How the Rich and Poor Spend -- pretty interesting

[dude]

So the Labor Department's Consumer Expenditures Survey just recently came out.  Yahoo extrapolated and put some of the numbers into charts/graphs:

http://finance.yahoo.com/news/how-rich-and-poor-spend--and-earn--their-money-150431089.html

But the actual data is pretty fascinating to look at (e.g., Yahoo doesn't break out the percentiles by actual incomes, but the date is here).  Provides a real interesting snapshot of how people in various income groups spend their money. And of course, allows you to compare your spending with your income group peers.

http://www.bls.gov/cex/#midyear

I calculated that we spend only 11% on the "owned dwellings" part of Housing, which is below the 14.5% mean for our income group, but 25% for "pensions and social security" (which I'm assuming includes 401k's)*, which is a bit higher than the 16% mean for our income group.  I suspect most folks around here likewise have numbers that skew this way.

* The Glossary (http://www.bls.gov/cex/csxgloss.htm) defines it as:  "Retirement, pensions, and Social Security includes all Social Security contributions paid by employees; employee contributions to railroad retirement, government retirement, and private pension programs; and retirement programs for the self-employed."  It would be quite incongruous in this 401k age for "private pension programs" to not include 401ks/IRAs, I would think?

modified to correct Housing figure

[Vertical Mode]

I would think so, too (RE: your last point).

A few thoughts to consider also:

- Mustachians may want to live closer to work to reduce commuting costs, so I would expect that to raise housing costs and lower transportation costs (in most cities, one would expect prices to rise as you approach the urban core) At least for younger Mustachians like myself, who may not be at upper income tiers yet.
- Those who aren't paying into a 401(k) or other tax-advantaged vehicle are increasing their taxable income, and therefore having more drawn into paying the SS tax, so they'd be funding that area indirectly anyway, correct?
-Where do taxable accounts appear? If I've got a Vanguard fund outside of my 401k (you can only put so much in there, after all), does that ALSO fall under the umbrella of Pensions and SS?

Looking at this data has made me reflect on all the coarse financial "advice" I've gotten over the years ("spend around a third of your income on housing, 10-15% to 401k, etc.) It's actually surprising how well a lot of it aligns with the macroscopic view from the BLS.

[2Birds1Stone]

This is some good info, personally at $47,000 a year gross.

Housing is only 17% of my net Income
And Food is only 6% of my net Income

Boy is it nice to LBYM =D

[CommonCents]

Some other interesting points I saw:
- Entertainment costs are pretty flat - 4-5.5%
- You can see the impact of paying for health care for the lowest income
- Education costs as a percent of income are higher at both the higher and lower incomes.
- That the 50% still has economic subsidies (e.g. food stamps, non-unemployment public assistance)
- That interest income isn't higher for the higher levels of income
- The lowest 10% have no "other income/self-employment" at all (but it's otherwise pretty consistent 10-90%)

[Retired To Win]

So the Labor Department's Consumer Expenditures Survey just recently came out.  Yahoo extrapolated and put some of the numbers into charts/graphs:

http://finance.yahoo.com/news/how-rich-and-poor-spend--and-earn--their-money-150431089.html... I calculated that we spend only 11% on the "owned dwellings" part of Housing, which is below the 14.5% mean for our income group, but 25% for "pensions and social security" (which I'm assuming includes 401k's)*, which is a bit higher than the 16% mean for our income group...

That 14.5% mean for owned housing seems suspiciously low to me, considering that mainstream lenders will allow between 28% and 33% of income to go to a fully loaded mortgage payment that includes escrow.

More suspicion on the 16% mean for pensions and social security.  Even backing out the 7% plus-or-minus that gets yanked out of paychecks for social security, it still leaves 9% going to "pensions".  If that is so, why all the crying and nashing of teeth regarding outrageously underfunded personal retirement accounts?

[jmusic]

- Those who aren't paying into a 401(k) or other tax-advantaged vehicle are increasing their taxable income, and therefore having more drawn into paying the SS tax, so they'd be funding that area indirectly anyway, correct?

Correction for you on this issue.  SS/Medicare tax are calculated on your total income, before 401K contributions.  Look at your W2s at tax time and you'll see...

[MrsPete]

I found the final graph -- the one on Consumer Expenditures -- most interesting.  Specifically, I was interestesd to see that transportation dwarfs the other categories.

[Middlesbrough]

Press release sums up the data: health insurance skyrocketed and most durable expenses were tightened accordingly.

Individual tables make me shake my head. I don't have the words at the moment.

[daschtick]

I'm about 10% on food and only 6% on housing!  I pays to have a paid off hone in a low property tax area.

[Vertical Mode]

- Those who aren't paying into a 401(k) or other tax-advantaged vehicle are increasing their taxable income, and therefore having more drawn into paying the SS tax, so they'd be funding that area indirectly anyway, correct?

Correction for you on this issue.  SS/Medicare tax are calculated on your total income, before 401K contributions.  Look at your W2s at tax time and you'll see...

Thanks, jmusic. Learn something new every day :-) I guess the math would be a lot simpler for the SSA/IRS that way.

[boarder42]

food is about 4.5% of our total takehome. 

housing including principal is about 17% take out principal and this number drops to 8%

i guess i should try to spend more to keep up with mainstream spendng. 

[BarkyardBQ]

Do you all include utilities (power, water, gas, sewage, trash) in your housing calculations? I do, and by this calculation we spend 51% of our spending on housing, but only 11% of take home.

[boarder42]

ok if i add in utilities that drives my percentage up to around 10% on housing give or take.

[MrsPete]

We spend 6% on food, 3% on transportation ... but in a few more months we'll be spending a whopping 12% on education.  Yes, we'll have two in college.  No regrets on any of this. 

[Retired To Win]

I found the final graph -- the one on Consumer Expenditures -- most interesting.  Specifically, I was interestesd to see that transportation dwarfs the other categories.

That did not surprise me.  "Transportation" includes the buying, fueling, insuring and maintaining of the family road chariot(s).  And all that adds up to a pretty big wad of money.

[mom2_3Hs]

What is deceiving (at least in part) is comparing percentages.  While the MMM crowd gets it, the less mathematically literate are thinking, "Poor people spend more money on food than I do!"  In absolute dollars, that is untrue.  The numerical data is here: http://www.bls.gov/cex/22014/midyear/decile.pdf

If you graph it as actual spending, surprise, surprise, rich people spend more than poor people. 

What is most shocking is that the 5th decile, people spend more than they earn (on average)...

[Middlesbrough]

What is deceiving (at least in part) is comparing percentages.  While the MMM crowd gets it, the less mathematically literate are thinking, "Poor people spend more money on food than I do!"  In absolute dollars, that is untrue.  The numerical data is here: http://www.bls.gov/cex/22014/midyear/decile.pdf

If you graph it as actual spending, surprise, surprise, rich people spend more than poor people. 

What is most shocking is that the 5th decile, people spend more than they earn (on average)...

I looked at almost every breakdown and this was one of the scariest realizations. The average person up to the median spends more than they make. Don't know how retired people affect these stats, but WTH?!

The craziest thing is that my budget would compare to someone who makes almost nothing.

[Retired To Win]

... this was one of the scariest realizations. [That] the average person up to the median spends more than they make... WTH?!

What the hell indeed.  How can anyone indefinitely spend more than they make?  The answer has to be that such persons' total debt would also have to be indefinitely increasing.  And the total sum of the required monthly payments to service that debt also would be increasing in a corresponding manner.

What a financial trap to be in!  What a financial hole to be willingly digging for oneself!  Isn't it absolutely amazing just how blind so many people can be?

[MrsPete]

I found the final graph -- the one on Consumer Expenditures -- most interesting.  Specifically, I was interestesd to see that transportation dwarfs the other categories.

That did not surprise me.  "Transportation" includes the buying, fueling, insuring and maintaining of the family road chariot(s).  And all that adds up to a pretty big wad of money.

Even so, we are only spending 3% of our income on these expenses, so I was surprised to see just how much other people are spending.

[Indexer]

What a financial trap to be in!  What a financial hole to be willingly digging for oneself!  Isn't it absolutely amazing just how blind so many people can be?

They just don't think.  I don't think people make the conscious decision to make horrible financial decisions.  They just don't think about it in a smart way.  I have no idea why.  I've met business owners, accountants, even financial planners who manage their books/client's money with a science, track every dollar, think out every move.... and then when it comes to their own money they blow it with no regard.  Even the people armed with what I like to think of as the financial strategy guide still make stupid decisions.  People just have a habit of spending money without actually thinking about it until they run out... and then there is the credit card.

[bzzzt]

People just have a habit of spending money without actually thinking about it until they run out... and then there is the credit card.

They also have a really warped perspective of needs vs. wants.

People always kill me with this, especially on cars. "My car needs $1500 of repairs, so I'm going to trade it in because I need a reliable car!"

Well, if you'd do the $1500 worth of repairs you wouldn't need a new car, so you must WANT one!

[Retired To Win]

People just have a habit of spending money without actually thinking about it until they run out... and then there is the credit card.

They also have a really warped perspective of needs vs. wants.

People always kill me with this, especially on cars. "My car needs $1500 of repairs, so I'm going to trade it in because I need a reliable car!"

Well, if you'd do the $1500 worth of repairs you wouldn't need a new car, so you must WANT one!

That one kills me too.  If that person spent the $1500 on the repairs, most likely they would then have a reliable car.  Could they go out and buy a reliable car for $1500?  No.  Is it quite likely that the next car they buy (unless it's new off the showroom) might need $1500 worth of work?  Yes.  If that person does buy a new car off the showroom floor, will they lose $1500 in car value depreciation the minute they drive off the lot? Probably.  So how does any of it make sense?

But, no, no.  Don't come back to tell me people don't think that through.  It's ELEMENTARY!!  And not financial rocket science.