Consumer Expenditures Report – Episode 045

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[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we have our co-host and bestselling financial author, Kim Butler with us. And today we’re going to be talking about how do you spend your money? Welcome, Kim. Well, thank you, Todd. I’m looking forward to this. This is an article that I found, a research report actually, and I just find it interesting. I think from time to time clients ask, well, you know, am I doing okay in the

[00:48] spending money department? And we typically don’t get super involved in how our clients spend money. We believe that instead of budgeting, you should just save 20% upfront and spend the rest and not try to budget. But it is helpful to have something to compare yourself to in the various categories. So this is a pretty detailed research report. We’re just going to hit some highlights on it today and then we’ll make the link available to you if you want to dig into it more thoroughly. Super. Well, just to give some background, they researched 124,000 plus houses. The average income for this survey was $65,596 and the average age was 50. So I think that’s a pretty good demographic average, I guess, to kind of hit.

[01:39] And we’re going to be looking at the average expenditure. So we’ll just kind of flip through here. One of the things that caught me right off the bat is that 64% of those people owned homes versus renting. What do you think of that? Well, I want to comment, too, on the average income. So 65,000 average income and 64% of them own homes. So I’m going to say that this is possibly a survey of what I hope is sort of average, but I find that income very interesting. That many households, and to me, that seems like a fairly low income level, but I guess that’s cross section of America. So we’ll go with that and only 64% owning homes. That really is a small percentage, again, I think, of what is typical amongst our

[02:38] client base. But I am hearing from more and more people that they want to keep their lives flexible, so they’re not buying homes as often as they used to, especially the millennial group, definitely not as early as they used to. And I know many retirees that are downsizing, and so they too are not owning a home, they’re choosing to rent a condo so that they don’t have to worry about caring for yards and that type of thing. So in our client base, whether or not that’s representative or not, it is interesting to note that when you don’t own real estate, you do lose the one tax deduction that’s left over for us, that being the mortgage interest deduction. Clearly, these are lifestyle decisions, maybe more than financial decisions.

[03:28] I don’t know that somebody would own a home only for the ability to have the mortgage interest deduction. But I certainly believe that homeownership can be a valuable way to have your house expenses efficient. I definitely think that sometimes lifestyle overrides that. But if you’re looking for house efficiency, owning is better than renting. However, I disagree with a lot of the comments that you see out there that a house is a great investment. Typically, in fact, my husband just did an analysis on a place that his father had owned literally maybe 40 years ago. And they knew what the price was then. And it recently sold and Todd did a quick future value calculation. And the rate was about 7% or so, I think, on the home over that time frame.

[04:25] So in other words, a 7% per year growth over the over the time frame. It sounded much, much bigger than that. Oh, my gosh, that house sold for X dollars. But when you really do the math, I think realtors would even tell you that a typical home ownership growth is more in the four to five, maybe six to seven percent range. So good thing to know. But what it’s telling us is that homes are not necessarily great investments. However, if we’re looking for efficiency of our dollars, in other words, if I’m going to spend this amount of money, how can I get the best situation, the most efficient environment? And that’s going to be homeownership. So interesting that the survey shows it’s a lower percentage.

[05:08] Super. And we’ll break that down just a little bit. And I think this is interesting, too. Now, the annual cost of owned dwellings, which I’m assuming to mean house payments, is six thousand and fifty six dollars a year, which is what? About five hundred a month. The cost of rented dwellings is three thousand one hundred and eighty six. So about 50 percent lower cost to rent than it is to own. Interesting. Well, it would be fun to do a little survey of our clients. So on the podcast post below, if you feel like your statistics are sharing different information and send it in for us, we’ll do our own little survey. Well, that would be a two hundred and fifty dollar a month rent payment versus a five hundred dollar a month house payment.

[05:59] Where do you find either of those? I’m not sure. That’s a good question. So not not so sure. Now, the average cost of utilities was three thousand six hundred and forty eight, which is about three hundred dollars a month. I think that’s probably about right. Yeah. Let’s see what else we have here that might be interesting. How about food? All right. We’ll talk about food. OK, now we have two categories here. We’ve got food at home and food away from home, which, interestingly enough, the price is about equal. Three thousand nine hundred and twenty one dollars is the cost. The average cost of food at home. Two thousand six hundred and seventy eight is the cost of food away from home. So that means that an average family’s grocery store bill

[06:54] is around three fifty a month. Am I hearing that right? It would be less than that, because three hundred a month would be thirty six hundred and thirty nine twenty one. Man, maybe that’s just to feed the person surveyed. I mean, I can’t picture feeding a family on that. Agreed. That is amazing. Well, that gives people a little bit of guidelines. And then you said the out to eat was about the same around twenty six seventy eight. So that would be about two ten a month on eating out. Yeah, also pretty low number. This is interesting. This is one hundred and twenty four thousand families. One hundred and twenty four thousand people. Now, the expenditures are for the year of 2012. So, I mean, they’re not quite it’s not, you know, quite current.

[07:44] But I don’t think prices have changed that much between 2015 and 2012. But yeah, these numbers look incredibly low. Alcoholic beverages are four fifty one a year. Well, there’s a way to say forty dollars a month on alcohol. But yeah, no, it’s very interesting. You know, we can look at transportation costs of about nine thousand dollars a year. So, again, that’s a seven hundred eight hundred. Well, about eight hundred dollars a month in car payments and gas. But yet your rent is two fifty a month. Isn’t that interesting? That is interesting. When I was very first out of college, I worked at a bank and I had people come in for car loans and home equity loans. I didn’t do full mortgages at the time, but

[08:41] just very small consumer loan products, if you will. And I had quite a few bank clients at that time, younger professionals that easily spent more on their car than they did on their home. And I thought at the time it was interesting. And it sounds like this survey is playing that out as well. But that’s including gas and everything. So, yeah, that’s interesting. And it, again, just gives us some guidelines for what we can be looking at amongst our own budget, whether or not these numbers are reflective of our situation or not. And I think it maybe is even a wake up call. There’s always ways that you can really change how you spend your money based on your priorities. So if a car is super, super important to you and you don’t mind

[09:29] for going a nicer house, then great. Now, some people are able to do both, and that’s fine, too. Again, I reiterate our feeling is save 20 percent first, spend the rest. But then you’ve got to spend it on what’s important to you. And same deal is food eating out more important than food at home. I just had a discussion with a client the other day. He said that the last year he’s been really focused about eating at home more for health reasons than dollar wise. But he was amazed how much money that saved him. So get clear on your own priorities and that’ll help you know how to spend your money. All right. This is probably the most frightening number that I see on here. And I want to preface this, that we talked about the fact that rent

[10:11] averaged three thousand one hundred and eighty six dollars a year for the folks in this survey. But health care was three thousand five hundred and fifty six. Hmm. Yes, that is interesting. Well, I just had a client email in. They are spending four hundred a month. This is a 72 year old man. Four hundred a month on health care that he never uses. He has a particular approach to his health that just really dictates that he doesn’t want to use drugs, basically. Pharmaceutical drugs. And so he felt that that four hundred was wasted. But I can’t remember, do you know off the top of your head what the penalty is to pay if you’re not signed up for health insurance? I know it’s it’s it continues to go up for the next several years.

[11:02] But I thought it was five or 10 percent at the beginning. And I think we’re still kind of at the beginning stages. And sadly enough, in most cases, according to the CPAs I’ve talked to, it takes them two years. If you complete the form to request that you don’t qualify or don’t need to follow the Obamacare guidelines, they’re running two years behind evaluating the form to tell you whether you made the right choice. Good heavens. Yeah, that’s a sad state. Well, we’ll just have to focus on what we. Yeah, keep in mind that this is 2012. So Obamacare hadn’t even taken effect yet. So rising health care costs is going to be interesting to watch that number. Right. Yep. Focus on what we can control.

[11:48] And that’s our thinking and it affects our health. So, all right, well, let’s get to where we live. And that’s personal insurance and pensions. Any guesses before I give you the numbers? Oh, gosh, it’s not broken out. Insurance and pensions are together. No, we have life and other personal insurance is one category. And pensions and Social Security is the second category. That’s as far as we can break it down. OK, so complete guess. But I’m going to say two grand a year for life insurance. Three hundred and fifty three bucks. Oh, my. Boy, do we have some term insurance buyers in that survey. Interesting. Thirty dollars a month. And that’s life and other personal insurance. So I’m consider I’m thinking maybe like Aflac or, you know,

[12:37] alternative insurance like cancer policies, things like that. Maybe that all gets lumped together. Probably. And then what’s the pension number? Five thousand two hundred and thirty eight. OK, but that includes money paid to Social Security. Ah, interesting. Wow. So here we have the buy term and invest the difference crowd that’s not investing the difference, because that’s going to be mostly Social Security right there, according to that average income. Right. Yep. It’s by term and a car. That’s the bottom line in the state. That’s right. And, you know, that just really drives a point home that I think is so important. Everybody knows how important it is in order to save and invest that you get yourself on some type of autopilot program

[13:34] where the money is essentially being taken from you every month. And of course, the normal one that everybody turns to is the 401k plan. And I know we’re going to be talking about that later on another show. But the 401k plan is all subject to government control. One hundred percent government control. And yet people do like the automatedness of it, as well as the the self-disciplinedness of it. But there is another solution, and that is to use the whole life insurance, which does basically force us to save. So you have the self-discipline there because a paycheck is split up amongst various things. But one of the things is split up on is bills and your life insurance premium is a bill and it can be automatically paid from your checking account.

[14:27] And then furthermore, the area of so we have both the self-discipline and the automatedness, I guess, they’re all in one thing. This area of automating your bills, which most people are doing with online banking and life insurance can be paid with online banking now. Hallelujah. So for those of you that are clients of ours, if you didn’t know that, reach out to us if you need help getting that set up. The insurance industry finally got on board with that. So here we have a life insurance policy, which is not an investment. But interestingly enough, the 401K savings plan was not necessarily supposed to be an investment either. When it was first enacted, it was designed to be a savings plan. Saving, to me, means liquid dollar.

[15:15] So I wouldn’t call a 401K a savings plan. But saving to Congress at that time apparently meant 401K. And how interesting it is that that has completely turned into an investment where people are subject to stock market fluctuations and mutual fund fees that erode wealth and create massive amount of opportunity costs. So we’ll have fun talking about that more thoroughly in another podcast. But just back to this survey, it’s very clear that these people are buying term insurance, if that I agree with 300. What did how much? Three hundred and fifty three bucks, three fifty three annual. So not quite thirty dollars a month. Yeah, that’s barely buying term insurance. That’s having, like you said, an afflac or a cancer policy or something like that.

[16:07] So very interesting information. You got another statistic in there. Super. Well, I’m going to share one more. And that’s entertainment versus education. Tell us annual entertainment expenses is two thousand six hundred and five annual education is one thousand two hundred and seven. So two times as much spent on entertainment as education. That says a lot. It does say a lot, but I have to admit I’m pretty impressed. At least there is a number there for education. That’s good. Talk to a client the other day. They read a book a week and that I’m a heavy reader, but I don’t know that I can say that I come and go on my quantity. But gosh, anything reading and listening as well, of course, is just great education.

[16:56] So I have to say I’m impressed. Yeah, it is two times for the entertainment, but at least there was some education dollars in there. Well, we do have reading as a category, too. One hundred and nine dollars a year. OK, well, there you go. I wonder what they’re calling education. That must be you said the average age of this group was 50, but there must be still I’m assuming that it’s some type of formal, you know, right, formal tuition of some sort is what I would think is probably education. Yeah, very interesting. Well, good info to have. Like I said, we’ll have the post to this or the link, excuse me, to this particular research package that you said it was what, about 25 pages or so. It’s about about 25 pages and it comes from if you’re just listening to

[17:41] it’s a government sponsored survey. You guys are welcome to check out that website. And again, we will have a link on here if you want to download and see page after page of these statistics. Fabulous. Well, we’ll just let that be our gift to our clients for today and be grateful for all the listeners and let us know what you think of the survey. Pop in some of your own information in the comments section and we’ll see what we come with it. Super. Well, once again, this is No BS Money Guy, Todd Strobel for the Prosperity Podcast. Special thanks to Kim Butler and take care, everybody. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com.

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