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How do you spend your income?
Old 02-18-2011, 07:55 AM   #1
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How do you spend your income?

I was doing some research to really see what the average lifestyle is of the average American. I was really looking for an eye to see what is the minimum I could live on for ER. I found this great graphic that puts it all in perspective. Now I can utilize these categories to set targets against my budget to see where else I can cut costs to significantly bring down my retirement date.

As always I take these things with a grain of salt, and some of the unhealthy aspects of this such as smoking will be removed for me.

How The Average U.S. Consumer Spends Their Paycheck -
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Old 02-18-2011, 08:22 AM   #2
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Just to follow up on this I can see 4 Massive costs on the chart:
1. Housing $16,920
2. Transportation $8,758
3. Health Care $2,853
4. MISSING from the chart conveniently are TAXES!! Lets assume it eats up the rest so the difference between $49,638 and $63,091 = $13,453 or 13% overall. This seems about right given the tax brackets.

So we as Americans have these for major items that suck up a whooping 70.4% of our incomes. Is it any wonder most are living paycheck to paycheck?

Here is my theory that I implemented without really knowing it until today: If we can just cut down the costs of the 2 major expenses that we have control over we all will be much better off. <b>Housing and Transportation</b> we could all live comfortably and the average Joe would have plenty of money to invest for retirement. This is what I have been doing for about 10 years now without realizing it.

I was stupid in 2002 and bought 2 brand new cars. I regretted this within about 1 month of ownership after the new car smell went away.

After a missed payment on the car note when I moved and forgot to change the address with the loan company waking me up on Christmas morning in a panic realizing I hadn't made the payment, I decided to just use the savings and pay it off completely before January hit. This was a wakeup call for me and made me look at other ways to increase my cash-flow.

My next goal was to pay off the house, and that was done in January 2011. Now my cash-flow is very solid because I don't have 2 of the biggest expenses the Average American has. If we could get the word out on this, we might all be able to retire a little earlier.

Lets not bring up again the invest vs mortgage discussion, I think we all know this is very personal decision. I want some feedback specifically on the Cash Flow aspect that this method seems to create.

Thoughts and Comments are welcome. Just be kind.
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Old 02-18-2011, 09:04 AM   #3
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We had a thread here a year or two ago in which we posted our budgets by major (or minor) expense category. I don't recall its title but it had a lot of posts to it.
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Old 02-18-2011, 09:08 AM   #4
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I can see that we will spend more than that in ER...probably. Real estate taxes alone will eat up more than the published figure for housing, but the house has been paid off for years. We don't drink, so no alcohol cost. No tobacco cost either. Health insurance will be much higher as we'll be on our own for that for the better part of 12 years depending on when I take my semiretirement (and when i end the "semi" and change it to "full") and whether or not I am still considered full time (I'll be lobbying for that). Another big bite for us will be the RV and the trailer we want for extended cross country and local state park camping. It will also depend on how many trips we take each year to see the kids, and whether or not we have either an owned or rented place in Hawaii for winter (DW's dream). We won't likely spend a lot on flying trips...I'll have well over a million miles saved up from my working daze for that, and I'm to the point that after almost weekly flying for the j@b that I won't want to fly if I have to do it in economy class, as all my flights now are business class with occasional upgrades to first. We also have 2 acres at our planned retirement home that will cost a bit to landscape and then maintain. We don't eat out much, so that's not a big.

Bottom line is, I think, everyone is different...so I expect ours will be too, probably twice or more that amount.

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Old 02-18-2011, 09:29 AM   #5
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Interestingly, I didn't notice any category related to paying off credit cards and other consumer debt. I guess they filed that under the various categories of what was purchased.

A big step towards retirement (after paying off consumer debt) can be to buy a sturdy car with high gas mileage, in cash.

I am so lucky to have very low property taxes ($872.99 last year). My house is paid off, and I don't borrow to buy cars any more. So, the "housing" and "transportation" categories are not very big in my case.
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Old 02-18-2011, 09:39 AM   #6
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I like the wheel chart. Was surpised that only 5.4% on entertainment.
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Old 02-18-2011, 01:26 PM   #7
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I break down my overall ER budget into 3 broad categories:

(1) Health insurance and dental expenses - 40%
(2) Housing expenses (only co-op maintenance charges) - 30%
(3) Everything else (i.e. food, taxes, fun, gas, non-health insurance, etc.) - 30%

I realize that the housing expenses are probably slightly understated because they are only the common charges relating to owning my co-op apartment (mostly property taxes and the co-op's underlying mortgage) along with my monthly (optional) indoor garage parking fee. But it keeps things simple because it is one check per month. Item (1) is 4 quarterly payments plus two semi-annual dental visits.
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Old 02-18-2011, 01:46 PM   #8
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Quote:
Originally Posted by scrabbler1 View Post
I break down my overall ER budget into 3 broad categories:

(1) Health insurance and dental expenses - 40%
(2) Housing expenses (only co-op maintenance charges) - 30%
(3) Everything else (i.e. food, taxes, fun, gas, non-health insurance, etc.) - 30%

I realize that the housing expenses are probably slightly understated because they are only the common charges relating to owning my co-op apartment (mostly property taxes and the co-op's underlying mortgage) along with my monthly (optional) indoor garage parking fee. But it keeps things simple because it is one check per month. Item (1) is 4 quarterly payments plus two semi-annual dental visits.
Totally mind boggling and a bit depressing concerning category number 1. I wonder how many people who retired 30 years ago would have had to put health insurance as 40% of their annual budget!
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Old 02-18-2011, 02:15 PM   #9
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Looking at our Quicken pie chart our number one spending category is consistently retirement savings (avgs 60 - 70% of net income each month).

Thank goodness we only have a mortgage, otherwise we couldn't accomplish this level of savings.
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Old 02-21-2011, 12:07 PM   #10
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Interestingly, I didn't notice any category related to paying off credit cards and other consumer debt. I guess they filed that under the various categories of what was purchased.
Either that or the assets dedicated to that category are "zero"...
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Old 02-21-2011, 12:30 PM   #11
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A significant chunk of my paycheck goes to my pension plan and 457-b plan. Also income taxes and the usual SS and Medicare contributions, of course, and property taxes on two homes. Upkeep on properties and two cars, utilities, food, entertainment, charitable giving, occasional veterinarian bill (dog) or dentist (me), gifts, some modest travel. My medical expenses are negligible, although I recently splurged on two new pairs of expensive glasses I didn't really need after visiting the opthalmologist (he tried to save me money "you could just change the lenses" but I had already browsed his optician's selection and was hell bent in the opposite direction).
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Old 02-21-2011, 12:32 PM   #12
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Great link
I haven't really sat down and updated my budget spreadsheet in a few years, much less made a piechart of it. It reminds me too much of things I had to do while w*rking.
I'm going go by the "establish the baseline, set it and forget it" rule for my budget. I've had a little bit of upward expense creep since I established my expense baseline in 2007, but I'm still in pretty good shape.
One of these days I'll get a round TUIT.... and update the spreadsheet.
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Old 02-21-2011, 12:41 PM   #13
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My problem is that I have a budget for all the monthly bills and it works great, but it does not track day to day stuff like food shopping, eating out, gas, pets, and any non-recurring expenditures. What do you use to track those because I think they are bigger then I think since DW and I just get cash out as needed or use the debit card.
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Old 02-21-2011, 12:45 PM   #14
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My "wheel" is just arranged differently - some things higher, some lower. Would be interesting to set up a color wheel with minimums (ie - mortgage payment) and a same colored wheel outside with what we are actually paying (regular payment plus the second principle only payment each month)...same thing with pension contributions taken out of check compared to additional TSP/Deferred Comp payments. Great disparity on my wheel for those things that I feel I do have control over.
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Old 02-22-2011, 03:37 AM   #15
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Hello scrabbler1 - please could you elaborate a bit on (1) Health insurance and dental expenses - 40% ? What type of insurance / coverage do you have ? Just curious. Thank you.

Quote:
Originally Posted by scrabbler1 View Post
I break down my overall ER budget into 3 broad categories:

(1) Health insurance and dental expenses - 40%
(2) Housing expenses (only co-op maintenance charges) - 30%
(3) Everything else (i.e. food, taxes, fun, gas, non-health insurance, etc.) - 30%
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Old 02-22-2011, 04:10 AM   #16
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This is something that my darling wife and I are just getting a handle on. We went to a one-on-one budget counselor a couple weeks ago to get some advice about the best way to get things under control. The result was that we could, down to a couple dollars one way or the other, pretty much pinpoint how much of our income was headed out in the form of monthly bills and fixed expenses. The part that baffled us was where all the REST of it was going.

It turned out that our major losses were coming in the form of day to day expenditures and continuous trips to the store for this and that. We would do all of our grocery shopping for the week on Saturday... and then go for some milk on Monday, a loaf of bread on Tuesday, some meat for dinner on Wednesday, a few desserts on Friday, etc. Each one of those trips would add up to no less than $40 or $50 because, while we were at the store, we'd inevitably see something else we needed/wanted and throw it in the cart.

Wow. Basically, we found out that we were spending our weekly grocery budget at least twice every week. Our solution was to start shopping only with a list. We keep a list up on the refrigerator, write down things as we think of them, and then go shopping with that. We can still go to the store every day of the week if we want to, but we can ONLY buy the items that are on the list, and we no longer try to make a single, huge shopping run and pretend that it will get us everything that we will want for the next week or two.

My previous thought was that if we could only go shopping every couple weeks, like I used to do back in my bachelorhood, then we'd save a lot of money, but that just caused feelings of deprivation that lead to even more spending.

Joshua
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Old 02-22-2011, 07:37 AM   #17
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Hello scrabbler1 - please could you elaborate a bit on (1) Health insurance and dental expenses - 40% ? What type of insurance / coverage do you have ? Just curious. Thank you.
I found the plan, GHI's Alliance Plan, through ehealthinsurance.com. It was the lowest priced plan shown and just about the only individual plan offered in New York. I went to the website of my home and auto insurance carrier (State Farm) to see if they offered individual HI plans in New York but they don't. My income, sadly, is too high to be eligible for the HealthyNY plan. I am healthy.

I would like to get one of those high-deductible plans but whenever I do a search for them all I get is list of brokers, not plans themselves. GHI has raised the premium by 50% in the last 2 years. At that pace I will be paying $10k a month in 15 years!

As for dental coverage, I use the same dentist I have been using for the last 21 years. Before I retired in 2008 I made sure to get some costly dental work done in 2007-08 before I lost my coverage. This has kept my dental bills down to about $500 a year for 2 visits plus a minimal amount of additional work.
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Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

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Old 02-22-2011, 09:47 AM   #18
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My problem is that I have a budget for all the monthly bills and it works great, but it does not track day to day stuff like food shopping, eating out, gas, pets, and any non-recurring expenditures. What do you use to track those because I think they are bigger then I think since DW and I just get cash out as needed or use the debit card.
I use a program called You Need A Budget.

Personal Budget Software - Finance Software for Windows, Mac & Linux

For years, I tried using programs like Money or Quicken for budgeting and got nowhere. I've been using this for almost 3 years and it has really been great. For anyone at all interested in budgeting, I really recommend it.

Basically, if you are spending significant amounts of cash then you need to track what you spend. So if I withdraw $100 from the bank and then spend $10 at the grocery store you record the $10 expenditure at the grocery store as spending on groceries. DH and I have gotten to the point where we have less than $25 each month of accounted for cash spending. Everything else we record.

We find it easiest to not use cash most of the time since you have a written record if you use a credit card (or a debit card). For cash we get a receipt if at all possible and record it as soon as possible so we don't forget. This helps us to know what we've spent and to plan our spending so it is in accord with what we want to do.
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Old 02-22-2011, 10:07 AM   #19
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[QUOTE=Katsmeow;1039998]I use a program called You Need A Budget.

Personal Budget Software - Finance Software for Windows, Mac & Linux


I will look into this.

Thanks
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Old 02-22-2011, 05:27 PM   #20
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Originally Posted by RetirementColdHardTruth View Post
I was doing some research to really see what the average lifestyle is of the average American. I was really looking for an eye to see what is the minimum I could live on for ER. I found this great graphic that puts it all in perspective. Now I can utilize these categories to set targets against my budget to see where else I can cut costs to significantly bring down my retirement date.

As always I take these things with a grain of salt, and some of the unhealthy aspects of this such as smoking will be removed for me.

How The Average U.S. Consumer Spends Their Paycheck -
That table comes from the Consumer Expenditure Survey of the Bureau of Labor statistics. I think it's a very good source -- I've posted stuff from it on other threads.

You can get data that's more relevant to your situation by looking at the Two Year Tables here: Consumer Expenditures Survey (CEX)

For example, one breakdown is "Size of consumer unit by age of reference person", if you want two person families aged 55-64.
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