Expenses on food,utilities,child's daily school allowance,medicines, jeepney fares...and the list goes on! How many among us have enough funds to meet our daily needs? Having trouble or facing some issues at the home front in terms of expenses on a daily basis? This article can provide you some ideas on sorting out your limited finances and optimizing their use!
How Do Your Finances Stack Up?
Lisa Smith
Friday, August 19, 2011
Friday, August 19, 2011
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Out
of sheer curiosity, we all like to know how much others make and how
much they spend, but knowing how your spending habits compare to
everyone else's has significant value.
This information enables
you to compare your spending habits to the average, giving you the
opportunity to adjust your spending. A closer look at how your friends
and neighbors are spending their cash will show you how you can trim
your own expenses.
How People Spend
When you see people
in your neighborhood driving a new car, at the mall buying clothes and
everywhere else spending money, chances are you've wondered about how
they are making that happen and what you can do to have those luxuries
too. The most recent report, Consumer Expenditures
In 2009, released
every two years by the U.S. Department of Labor U.S. Bureau of Labor
Statistics, provides some answers to your questions.
This survey
tracks the expenses of "consumer units," which are defined as "members
of a household consisting of (a) occupants related by blood, marriage,
adoption, or some other legal arrangement; (b) a single person living
alone sharing with others, but who is financially independent, or (c)
two or more persons living together who share responsibility for at
least two out of three major types of expenses." Let's take a look at
how these people, or units, spend their money.
Why It Pays to Know
According to the survey, the average consumer unit spends nearly 78% of
its income on just seven major categories of spending. If you aren't a
big fan of budgeting or keeping track of every cent that you spend,
breaking down your expenses into these seven categories is a quick and
easy way to take a snapshot of your financial situation. If you've never
tried budgeting, comparing your expenditures to those of other
consumers may be just the catalyst to get you started.
The seven
major categories of spending are listed in detail below. They are:
housing, transportation, food, personal insurance and retirement,
healthcare, entertainment, and apparel and services. Generally, for all
costs except healthcare, the youngest and oldest among us spend the
least, and numbers for persons aged 25-64 come in above the spending
average.
1. Housing
Keeping a roof overhead costs the
average consumer unit 26.9% of its annual income, which comes to an
average of $16,895 each year. That's the biggest single category of
spending by far.
If your housing costs appear to come in on the high side, it may be time to reevaluate your living situation.
2. Transportation
At 12.2%, transportation takes another big chunk out of the average
consumer unit's income. The cost of owning a vehicle accounts for 4.2%
of that number, excluding gasoline and oil, which add another 3.2% to
the tab. In cash, the total average transportation expense for the year
comes to $7,658 each year.
Owning a car brings with it the baggage
of some big bills. If you can rely on public transportation, you can
probably cut your costs in half, because purchasing a bus pass is often
more inexpensive that paying for gas, maintenance, insurance and a
parking pass.
3. Food
Everybody has to eat, and doing
so accounts for 10.1% of the average consumer unit's expenses. Food at
home accounted for 6.0% of that number and food away from home accounted
for 5.7%. The total cost of food comes at $6,372 on average.
If
your food bill comes in on the high side, you can try to cut expenses by
eating at home, taking a bagged lunch to work or holding group meals
like potlucks instead of eating out.
4. Personal Insurance and Pensions
Although the personal savings rate in the United States is often cited
as a negative number, 8.7% of income goes to fund personal insurance and
pensions. Most of that number, 8.2%, goes to the Social Security
Administration to fund payments for existing retirees. The average
expenditure comes to $5,471 a year.
5. Healthcare
Despite the high, and rising, cost of healthcare, this category only
accounts for 5.0% of the average unit's income. The cash outlay comes to
around $3,126 each year, but this category bucks the trend. Naturally,
the costs rise as you age, with those over 65 paying nearly a third more
than those under age 25. (Find out how to take action against one of
the biggest financial post-work worries in Fighting The High Costs Of
Healthcare, Failing Health Could Drain Your Retirement Savings and
Common Concerns For Retirees.)
6. Entertainment
Everybody likes to have fun, but interestingly, paying for that fun
accounts for just 4.3% of the average unit's income. That works out to
$2,693 a year for the average consumer.
If your budget is really
tight, this is the one spending area that you should initially trim as
it is the one expense that's easiest to forgo. For example, cutting
unnecessary services or staying home instead of going out can
potentially put a few hundred bucks a month back into your pocket.
7. Apparel and Services
Keeping clothes on your back (on average) will cost you 2.7% of your
income. For the average consumer unit, that's about $1,725 each year.
Shopping
for bargains, avoiding the latest fashion trends, purchasing quality
items in classic styles and shopping the seasonal sales can help you
save a few dollars under this category.
Factoring in Location
Everybody knows that it costs more to live in some areas than others.
The survey subdivides the data by geographical location, splitting it
out into four regions. Overall, costs in the West were the highest in
nearly every category, while costs in the South were the lowest.
To
get a better idea of the costs for your region, particularly if you
live in a pricey city like Los Angeles or in a small town, such as
Addison, Alabama, you can use an online a cost-of–living calculator to
compare your expenses to those in other areas of the country.
If
you are looking to move, it pays to consider the geography. Simply
living in the right location can significantly trim your costs.
Put Your Knowledge to Work
Knowing the average consumer numbers gives you a chance to see how you
stack up against the rest of the country. While the specific dollar
figures will change from year to year, the categories are unlikely to
exhibit much change.
Comparing your spending habits against these
categories provides benchmarks to gauge your personal financial
situation, and the opportunity to implement reductions in spending.
Ideally, these reductions should result in freeing up some of your
money, which can then be used to increase the amount you dedicate toward
saving and investing.
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