- How to Stick to a Budget
- For a Budget That Works, Get Control of Your Debt
- What Do Average Families Spend?
- Balancing Your Budget in the Big City
- Income Dropped? Expenses Have to Drop, Too
- How to Beat "Frugal Fatigue"
- Fast Ways to Cut Cable, Cell Bills
- What to Do with an Extra $5,000 a Month
- Planning a Family? How to Prepare Financially
- Facing a Layoff? Rule #1: Conserve Cash
- Living Paycheck to Paycheck? Knock It Off
- Why Your Budget Doesn't Work
What Do Average Families Spend?
Q: My wife and I are working to get out of debt, and I am interested in comparing the amounts we spend on mortgage, food, diapers, and so on with what is considered ideal or at least average for homeowners living in areas with a high cost of living. Do you have recommended percentages for various items? I am always looking for places where we can cut our expenses so we can pay off debt faster.
A: You can find averages in the U.S. Census Bureau’s annual Consumer Expenditure Survey, which you’ll find at www.census.gov. The categories are fairly broad—you won’t find a line item for diapers, for example—but the bureau provides averages for housing, food, transportation, clothing, and insurance, among other categories. The bureau also slices the data various ways: by income, by metropolitan area, and by child, for example.
You may find the information more interesting than helpful, however, because every family’s situation is different. A couple with little debt and no children, for example, can comfortably afford a bigger mortgage payment than a family that has both kids and debt.
A better way to manage your spending is to use the 50/30/20 plan, which limits your “must haves” of shelter, food, transportation, utilities, child care, insurance, and minimum loan payments to 50% of your after-tax pay.
That leaves 30% for wants, including clothing, entertainment, gifts, and vacations, and 20% for savings and debt payments.
Many families in high-cost areas find it extremely tough to keep must-haves to 50% of their after-tax pay. Some spend that much or more on their housing. But the 50/30/20 plan underscores how important it is to contain your basic overhead if you want to have money left over to pay down debt from the past, save for the future, and enjoy your life in the present.