Discover Runaway Expenses by comparing your cost of living to the average American. I’ll walk through an exercise using data from the Bureau of Labor and Statistics with my daughter and you can follow along with the same steps. We are going to compare my family’s expenses versus the averages from the Consumer Expenditure Survey. Go through the tasks yourself and find areas of opportunity to cut costs or even reveal a philosophical vulnerability, as I did.
The following is a letter to my children evaluating our cost of living vs the average.
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Making Progress on the Way to FI
Remember when you asked me at the bus stop, “Dad, why do you always talk about money lately?” Well, I had just discovered the concept of Financial Independence (FI) and couldn’t shut up about it. We worked through the basic tenets of FI and made quite a bit of progress that was primarily transparent to the family. Maybe not the best order for everyone, but it has worked out for us.
- Chose profitable college Majors and built successful careers.
- Optimized our debt repayment and investment priorities.
- Changed holdings to all low cost index funds.
- Maxed out Retirement accounts.
- Re-positioned investments for tax avoidance.
- Customized our Financial Independence Plan.
Aside from our little RoosterMoney Experiment, we initially focused on improving what would be invisible to you kids. There was no need to immediately shock everyone by cutting cable entirely, vacationing in the backyard, eating beans and rice, or adopting extreme frugality tactics. The first year was all about learning, optimizing investments, and tracking our income and expenses to establish a baseline. The next step was to compare our cost of living to the average American and see where our expenses may be out of control.
That’s why I was talking about money so much. When decisions affect every member of the family, we need to discuss what each of us can do without. Mom’s a Spartan racer, I wouldn’t dare cut that. You love Gymnastics, there’s no way I’d ask you to quit. Your brother loves Hockey, it’s a pricey sport that I could never take away from him. We need to maintain activities that bring us joy and try to find expenses that are irrelevant to our daily satisfaction. With that said, we also need to become more thoughtful consumers and begin asking ourselves, “Do I really need that?” and “Will this purchase make me happy?”
Without any adjustments to our expenses, we are still doing fairly well. However, we should all try to bring our cost of living down so families can afford to do extra fun and meaningful things together. Wouldn’t you have liked Mom and Dad home more growing up. Maybe an additional family vacation each year would have been even better?
We also want to ensure our lifestyle can be maintained, should events transpire that leads one parent out of the workforce. Our target is to spend only 50% of our take home pay. To get there…we need to know where our money is going, find opportunities to cut expenses, design a budget, and execute to the plan.
We used Personal Capital to aggregate all our accounts and tallied up the monthly expenses after observing for a year. We now know where our money is going. Let’s find opportunities to cut expenses by comparing our cost of living versus the average american.
Average American Cost of Living
I need to preface this letter with a caveat. When I state “Average American”, it is only related to the spending data gathered by the Bureau of Labor and Statistics (BLS). It is in no way indicating any specific person or demographic as “Average.” No one wants to be average. Even if your spending falls below these numbers, you may be more enlightened or privileged in a thousand different ways. To be clear…a good teacher spending the “Average,” is not average by any measure.
Every person’s situation is unique. Expenses can vary by location and 100 other factors, but it’ll be a fun exercise to see what areas you might be over consuming in comparison to the statistics of everyone else. With small tweaks of my own, the BLS consolidates spending categories as follows:
- Food: Groceries, takeout, ordering in, and dining out.
- Housing: Owned or rented shelter, utilities, property taxes, appliances, furniture, housekeeping supplies, daycare, and home maintenance.
- Apparel and Services: Clothing, shoes, and apparel maintenance.
- Transportation: Vehicle purchases, car loans, auto insurance, gas, maintenance, and public transportation fees.
- Healthcare: Health insurance, Doctor visits, medical services, and prescription drugs.
- Entertainment: Cinema, concerts, cable, internet, hobbies, vacations, day trips, and other recreational expenses.
- Personal Care Products and Services: Cosmetics, haircuts, gym memberships, and health supplements.
- Education: School loans, tuition, and book fees. I’ll also include college fund Contributions.
- Miscellaneous: Credit card fees, professional certification and licenses, mobile phones, charity donations, cash purchases, and other discretionary expenses.
- Cash Contributions: Alimony, child support, and charity.
- Personal Insurance: Life, liability, umbrella, accident, and disability insurance payments.
We’ll compare dollar for dollar and percentages of take home pay. I reviewed the BLS Consumer Expenditure Survey results and made slight adjustments to include expenses not clearly identified. I took the liberty of consolidating some categories that make more sense. Do we really need a category for alcohol and tobacco? Those are clearly in the entertainment or miscellaneous buckets. I also broke it down to monthly expense numbers based on 1 person rather than the 2.5 used in the survey.
|Category||Average $||Average %|
According to the latest information and assuming the 0.5 person represents a child, the average adult income is $37,332 with an after tax take home pay of $30,335. That leaves $2,527 per month of income vs $1,713 of expenses. There would be $814 of unrepresented cash going toward savings. Kind of surprised by this honestly. The table above represents the breakdown of consumer expenditures of the average american per person. This does not include taxes, social security, or retirement contributions, but that’s not the purpose of this exercise. We want to see where our discretionary spending goes overboard.
Comparing Cost of Living to the Average American Family
Follow along with me as I go through our family’s expenses and replicate the same with yours. We want to evaluate which categories may have over consumption in comparison to the everyday person. It may make sense to focus on percentages, if you are a high income earner and living a somewhat “privileged” lifestyle. There will likely be areas of opportunity to make cuts within spending budgets.
Use the table below or go to the latest Bureau of Labor and Statistics Consumer Expenditure Survey and put the average american cost of living into a spreadsheet. The averages I listed below are the monthly expenses of an American family of 2 working adults and 2 children. I multiplied the dollar value by 4 in some categories to account for Mom and you two kids. I only multiplied transportation, cash contributions, and personal insurance by x2. Housing by x3 for 2 little ones and adjusted the percentages to match. If you’re a family of 4 with two kids, this should be a good estimate…otherwise edit as needed. Every family composition is a little different.
|Category||Average $||Average %|
|Family of 4||$5,422|
Login to your Personal Capital or other expense tracking tool and put your average monthly expenses in the “Actual” column. Then divide the figure in each category by the total to get your percentages. For us, it was a family of 2 adults and 2 children. I don’t want to share specific dollar amounts with the rest of world, so I’ll color code it. Green for beating the average. Yellow is close to the average, but over. Red for spending a bit more than the average. Leave your numbers in on your own spreadsheet.
It’s time to evaluate where you may be spending more than is necessary. Remember that this only includes consumer expenditures. If you are saving half your income or more, you’re in a good spot. This will only show where progress could be made to reduce expenses that may boost savings rate another 10% or so. We’re hitting the weak spots here.
Evaluating our Family Expenses
My first thought is “Wow”. I never looked at it from this point of view before. We apparently let lifestyle inflation creep up on us. I can hear minimalist crying out in horror. Compared to the average American, we have blew past the dollar amounts in every category. Your Mom and I are blessed with good careers we’re extremely thankful for, but apparently “spoil” ourselves and you kiddos more than most across the country.
Ever try to push two magnets together from repelling poles? They will not connect and I consider that zone the minimum cost of living to survive. If that distance is one centimeter and the survey results are three centimeters, we still have many opportunities to cut spending. Your data may be totally different than our…so you’ll have to do your own evaluation.
Here are my thoughts on our situation:
Groceries, takeout, ordering in, and dining out.
We’re green in the percentage comparison, but red on the dollar amount. There’s only so many calories a human needs and many ways to create budget friendly meals. I still see this category as an opportunity.
Remember that Sunday afternoon when we sat down as a family and made the Meal Plan for the next two weeks? That was part of this effort to cut our food costs. Each one of us had input and jotted down our favorite 5 proteins, carbohydrates, and vegetables. We were able to build 14 meals that included each of our preferences.
With such busy schedules, it’s quite difficult to be consistent. We were randomly buying food at the grocery store and then stressing about what we were cooking each night. This effort brought that anxiety down. We now know what food to buy, when to defrost, and what’s for dinner. We wasted so much money impulse buying, ordering out, and throwing away spoiled food when there was no plan. Meal planning should help us save a bit.
Owned or rented shelter, utilities, property taxes, appliances, furniture, housekeeping supplies, daycare, and home maintenance.
We live in a high cost of living State and medium cost city. This explains the red on dollar amount. The percentage of our income going to housing is lower than the average and even recommended percentages by finance gurus.
We’re embedded in this community, all of our family is close by, and the school system is top notch. We could downsize, but I don’t plan on doing so until both you children have a place of your own. In the meantime, we refinanced to a 15 year mortgage a while back and eliminated PMI. No major actions here except being a little more mindful about energy usage (turn off lights, lower heat, use fans over AC, etc…) and furniture or appliance purchases.
Apparel and Services Costs
Clothing, shoes, and apparel maintenance.
When I see red in both dollar and percentage comparison, I know we’re doing something wrong. We don’t favor expensive brand name clothes and typically purchase on sale. So why are we over consuming in this category? Here’s what I’ve noticed.
- 5 closets full of clothes, jackets, and shoes
- 9 Bureaus full of clothes, towels, and blankets
- Mom goes through shoes rather quickly in her occupation
- I’d estimate over 100 pairs of footwear for every occasion in this house
- Mom has a whole new set of workout clothes
- We require two professional business wardrobes and dry cleaning
- You kids grow fast and we’re buying new
Mom looks for deals, I’ll give her credit. She’ll find the bargain. We need to look at this a little differently however. I forget who coined the phrase, but I like it…”If something costs $1,000, and it’s on sale for $750, and then you decide to buy it, you did not save $250, but rather spent $750.” I’m talking to you Kohl’s coupons. We’ll need to have a heart to heart on this spending category and see what we can do to bring it down significantly.
Vehicle purchases, car loans, auto insurance, gas, maintenance, and public transportation fees.
Just prior to discovering FI, we had purchased fairly new vehicles on loan. We picked up a Chevy Traverse and Silverado that both were in the $20K range. It’s red on the dollar comparison, but green related to our percentage of income. In retrospect, I wish we had gone a few years older and paid in cash.
Our plan is to continue driving these vehicles until a major repair is required that costs more than their value. While the loans are paid off, we’ll save what was going toward monthly payments and invest the difference. New car purchases going forward will be more on the used side and paid for in full. I got a kick our of you and Mom sending me images of the latest Traverse when it was in the shop for an AC repair. Your teasing got me all riled up.
No I say, No! lol
Health insurance, Doctor visits, medical services, and prescription drugs.
I assumed we’d be red on the dollar amount, but pleasantly surprised that we’re green on percentage. This is one category I’ll not skimp on. It seems like 2 or 3 times a year, we’re in the ER for something. With such an active and healthy conscious family, I’m surprised how much we pay in healthcare costs for prescriptions and everything else related. Mom’s in the medical field so I’ll defer to her judgement. As much as I’d like to take advantage of a high deductible HSA for investing, the risk reduction for our specific family is much better served with a traditional PPO.
Cinema, concerts, cable, internet, hobbies, vacations, day trips, and other recreational expenses.
Another red on red area of opportunity. We’ve reduced cable costs a bit already, but have yet to adopt “cutting the cord” completely. That’s on the agenda for this year.
The questions defined earlier are most relevant to this category…“Do I really need that?” and “Will this purchase make me happy?” We really need to evaluate on a case by case basis. Here’s where all your sports fall (soccer, hockey, gymnastics, etc..). I won’t be cutting these personal growth type hobbies out without careful consideration. Personal happiness and other benefits may outweigh the cost.
I’d rather focus on the big ticket items. Is the experience of going to 4-5 concerts or sporting events a year really worth it? Have we considered the hours of life lost working to buy the tickets? Can we have a meaningful family vacation camping in the White Mountains over an expensive trip to Disney world? These are the questions we need to start asking ourselves.
There are a number of tactics and travel hacks we can use to bring these costs down. We’re already utilizing rewards cards and have saved significantly already, but there’s much more that can be done after we define what activities and experiences we do not want to live without.
Personal Care Products and Services Costs
Cosmetics, haircuts, gym memberships, and health supplements.
This is a confusing red over red. On the cosmetics and haircuts front, we’re doing ok. The family is not high maintenance in that regard and I’ve cut my own hair for decades. I need to get your brother onboard with this. We should never have exposed him to a barber.
I’m trying to get mom to transition from expensive massages to insurance covered chiropractic work for her back issues. That would help. It’s a tough balance when your spouse finds value in something and you do not.
I hate to criticize cutting expenses for any health related cost, but it adds up. Exercise is free afterall. Mom subscribes to Beachbody video programs, shakeology, spartan races, and a gym with a trainer. None of which is cheap. I use free weights in our basement, don’t pay a thing, and the results are just as well. I’ll grumble a little each time I see these expenses come through, but continue to bite my tongue. I see how much she enjoys fitness and the stress relief it provides.
Mom is now considering another Karate type gym too. Perhaps I can convince her to give up one of the 5 routine costs, but I’ll need to carefully pick that battle when the timing is right. One of us has to see the other’s point of view, but I’m not sure who’s right yet.
School loans, tuition, and book fees. I’ll also include college fund Contributions.
It’s understandable why we’re double red on education. We are contributing to your college savings as well as paying down the remaining low interest student loan of your Mother. We brought this cost down quite a bit when we moved from a poor public school district to one of the best in the area. No more private school tuition costs and we’re able to put that money toward your college fund now.
Credit card fees, professional certification and licenses, mobile phones, cash purchases, and other discretionary expenses.
Not a fan of the red duos. Starting to realize we still have a lot to do. The big ticket item here is our mobile phones. My wife’s employer has a great deal with Verizon that reduced our bill by 40%, once we realized how to apply it. Some companies don’t make it easy to utilize these types of benefits.
The odd one here is that we can’t account for the expenses of random ATM withdrawals. We rely on the accounting of Personal Capital to track our cash flow, but even banks don’t know where cash goes. We’ll need to do stop using it altogether or keep track manually of each cash purchase. I’m sure some of the spending in this category belongs in others.
Cash Contributions Costs
Alimony, child support, charity, and other dues.
Our donations to charities will continue. We feel blessed to be in a financial position where giving back to worthy causes is possible. This also includes our unsecured promissory note payment related to the rental property disaster. If I tread lightly on the fitness front and avoid Mom’s wrath, I may avoid the divorce costs in this spending category.
Personal Insurance Costs
Life, liability, umbrella, accident, and disability insurance payments.
Our personal insurance spending is a little over where it should be, but adequate for our needs. Considering your Mother is in the medical field, a little more liability coverage is warranted. There might be some opportunities to reduce the cost and maintain the same coverage, but there are larger expense problems to attend to first.
How did Your Cost of Living Compare to the Average?
Let me know in the comments if completing this exercise identified any areas of opportunity for you. For me, it was eye opening:
- We live a “privileged” lifestyle and should not take that for granted.
- We spend way more than the what is needed to survive.
- Quite a few discussions need to take place to reach our 50% savings rate goal.
- These categories are not granular enough. I prefer how we’ve organized them in our Early Retirement Plan.
I’ve also realized my mindset is still defensive in nature regarding our expenses. Look at all the excuses written throughout. I could go back and edit this letter, but I want to show you the unexpected benefit of going through this comparison. On a technical level, we’re making good progress. Philosophically, our habits and way of thinking have to change a bit. This sort of realization would not have been possible without the benefits of tracking our expenses and then comparing them to the average American’s cost of living.
Kylven Ross is the owner and primary contributor of theFIway.com. He has been married for 17 years and is father to a son and daughter living in New England. Professional accomplishments include a bachelor’s degree and industry certifications in the cyber sector. He has spent the last 18 years working in the U.S. Defense Industry and as a Military Police Officer.
He discovered the concept of Financial Independence (FI) during a rather stressful year in the compliance space. After fully absorbing the benefits of FI, he has since committed to turning his household’s finances in the right direction. His experiences are documented as a series of letters that are used to educate his children and others about money. He does not want the next generation to make the same mistakes, but rather achieve financial freedom and find happiness.