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Are We Normal? (with our money)

I inadvertently hit the publish button before I had finished this article.  Here is the completed article!  Additionally, I had some formatting problems; I apologize, and I hope that you can decipher the tables.  I simply cannot seem to get them aligned properly.

Have you ever pondered the question "Am I normal?"  Most of us probably have.  The problem we have trying to answer this question revolves around what standard to use.  Where can we find a reliable yardstick?  You see, compared to some I look pretty ordinary, even boringly so.  Compared to others, I may seem pretty unusual, even bizarre.  My co-pilot and I had this discussion recently when we told a jumpseat rider that he was welcome on our jumpseat, but we warned him that both of us were pretty weird.  We told him that if he was okay with that, he was welcome to sit up front with us.  Then we bantered back and forth for a few minutes about which one of us could be considered weirder.  Finally we both decided that the co-pilot was definitely weirder.  But we were using the population of pilots, as we knew it, as our yardstick.  In the greater population of mankind, truth be told, neither of us would likely fall very far from the middle of the bell curve of normalcy.  But I wanted to find out what is normal as it relates to spending  money, so I did some research on typical household budgets in the United States,  and I found that there are some yardsticks we can use.  I will share some of this information because we may be able to draw some conclusions from this that will help us with our own budgeting, and help us determine if we really want to be normal in this respect.

I found a few examples of household expenditures that I share below.  Bear in mind that a family's expenditures will vary widely depending on where they live in the US, what their total family income is (i. e., those with more income will spend more on entertainment), and what they consider important to their particular situation (many families tithe; many give nothing to a church).  With these caveats in mind here are some examples of what I found.

These percentages represent a two-year average and come form an ongoing survey by the Bureau of Labor Statistics (BLS.)  These particular statistics are relevant to the northwestern US and are for the years 2001-2002.  This typical household reported income of $52,021 before taxes, and was comprised of 2.5 persons and 1.4 wage earners.

  • Food                                                                   12.0%
  • Housing                                                             34.8%
  • Apparel & Services                                          3.7%
  • Transportation                                                16.1%
  • Health Care                                                      5.4%
  • Entertainment                                                 6.3%
  • Cash Contributions                                        3.4%
  • Personal Insurance & Pensions                   10.6%
  • Other                                                                  7.8%

The "Other" category includes alcoholic beverages, personal care, reading, education, tobacco supplies, and miscellaneous goods and services.

The next set of statistics are reflective of a slightly more affluent average family and come from the College of Financial Planning (of which I am a proud graduate.)  I particularly like the way this budget is depicted because it divides yearly spending into two categories, fixed and variable.  This family's expenses $162,200 breaks down like this

  • Life insurance                                                  $8,000                                    3.0%
  • Housing (mortgage/rent)                            15,000                                    9.2%
  • Utilities and telephone                                    7,000                                    4.2%
  • Food and groceries, etc.                                 10,500                                   6.3%
  • Clothing and cleaning                                      7,000                                    4.2%
  • Income taxes                                                    28,000                                  16.7%
  • Social Security                                                    7,700                                    4.6%
  • Real Estate taxes                                                5,000                                    3.0%
  • Transportation                                                   8,000                                    4.8%
  • Medical/Dental expenses                              8,000                                    4.8%
  • Debt repayment                                                 5,000                                     3.0%
  • Housing supplies/maintenance                       6,000                                      3.6%

  • Property and liability insurance                    5,000                                       3.0%

  • School expenses                                                    4,500                                           2.7%

Total:                                                                      125,200                                74.9%

Variable: (These expenses can be considered somewhat discretionary in that the family has some choice as to whether or not they incur these particular expenses.)

  • Vacation, travel                                                  $4,000                                    2.4%

  • Recreation, entertainment                                 5,000                                    3.0%

  • Contributions, gifts                                              7,500                                    4.5%

  • Household furnishings                                        5,000                                    3.0%

  • Education fund                                                      5,000                                    3.0%

  • Savings                                                                     3,000                                    1.8%

  • Investments                                                            2,500                                     1.5%

  • Other expenses                                                      5,000                                     3.0%

Total:                                                                          37,000                                 22.2%

I particularly like this budget from the College of Financial Planning because it is quite thorough and probably typical of a family with that level of income.  And, like many families, it represents a family that could do much better as far as saving for their future, their retirement, if you will.  They have not made the mistake many families made in the recent past in that they are not over-spending for their home as only 9.2% of their income goes for housing.  In fact, that is quite low for their income level.  On the other hand, the family represented by the first budget is stretched a great deal with 34.8% of their budget going to support their housing.  Most financial planners (if they are any good) will recommend that families should spend no more that 60% of their income on housing, food, and transportation.  The first family above is spending 62.8% of their budget on those items.  They will find themselves pushed to their limit and the first time they have any type of unexpected expense, it will end up on a credit card.  This means, of course, that it will eventually cost them more in the long run.  They are quite simply spending too much on housing.  That is what has happened on a national scale in the current US housing market and explains why home values are declining around our country.  This fact also likely explains why this family has nothing showing up for savings/investment except for something under the insurance/pension category.  This is likely a savings associated with a 401k, etc. at a job.

The more affluent family needs to take a hard look at their spending habits however, and increase their savings/investments.  With a $100,000+ salary, they should be saving and investing about 10% of their salary rather than the meager 3.3% shown in this budget.  They need to get serious about "paying themselves first" or that nice, affluent lifestyle they now enjoy will not follow them into retirement unless a nice inheritance is in their future.  As they get older and their income increases, they should be intending to increase that savings level to 15%.  The nice thing for them is that they have some easier options with their income whereas the family making less will have to work much harder to save for their future

Finally, I found some interesting data for those of us in, or near retirement.  The following represents how a typical budget may evolve from one's working years to one's retirement years. 

Category                                                              Current                      Retirement                          Rationale

  • Mortgage                       1,200                          0                            mortgage paid off

  • Utilities                          2,400                          2,700                   more time at home

  • Food                                4,000                         4,000                     keep stable

  • Auto                                10,000                        2,000                   car paid off

  • Clothing                          2,000                         1,000                    less needed

  • vacation                          2,500                         13,000                 extensive travel planned

  • Hobbies/Enter              2,000                          6,000                   more time to spend

  • Taxes                              22,000                        14,000                 reflects lower income

  • Charitable Gifts              2,000                         1,000                 reduced donations

  • Savings                            2,400                          0                           no work related savings

  • IRA Contributions        7,000                          3,000                  reduced IRA contributions

  • Health/Medical Costs  3,000                         6,000                   more deductibles/co-pays

Totals:                                  $71,300                     $52,700

These numbers came form contributor Norm Langlois and do not reflect any structured governmental survey as far as I know, but probably are just as accurate and reliable in any case.  I would caution this family that spending nearly 25% of their income on travel sounds excessive.  They may also be surprised that their tax bill could very easily exceed $14,000 as any pension they may receive will be taxable at normal income rates.  Likewise, there must not be a lady in this family if the plan is to spend only $1,000 on clothing.  I suppose I feel that this retirement budget looks a bit too optimistic from my perspective.

So, do we want to be normal with our spending patterns?  Dave Ramsey, noted financial writer and talk show host, loves to say that normal in American means being broke, and living from paycheck to paycheck.  The spending patterns represented by the normal families cited above seem to confirm this idea.  Abnormal would indicate that a family would have a strong sense of deferred gratification and a committment to saving more for  unexpected expenses and the future.  In this one sense, I believe that abnormal might be a better way to handle our finances.


Fly/Drive Safely

4  June, 2008

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    Retirementflightplans - Journal - Are We Normal? (with our money)
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    Retirementflightplans - Journal - Are We Normal? (with our money)

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