Discretionary Spending; Interesting Article

[ExFlyBoy5]

So today was the fun "work on taxes" day (yeah, not much fun at all!) and after getting bored with the actual w*rk of it all...I started messing around with some figures. Long story short, picking through numbers, I came to the realization that our household discretionary income is much higher than I thought it would be (especially after I retired!) One of the things I came across was this article from the Motley Fool (I am NOT a fan of the MF ordinarily, but this article came up on one of many Google searches) that I found somewhat enlightening with some interactive graphs.

The Average American Household's Discretionary Income, by Age and Pay: Where Do You Stand? -- The Motley Fool

I was somewhat surprised that our household is in the 9th 'decile' which is pretty darn high for how much we are actually bringing in. It seems to really illustrate that we are pretty good at LBYM which is one of the main reasons I was able to retire so darn young and we still maintain a quite high savings rate.

Anyway, I am not soliciting any numbers from members, but I know LOTS of you like to pick numbers and have piles of scratch paper laying around with figures all over them and this might entertain you for a little bit!

 

[NW-Bound]

Nice data to compare ourselves to our peers.

I have more disposable income than my peers in the same income decile. Or so I think!

The real test to see if a certain expense is truly in the disposable category is to try to do without it. Else, it is easy to say you can cut out this and that anytime you want. We may be just fooling ourselves.

PS. The last 2 years saw me spending way more than I anticipated when I started full retirement. I have been claiming that these were due to discretionary non-recurring expenses. This year, I will see if at least 30% of total expenses can go away as I thought.

 

[Bir48die]

Nice data to compare ourselves to our peers.

I have more disposable income than my peers in the same income decile. Or so I think!

The real test to see if a certain expense is truly in the disposable category is to try to do without it. Else, it is easy to say you can cut out this and that anytime you want. We may be just fooling ourselves.

PS. The last 2 years saw me spending way more than I anticipated when I started full retirement. I have been claiming that these were due to discretionary non-recurring expenses. This year, I will see if at least 30% of total expenses can go away as I thought.

Though I have pretty thoroughly estimated my expenses at retirment (in a few weeks) I found myself going on a bit of a buying spree. Maybe it was knowing that I would be cutting back some at retirement. So, my Amazon bill should reflect that along with other incidentals. The one thing I did find amusing was the clothing budget for those 65-74. I thought it was a bit high.

 

[Midpack]

Interesting interactive graphs, thanks for the link!

 

[Walt34]

The one thing I did find amusing was the clothing budget for those 65-74. I thought it was a bit high.

I thought so too, but then I still have a jacket that I bought during the Ford administration so I might not be a good example.

 

[REWahoo]

I thought so too, but then I still have a jacket that I bought during the Ford administration so I might not be a good example.

Henry or Gerald?

 

[ScottS]

Henry or Gerald?

Zing! :-D

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[Totoro]

One thing jumped out for me: Healthcare goes down a bit in the highest age category.

So older people get less expensive diseases (they probably die instead?).

Wish they wouldn't change the axes though when switching categories, it is a bit misleading.

 

[ziggy29]

Henry or Gerald?

Ouch. That one's gonna leave a mark.

 

[imoldernu]

Will report when I figure out what it all means.

Interesting stuff.

 

[Dcharles]

I found my beer expense went up 100 percent! however, I can cut back on carbs to compensate for the increased expense. It is nice to crack open a beer on Tuesday afternoon to celebrate ER!


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[Mulligan]

I was kind of surprised the peak discretionary years peaked out so early. I am fortunate through my pension as my graph will just head in an upward direction until death. Though I doubt my spending patterns will ever change though.


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[HadEnuff]

Many years ago, reading what may have been my first read on personal finances, Andrew Tobias wrote, "a luxury, once sampled, becomes a necessity". I'm not sure if he was claiming ownership of that or not.
Not completely true, but close.

and someone else once said, "anything after bowl of rice, a cup of water, a change of clothes, and a roof over your head is discretionary"..

again, not completely true, but there is an nugget of truth in there.

 

[bclover]

Many years ago, reading what may have been my first read on personal finances, Andrew Tobias wrote, "a luxury, once sampled, becomes a necessity". I'm not sure if he was claiming ownership of that or not.
Not completely true, but close.

and someone else once said, "anything after bowl of rice, a cup of water, a change of clothes, and a roof over your head is discretionary"..

again, not completely true, but there is an nugget of truth in there.

Definitely a nugget. LOL, I am so addicted to satellite radio. I do do a lot of long distance driving but man, I'll eat noodles before I let my sirrus subscription go.

 

[NW-Bound]

I also enjoyed reading Andrew Tobias many years ago. And from what he wrote, it is true that the discretionary category cannot be rigorously defined. What many consider essential are just fluff to someone else. Here in the Southwest, I consider AC an essential life-support system in the summer, but people did not have AC 50 years ago, and they lived here.

 

[gcgang]

Read Tobias' "Only Money Guide You'll Need" 30+ years ago. The key to financial success was not making great investments, nor even making lots of $. It was "buy your toilet paper on sale". From that i understood that you had to make a lot more money, paying taxes and all, than if you found ways to cut expenses (on essentials especially).

 

[hnzw_rui]

Interesting charts. I'm pretty surprised our household income puts us in the 10th decile (just barely, though). We are, thankfully, not paying anywhere near $50K in taxes and around $40K of annual household income is going towards retirement accounts.

 

[NW-Bound]

About the 10th decile (the top 10%), there's a disconnect between the income number and the breakdown of expenses. The income bracket number is the lowest one needs to be in that group ($140,197), but the expenses look like the average (or the median) of the group.

Namely, for this top group the discretionary portion is $93,557, the taxes are $50,363, the shelter is $23,436, the transportation is $19,065, the healthcare is $8,299, etc... Note how these add up to $230K, more than the gross of $140,197 above which shows that the breakdown numbers are really the mean or median, not the entry numbers.

There might be some other unlisted categories, which would bring the total expenses to more than $230K. But if we take this number as the true total, then the discretionary $93K is a huge portion of the take-home income of $160K ($230K - $50K tax - $20K SS).

By the way, the transportation number of $19K is high compared to the housing cost of $23K. It implies that while many people own their home outright, they still like to buy new cars and pay a lot for them.

 

[UpAnchor]

I also enjoyed reading Andrew Tobias many years ago. And from what he wrote, it is true that the discretionary category cannot be rigorously defined. What many consider essential are just fluff to someone else. Here in the Southwest, I consider AC an essential life-support system in the summer, but people did not have AC 50 years ago, and they lived here.

Ah, but they did have swamp coolers! (Stated by a former swamp-cooled Arizonan.) But I wholeheartedly agree. AC was my "luxury, once sampled" and today there's no way I'd be willing to live in the low desert without it. Actually, I wouldn't live in MN without it. And I realize my good fortune in being able to make such a choice!

 

[Taxman59]

My last year of w*rk(2015), I was in the 10th decile of income. Our healthcare was well into the 10th decile, utilities was in the 7th or 8th, transportation is in the 3rd (and that included cars and insurance for our 2 sons), clothes about the 6th (we are not clothes horses), shelter 9th (mortgage payoff in about 4 years then down to the 1st), SS & Pension (I assume this is the retirement savings and SS tax) 10th.


My point in listing this is the charts are interesting, but each of us (both here on the Forum and in the US) will be all over the chart depending on where we live, family size as well as the choices we make.


That being said it is kinda neat!

 

[NW-Bound]

One thing jumped out for me: Healthcare goes down a bit in the highest age category.

So older people get less expensive diseases (they probably die instead?)...

That's likely. It may sound too grim, but hospice care is much less expensive than hospitals and cancer treatments.

Ah, but they did have swamp coolers! (Stated by a former swamp-cooled Arizonan.) But I wholeheartedly agree. AC was my "luxury, once sampled" and today there's no way I'd be willing to live in the low desert without it. Actually, I wouldn't live in MN without it. And I realize my good fortune in being able to make such a choice!

When I came to the Southwest 40 years ago, many homes did not have AC and just a swamp cooler. It works well until the monsoon comes in late summer bringing humidity. Nowadays, there are very few homes still on swamp coolers, and in fact there's no way to put one in a newer home due to the construction, plus many HOAs ban anything installed on the roof. And cars did not come standard with AC, which was an expensive option. My 69 Mustang had an add-on aftermarket AC that did not work all that well compared to today's cars.

In talking to people only in their 60s now, I heard them recall their parents hanging up sheets that were soaked in a pail for evaporative cooling. Yes, in their youth, they did not even have swamp coolers, and sought relief with wet sheets hanging across the room!

 

[Teacher Terry]

WE live in a very dry climate and have a swamp cooler and the cost is much less then AC. I know it works well in very few places. When we were young everyone just was miserable and sweated and we lived where it was humid. I have had AC when I have lived in humid places as an adult. There are things we could cut from our budget if we ever needed to.