Despite the title sounding like something you might say during a stroke, the information is pretty interesting. Among other things, it spells out how much money American households spent on a variety of goods in 2015, segmenting the household population into income deciles.
The sixth decile (let’s call it “D6”) represents households with annual pretax incomes around $56,000, which happens to be pretty much right at the U.S. household median income. (And it’s within spitting distance of the average, so I’ll use “average” here as a casual descriptor.) That D6 is a pretty interesting group to look at if we want to know something about what, on average, we ‘Mericans hand over our rubles for.
The results are surprising in some respects. And a quick jaunt through the statistics also provides six quick lessons in how to not allocate your budget. So let’s get to it.
For the DeeSixers, pretax income of $56k melts down to post-tax rubles of about $52k, representing an income tax burden of about 7% (not including Social Security; more on that in a minute). Which isn’t bad work if you can get it.
Of the post-tax $52k, roughly $50k gets spent. As in not saved. As in, the savings rate of D6 is right around 4%.
Which, sadly, really isn’t so bad. Consider a couple close benchmarks: Those in the fourth decile save a whopping -14%, despite paying negative income taxes. And those in the fifth decile contribute a hard-saved -1.3% to their coffers each year.
Which, to anybody reading this, should result in at least some sullen head-shaking.
Lesson 1: Saving anything like -14% of your income is a pretty outstanding way to never, ever find financial peace.
Lest you think the lack of savings derives wholly from lower income, let me tell you it does not. Some of the very worst types of discretionary spending are much higher both as a proportion of income and in absolute dollar terms for the lower deciles. Worst of the worst in this regard is tobacco/smoking spending. The relevant portion of the table is replicated below. But the headline is this: Those in the lowest (i.e., poorest) three income deciles spend between 2 and 6 times as much a percentage of their income on smokes as those in the three highest income deciles. Take a look at the “Share” row under Tobacco.
Absolute dollar spend on smoking is higher for all deciles lower than the highest. Even if smoking were Kool, and even if it made you into a badass dude from Marlboro country who could run a billiards table against a Camel in the fine Floridian city of Doral, it would still snuff your green faster than Parliament could levy a new tax on your Dunhills.
Nobody needs to smoke. It’s pure waste, and especially financially condemning for those below median income.
Lesson 2: Don’t smoke. Come on.
So, with that smoke cleared, we’re left with around $50k that gets burned each year on stuff and things and ‘speriences and other miscellany other than Pall Malls. But, specifically, where’s it all go?
I went ahead and turned the gummint black-and-white data into a pretty and colorful pie chart for your viewing pleasure. In so doing, I combined spending categories here and there so we could actually make sense of what we’re looking at.
Things like tobacco and alcohol are grouped. I also combined all automotive-related costs into a single category, and I did the same for housing.
An additional couple of notes about certain category definitions before we proceed: You’ll see a “Charity & Other Cash Contributions” Category. That includes stuff like alimony and child support. So don’t go thinking that everybody’s a charitable angel while you’re scum because your cash donations are a bit lighter. Some of the biggest payers in this category may be somewhat less than angelic.
Lesson 3: Divorce is super-expensive. Just buy flowers instead.
Also note that the “Insurance & Pension” category includes payments made to Social Security as well as to personal pension and personal insurance accounts. Yes, some of this category is savings. But not all of it is true savings (e.g. premiums for liability or disability insurance). And even if we added back that entire category’s expenditure for those in the fourth decile, for instance, their savings rate would still be negative. Bottom line for this category is that Americans probably are pinning way too much hope on their Social Security and other pension funds for retirement, and many would face serious financial straits in the event of even a temporary loss of income.
Lesson 4: Don’t get coaxed into believing that, just because you’re contributing to your 401(k), you’re saving enough. You’re not.
Now on to some fun observations that should variously make us laugh or cry. Oh, and here’s the pretty graph:
Average spending on tobacco and alcohol exceeds that for reading and education. In the words of the great Chris Farley:
“…from what I’ve heard, you’re using your paper, not for writing [or reading], but for rolling doobies!! You’re gonna be doing a lot of doobie-rolling when you’re living in a van down by the river!”
Average annual household vehicle costs run about $9k. Which is about $750 a month, or around $25 per day. Healthcare costs run a little less than half that. Which is a nice nugget to have in the back pocket the next time somebody complains about healthcare expenses during the smoke break.
And think about the amazing van you could get for a little over $4k (i.e. average annual healthcare costs). It would be far and away the nicest one down by the river. And also, Lesson 4: Most households have 2 cars (according to the data in this report). Which is at least 1 too many. The auto lever is incredibly powerful for wealth building. Nobody needs to spend $9k on cars every year.
And Lesson 4A: Your healthcare costs are lots lower if you don’t smoke. And your likelihood of an auto accident is lower if you don’t smoke while driving. And that reduces auto insurance costs. Which saves you money. Don’t smoke. Come on.
About $3,600 goes to food eaten at home, while $2,600 goes to food eaten out. Which would make you think we Americanos eat roughly 60% of our meals at home and 40% out. That isn’t the case. The average American eats a meal or snack out 5.8 times per week. For a D6 household (of 2.6 people), that translates into 15 meals out. Assuming 3 squares a day for all 2.6 people (i.e., 3 * 2.6 * 7 = ~55 meals), those 15 weekly experiences out represent about 27% of our feasts.
Which means we’re paying about 50% more per meal out than we would spend on food in, on average.
Lesson 5: Ask yourself if you’re gonna enjoy the dining out experience at least 50% more than you’d like eating a comparable meal at home. If not, just say no to the Panda Express.
Entertainment spending is $2,400 a year, which is about $46 per week. Which is a lot when you consider that doesn’t include booze, cigarettes, eating out or reading.
Household-related spending – i.e., mortgage payments or rent, property taxes, homeowner/renter insurance, utilities, furniture and stuff like babysitting – comprises over 30% of total expenditures. What’s interesting about this category is that most of its sub-categories would be expected to scale together.
That is, if you spend more on a bigger or fancier house in a more expensive place to live, your property taxes and insurance and utilities and furnishing costs and costs for lawn maintenance and roof maintenance and siding replacement, etc., etc. would be expected to scale (often one-to-one) along with the initial cost of the house.
Lesson 6: Living in an ever-so-slightly less-fancy place can pay all sorts of savings dividends that go way beyond the monthly mortgage payment.
Think about this: For our D6 group, just a 10% reduction in annual household costs – brought on by, say, moving into a home not quite 10% smaller – would approximately double their annual savings rate!
Do you really need that spare bedroom, when you could just send the visiting in-laws to stay in a slightly used van down by the river? Think about all the amazing returns that would yield.
You wouldn’t have to worry about divorce (or even have to buy flowers). There’d be no need to binge on General Tso’s Chicken after your mother-in-law scorches another attempt at meatless-loaf. And all that Wild Turkey you drown in every time they visit could be traded in for doobies. To be given to your in-laws. So they’d totally be, like, okay with spending all their time chilling in a van down by the river.
Luchadores, what do you think of the typical spending pattern? Any categories (other than savings) where your spending is dramatically different, either on an absolute or proportional basis?
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