How does your spending compare to others? What does it cost you to live? How much do people spend to live each year? Is there a baseline amount you need to live? These are questions people ask as they begin to really look at what they spend each year and how it compares to other people. During the lock down, people have had the opportunity to reconsider what they have been spending and make decisions as to whether to continue to spend the same amounts as the country reopens. In this post, I will look at what people spend to live. How do you compare?
Luckily, as you begin to look at your spending there are reference sources you can consult. The most frequently sourced information comes from the federal government’s Bureau of Labor Statistics (BLS). Each year, BLS publishes a survey on consumer expenditures, income, and other demographic information. This comprehensive survey defines a consumer unit as a household with either a single person or two or more people living together who make joint financial decisions. Having such a comprehensive survey available is really useful.
The Bureau of Labor Statistics Annual Survey
According to the BLS’s Consumer Expenditure Survey covering the year 2018, which was released on September 10, 2019, the average American household earns $78,635 before taxes and spends $61,224 per year for shelter, food, clothing, entertainment, insurance, and other necessary items. Please take some time to read the full survey should you have trouble sleeping. I will summarize it for you below.
The survey breaks down what the average consumer unit spends in a year as follows:
Food $7,923
Housing $20,091
Apparel and services $1,866
Transportation $9,761
Health care $4,968
Entertainment $3,226
Education $1,407
Cash charitable contributions $1,888
Personal insurance and pensions $7,296
Other $2,798________________________
Total $61,224
I think this information is great to use to compare what you and your family spend each year. Naturally, these amounts can range either lower or higher depending on where you live. For example, a family living in New York City may incur substantially more to live compared to someone living in the outskirts of Atlanta, Georgia. It is a great idea to show this information to your family and friends to help with their financial education. It can help introduce the reality of just how much it costs to live our lives.
What you spend to support your lifestyle is a key decision you make. Must you have the most stylish clothing? Should you purchase or lease a new car every four years? Must you eat out several times per week (when we used to be able to do that)? Do you need to attend all the latest movies, shows and sporting events? Do you need to have all the available streaming services, or can you get by with just one?
These are your choices, the end result if you always chose the higher cost option is that your lifestyle will be much more expensive than someone who displays much more frugal habits such as keeping their car for twelve years, not owning a car and using Lyft or Uber, not dining out, or carefully maintaining an attractive but less stylish wardrobe. These lifestyle decisions are yours, and they differ significantly from person to person. In my view the key is balance. I spend more on certain things that are most important to me and less on others.
Summary
The costs of your lifestyle determine your basic cash outflow needs in the FinancialVerse. These needs differ for each individual and are based on their daily decisions as to what is important. You must decide what is best for you and enables you to live within the limits of the income you earn and the savings you will need to accumulate for your later years.
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