

Not all of these expenses are going to be brand new for you for each kid.   You’re probably paying for many of them now, and the ones you aren’t already paying for are controllable to some extent.   Also, as you have more kids, the costs go down per child.  If you want to estimate how much you’ll spend per kid and additional kids, check out the USDA’s child cost calculator.

What do you think parents, are these numbers representative of what you spend?

Lucy dog and her ball

We love our animals and treat them as family, but how much do we spend on pets?   It obviously varies from the lady whose cat received her $13 million dollar inheritance to the crazy cat lady down the block whose cats are overtaking the neighborhood.

According to US Census Bureau, the average family spends $58 per month on their pets.  Since 1999, our spending on pets has increased by 99%!!  That’s the highest growth of any category in our monthly expenses; even higher than the ten year increases in healthcare and education.  Like I said before, we love our pets… and the same goes for our dog.

Even though I blamed our dog, Lucy, for breaking my hand, we still love her like a member of the family.  She brings us joy on a daily basis, and I can’t imagine a day without our walks or her greeting me like I’ve been gone for ages, when I have only left for a few minutes.

However, she has turned into her own little expense factory that propels us over the average monthly spending on pets of $58.  She has allergies that last year round, and the only way we’ve been able to treat it is to put her on daily steroids.  They cost about a dollar per day.  Add to that the occasional staph infection, and we’re paying the Vet’s cable bill!  When adding in other items like heart warm and flea prevention, our medical spending alone is around the average family’s pet expenses of $58/month.

In addition, her food is more expensive because we have to buy an allergy-free formula that costs around $65/month.  Finally, add in her pill pockets for her daily pills at $12/month and we spend around $77/month on food.  That brings our grand total to around $125/month on our one dog!  We wouldn’t trade her for anything, but it does make me question getting a second dog!

How much do Americans spend collectively on pets?

The American Pets Products Association (APPA) compiled some really interesting information on pet ownership.  They estimate Americans will spend $52.87 billion on their pets in 2012!!  Pet spending has increased every year since it was $17 billion in 1994.

According to their information, in 2011, 62% of households owned a pet.  That’s up from 56% in 1988.  Also, for the record, 46.3 million households own a dog while 38.9 million own a cat.

There you have it, the average American family spends $58/month on pets… while we spend around $125!  However, Lucy weighs 75 pounds so I think we’re doing pretty good on an expense to weight ratio.  How much do you spend on your pets?

Do you know how much you spend monthly?  If not no worries because not many people do… and if they do, there’s a good chance they’re a pretty big nerd (myself included).   However, thanks to the CBO and the Consumer Expenditures (CE) team, we now have a great view of the monthly breakdown of where we spend our money!

Five years ago, I finally finished paying off my debt.  The reason:  7 years ago I experienced my breaking point and realized I sucked at managing money.  I had acquired over $50,000 of debt and didn’t have much to show for it except a new car and bachelor pad furniture.  As a side not, I lost my bachelor pad furniture in the marriage.

It got real for me in 2005 because I began tracking my expenses at an extremely detailed level.  It was somewhat excruciating doing it for so long, but it’s what led me to where I am today.  After I figured out where my money was going, I started using the cash budget system to control my spending.

Can you tell me your monthly expenses?  If not, it might be time to start tracking it.  If so, it will be interesting to compare with national averages for spending.  Let’s get to the numbers:

Monthly expense budget

As I’ve mentioned in the past, the average salary in the US Census Bureau’s survey is $60,753, which is quite a bit higher than the national average of $49,445.  You should use this knowledge to scale the ‘average monthly’ category up or down based on your salary.  One of the most interesting parts of the survey is that average income has increased by almost 50% in the last ten years.  I know many people haven’t seen this in their own lives, but someone is seeing it!

The average family (2.5 people) in the US spends $4,089 a month on expenses.  Not surprisingly, the largest category for monthly expenses is housing (34% of total).  The “Housing” category includes mortgage/rent, utilities, cleaning goods, furniture, and decorations.  It also includes “Telephone services” which I assume contains cell phone expenses; which totaled $97 per month.

The second highest expense category is “Transportation” with the third highest as “Food”.  Does this seem backwards to anyone else?  As I’ve mentioned previously, I think new cars suck if you can’t afford them, and you should try to spend no more than 20% of your salary on a new car.

The other important part of the data is the ten year change (from 1999 to 2009).  Not surprisingly, the two fastest growing expense categories are Healthcare (60%) and Education (68%).  Within healthcare, “Health insurance” grew by 94%!

The other largest detailed category expense increases were “Pets, toys, and playground equipment” at 99%, “Heating fuel” at 91%,  “Gasoline and motor oil” at 88%, and “Other household expenses” at 81%.  At least the fastest growing category is one we have fun with – pets!

Some monthly expense categories actually dropped the last ten years!  These include “Reading” at -30%, “New/Used cars” at -20%, and “Life and other personal insurance” at -22%.  I thought the 30% drop in the “Reading” category was pretty interesting because it can be pretty directly attributable to the increased information available on the internet.   Hopefully, we aren’t just reading that much less!

This is fun data to comb through and summarize, but it’s not going to be helpful to you unless you use it to take action.  How does your monthly spending care to the average?  Are there items you’ve learned to cut down on?

I thought answering how much we spend on health care would be quick, but I should have known it would get complicated fast.  Health insurance is one of those things you hate paying for until you need it!

I’m going to review the health care spending from two different perspectives.  The first perspective will be from individual’s expenses while the second is total health care expenses divided down to an individual level.  The second perspective includes all company, insurance, and government expenses.

How much do we spend on health care per family?

The data from the individual US health care spending is compiled by the US Census Bureau.  According to their report, the average family (2.5 people) spends $261 per month on healthcare expenses which includes health insurance, medical services, drugs, and medical supplies.  That equals $3,126 per family per year.

The majority of the expenses are from health insurance.  That doesn’t surprise me as my family of two pays $193 per month, and my employer adds $400 per month for my coverage!   We even changed our insurance to the higher deductible plan and were recently reminded of this when my wife had a check up and we had to pay out of pocket because we hadn’t hit our deductible for the year.  Bummer.

Health care is scary, but the scariest part is the increase in expenses the last ten years.  We always hear about it in the media, but can you believe the cost of health insurance has increased by almost 94% in ten years?!  Brutal.  It doesn’t appear to be decreasing anytime soon.

Here are the averages of how much we spend on health care per family:

Health care Avg spending per household

What’s the total spent on health care per individual?

According to the Organization for Economic Development, we spend $7,960 per person per year for health care in the U.S., totaling about $2.5 trillion.  According to the report, the U.S. Government covers 46% of U.S. health care expenditures, which means taxpayers pay for $1.13 trillion of health care spending.  This includes expenses on government health care and Medicare.

That’s a lot of money.  My personal health insurance ($7200 total, $3,600 per individual) is less than half of the OECD’s estimate per individual.  That means a lot of the money is being spent on other people.

According to another report by the Peter G Peterson Foundation, “Approximately 30 percent of Medicare spending takes place within the last year of life, and over 75 percent of health care spending goes toward patients with chronic diseases.  Some of the most expensive chronic diseases are heart disease, diabetes, and hypertension—all three of which are tied to obesity, a common problem in the U.S.”  I think we found who those expensive individuals are… not a big surprise.

Why the big difference between individual health care spending and total health care spent in the US?  The main reason is the huge amount of health care expenses associated with the final years of our lives.

According to the chart below, $2,922 a year is spent per individual on hospitals and nursing homes.  Obviously we don’t all visits hospitals and nursing homes every year, so a small percentage of people are accounting for the majority of expenses.  Another large chunk ($803 per individual per year) is spent on “Public health & administration”.  That’s what we call… Overhead!

Unfortunately, health care will continue to be one of those double-edged swords… the only thing worse than not having it is needing it and not having it!

Health spending per capita US