I was nearing the end, and then I came across this awesome chart breaking down average household expenditures, which I think is interesting enough to re-post here:
Note: Table 8-9 recreated from The Millionaire Mind written by Dr. Thomas Stanley on Page 358
“Selected Average Annual Expenditures and Characteristics of Households with incomes of over $90,000+ and less than $90,000”
The following monthly figures and pie charts are all of my own analyses and doing based on the above chart.
So now for my pie charts and analyses.
In every category, people who make over $90,000 spend well over what someone who makes less than $90,000 spends by about 270%, which actually sounds about right.
If you make $30,000 a year, and someone makes 3 times as much, they’re more likely to spend 300% more than you.
I’m not convinced that just because you earn more you should spend more.
Surely, you should spend more on food for better quality meals, or live in a nicer apartment in a better, safer part of the city, but for everything else, is it really necessary?
These are all personal finance decisions that have to be made, and it varies with each person and what they consider their priorities.
Annual expenditures are nice, but I operate on a monthly basis, so broken down by month, this is what the households spend in each category:
The top 2 biggest changes between the two sets of households:
- Personal Insurance, Pensions
In the data (I didn’t put it in the charts above), it broke it down by homeowner and by renter, and those who earned more, owned homes.
Mortgages, paying for maintenance, upgrades, renovations — all of this stuff adds up, and it makes that $2000 number look a lot more reasonable.
The $787 looks reasonable for renting (I’m in this category!)
If we take a look at their pretty pie charts, they look about the same to the naked eye (at least to me), but Personal Insurance and Pensions looks fatter in the households earning $90,000 or more annually.
If we look at the nitty gritty percentages of spending in an average household:
You will notice that under $90,000 they’re spending 8% over what they can afford as an income with that 8% is supplemented by debt, obviously.
Where I see the biggest chunk is in housing, and I didn’t list out EVERY line item in Dr. Thomas Stanley’s chart, but those who make under $90,000 rent more than they own houses*.
*Don’t say “Duh!!” to me, because there are many who still rent, even earning $90,000 or more per year. 🙂 I don’t believe that owning a home is a requirement of wealth building.
And those who earn over $90,000 seem to have a disposable income for savings I presume, of around 36%.
If we take a look at these expenses against our general pie chart of where your money should go, compared against the households:
Note: Housing includes stuff like household furnishings, equipment, utilities and household operations.
It’s not quite perfectly broken out because under Utilities, there is also Fuel and Public Services in that little category. I don’t have the numbers to split it out properly.
So what did I re-affirm or learn from this?
For me, seeing as both households have just about the same amount of people (2.5 versus 3.1), it doesn’t necessarily mean your expenses can be attributed to a new baby or extra people in your household, which is the reason why you’re spending more.
Above a certain threshold, you are living a comfortable life
I’d say even lower than $90,000 a year, you’d be living a more comfortable life.
I think the number was $50,000 – $75,000 for a comfortable life where happiness is maxed out, and any extra money above and beyond that had negligible effects on being happy.
But for those households below the $50,000 threshold, money means everything, and some can’t even make their regular bills, hence the 8% overage into debt.
Saving is just as important as earning money
Your expenses matter.
If you don’t save, you cannot say you have any wealth whatsoever.
You can make lots of money, but if you spend it all and go into debt, you are not better off than if you made less and spent that it all too. Just that you’d probably have more debt and nicer toys to show for it.
People enjoy upgrading or increasing their lifestyle
No judgement about whether it’s wrong or right, it’s just an observation.
I am totally on board with upgrading in areas that matter to you, seeing as there is more disposable income available. Why not?
That said, for me personally, I prefer to err on the side of lifestyle deflation.
I spent a lot more when I earned less, and now that I earn much more, I spend less. Or at least I’m trying to.
The difference is that I don’t want to have a decrease in my quality of lifestyle just because I refuse to spend to the money. I don’t want to be cheap. Just conscious about where my money is going.
There’s an old Japanese proverb that says something along the lines of :
A peasant, eats one bowl of rice and sleeps on half a mat.
A king, eats one bowl of rice a day and sleeps on half a mat.
(I’m paraphrasing, clearly.)
When I first read it, it really spoke to me. It put things into perspective. We don’t really need to spend anything or have anything beyond food and shelter.