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Home
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Budgets & Budgeting
Making
The Typical Family's Budget
The Smith family knew where their money went. But Mary struggled trying to decide where they could cut expenses. It didn't seem like they were being extravagant with their food budget, but she wondered how would she know if they really were spending too much for food or in any area.
John and Mary talked about it. They decided that if they knew what other families were spending they would have something to compare with their expenses. But where could they go to find out what people are spending? After all, you don't just lean over the back fence and ask your neighbors how much they spend on housing!
So Mary set off to do some research. She talked to the local librarian. The librarian suggested that she take a look at the Statistical Abstract of the United States 1994. In it is a wealth of information about what people earn and spend.
So it was just a few nights later that Mary and John sat down to study how the average American family spends it's money. John was surprised at all the info that Mary had unearthed. "It really wasn't that difficult. I used the web to search for the Abstract. I downloaded all the data. Then I imported that into our spreadsheet program to analyze the numbers. But even without the computer, I could have copied the pages in the library and used a calculator to figure the percentages."
John was already studying the numbers. All the major categories were covered. Food, housing, transportation, medical, etc. Many were broken down into smaller pieces. For instance, food included 'food at home' and 'food away from home'.
"Hey Mary, look at this. It says that in 1992 the average family spent a total of $35,661. That included taxes and everything. If 1992 is the most recent data, I wonder if it's still good."
Mary had been looking at table 704 that displayed data all the way back to 1984. She said that it looked as if the percentages spent on each category had remained relatively stable. One of the things that Mary had done was use her spreadsheet program to calculate what percent each category was of the total expenses. To get that number she simply divided the amount spent in the category by the total spending.
By this time John was already looking at the specifics. "Housing took up about 26% of the annual income. I thought that mortgage companies say that you can safely spend about 30% of your money on housing." Mary was looking at the 'by region' report. "The most expensive places for housing are Los Angeles and the New York City area at 37%. Baltimore, Boston and Washington, DC followed right behind at 35%. I'd like to live in Houston, Kansas City or St. Louis. There people only spend 29% of their budget on housing. Wow! There's about a $5,000 difference between living in New York and St. Louis."
"Here's an area where people could save some money." John had begun to use a more critical eye in examining the reports. "For food away from home they spend nearly 5%. The total for all food is only 12%." Mary reminded John that some of the away from home expense included his lunches at work. She had been bugging him about bringing a sandwich to work to save some money.
John and Mary spent the next hour studying and discussing what they had found. They found that where you live and the size of your family did make some difference in expenses. But, overall they found that most people could compare to the averages and learn a great deal about their own spending.
The main categories are copied below so that you can study them, too. John and Mary were already beginning to discuss ways that they could use the comparison to help them identify areas that were candidates for cost cutting. But, we'll eavesdrop on that conversation in another article.
| Category | $ Spent | % of Total |
| Food | 4,273 | 11.98 |
|
2,643 | 7.41 |
|
1,631 | 4.57 |
| Alcoholic Beverages | 301 | 0.84 |
| Housing | 9,477 | 26.58 |
|
5,411 | 15.17 |
|
1,984 | 5.56 |
|
316 | 0.89 |
| Clothing | 1,710 | 4.80 |
| Transportation | 5,228 | 14.66 |
|
2,189 | 6.14 |
|
973 | 2.73 |
|
629 | 1.76 |
| Health Care | 1,634 | 4.58 |
| Entertainment | 1,500 | 4.21 |
| Personal Care | 387 | 1.09 |
| Reading | 162 | 0.45 |
| Education | 426 | 1.19 |
| Tobacco | 275 | 0.77 |
| Miscellaneous | 765 | 2.15 |
| Cash Contributions | 958 | 2.69 |
| Personal Insurance & Pensions | 2,750 | 7.71 |
| Life & other Personal Insurance | 353 | 0.99 |
| Pensions & Social Security | 2,394 | 6.72 |
| Personal Taxes | 3,068 | 8.60 |
| Total | 35,661 |
note: Not all expenses included. Table will not total due to omissions.
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Gary Foreman is a former financial planner and purchasing manager who currently edits The Dollar Stretcher.com website and newsletters. You can also follow Gary on Twitter or on his blog.
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