As you all know, I’ve been reading The Millionaire Mind. (I’m starting on Millionaire Women Next Door, next!)
I was nearing the end, and then I came across this awesome chart breaking down average household expenditures, which I think is interesting enough to re-post here:
Note: Table 8-9 recreated from The Millionaire Mind written by Dr. Thomas Stanley on Page 358
“Selected Average Annual Expenditures and Characteristics of Households with incomes of over $90,000+ and less than $90,000”
The following monthly figures and pie charts are all of my own analyses and doing based on the above chart.
So now for my pie charts and analyses.
In every category, people who make over $90,000 spend well over what someone who makes less than $90,000 spends by about 270%, which actually sounds about right.
If you make $30,000 a year, and someone makes 3 times as much, they’re more likely to spend 300% more than you.
I’m not convinced that just because you earn more you should spend more.
Surely, you should spend more on food for better quality meals, or live in a nicer apartment in a better, safer part of the city, but for everything else, is it really necessary?
These are all personal finance decisions that have to be made, and it varies with each person and what they consider their priorities.
Annual expenditures are nice, but I operate on a monthly basis, so broken down by month, this is what the households spend in each category:
The top 2 biggest changes between the two sets of households:
- Housing
- Personal Insurance, Pensions
In the data (I didn’t put it in the charts above), it broke it down by homeowner and by renter, and those who earned more, owned homes.
Mortgages, paying for maintenance, upgrades, renovations — all of this stuff adds up, and it makes that $2000 number look a lot more reasonable.
The $787 looks reasonable for renting (I’m in this category!)
If we take a look at their pretty pie charts, they look about the same to the naked eye (at least to me), but Personal Insurance and Pensions looks fatter in the households earning $90,000 or more annually.
If we look at the nitty gritty percentages of spending in an average household:
You will notice that under $90,000 they’re spending 8% over what they can afford as an income with that 8% is supplemented by debt, obviously.
Where I see the biggest chunk is in housing, and I didn’t list out EVERY line item in Dr. Thomas Stanley’s chart, but those who make under $90,000 rent more than they own houses*.
*Don’t say “Duh!!” to me, because there are many who still rent, even earning $90,000 or more per year. 🙂 I don’t believe that owning a home is a requirement of wealth building.
And those who earn over $90,000 seem to have a disposable income for savings I presume, of around 36%.
If we take a look at these expenses against our general pie chart of where your money should go, compared against the households:
Note: Housing includes stuff like household furnishings, equipment, utilities and household operations.
It’s not quite perfectly broken out because under Utilities, there is also Fuel and Public Services in that little category. I don’t have the numbers to split it out properly.
So what did I re-affirm or learn from this?
For me, seeing as both households have just about the same amount of people (2.5 versus 3.1), it doesn’t necessarily mean your expenses can be attributed to a new baby or extra people in your household, which is the reason why you’re spending more.
Above a certain threshold, you are living a comfortable life
I’d say even lower than $90,000 a year, you’d be living a more comfortable life.
I think the number was $50,000 – $75,000 for a comfortable life where happiness is maxed out, and any extra money above and beyond that had negligible effects on being happy.
But for those households below the $50,000 threshold, money means everything, and some can’t even make their regular bills, hence the 8% overage into debt.
Saving is just as important as earning money
Your expenses matter.
If you don’t save, you cannot say you have any wealth whatsoever.
You can make lots of money, but if you spend it all and go into debt, you are not better off than if you made less and spent that it all too. Just that you’d probably have more debt and nicer toys to show for it.
People enjoy upgrading or increasing their lifestyle
No judgement about whether it’s wrong or right, it’s just an observation.
I am totally on board with upgrading in areas that matter to you, seeing as there is more disposable income available. Why not?
That said, for me personally, I prefer to err on the side of lifestyle deflation.
I spent a lot more when I earned less, and now that I earn much more, I spend less. Or at least I’m trying to.
The difference is that I don’t want to have a decrease in my quality of lifestyle just because I refuse to spend to the money. I don’t want to be cheap. Just conscious about where my money is going.
There’s an old Japanese proverb that says something along the lines of :
A peasant, eats one bowl of rice and sleeps on half a mat.
A king, eats one bowl of rice a day and sleeps on half a mat.
(I’m paraphrasing, clearly.)
When I first read it, it really spoke to me. It put things into perspective. We don’t really need to spend anything or have anything beyond food and shelter.
Just a girl trying to find a balance between being a Shopaholic and a Saver.
I cleared $60,000 in 18 months earning $65,000 gross/year.
Now I am self-employed, and you can read more about 
Really informative post, thanks for sharing, my housing expense takes up more than 50% of my income, so I have penny pinching down to a science now.
I thought this was really interesting. What jumped out to me initially was the difference in public transportation- off the top of my head, I would expect that people in higher income brackets would spend LESS on public transportation. I guess that’s partially skewed by thinking of myself and hubby (in the less than $90,000 category) using public transportation for work/school, whereas our parents (both sets in the over $90,000 category) don’t use any.
I suppose people who go out frequently spend more on taxis and stuff, so perhaps I’m not taking into account a whole group of people who go out every weekend and take taxis, or live in cities with more expensive public transportation and pay full cost instead of student rates on the bus 🙂
But maybe those who spend more on transportation, it’s those who live in the city? Wait. That makes no sense at all. 😛
Taxis must be it. It’s pretty expensive…
It makes sense to me that people making more spend more on public transit–this is the result of the fact that a lot of high-earning industries and jobs tend to be in concentrated city centers where public transit is by far the most convenient, even if one could afford a car or taxi. For example, a lot of financial and legal jobs are concentrated in midtown Manhattan, and a lot of lobbying/governmental type jobs are in downtown DC. In general, this extends to other city centers such as Chicago, San Francisco, Boston as well.
I guess that makes a lot of sense, mia, I was thinking more small town where I grew up, I forget about how different things are in a lot of big cities!
This is super fascinating to me. Our household income is the the 90,000+ bracket and I’d say our expenses are somewhere between the less than 90,000 and more than 90,000 bracket, perhaps even closer to the less than figures you posted. There is most definitely a threshold of comfortable living, but we also prefer to live simply and save. It just doesn’t feel good to me to spend every penny that comes in – I’d rather save it for a rainy day or emergency.
I wish I had your nature to WANT to save it 🙂 I always want to SPEND which is why I fight so hard internally and sometimes… lose.
Wow, really informative post. Yikes, my husband and I spend way too much money on eating out/groceries…
FAB, I like the Stats Canada quintile spread breakdown of household expenses much more than this. I think the “under $90k” contains a lot of very divergent households that doesn’t make the data as valid. You’ll have seniors living alone, students balanced out with people with 5 kids and minimum wage jobs living on food stamps or supplemental welfare all lumped in together. However, the over $90k would likely be a much more homogenous group of DINKS, double income with kids. When you see it broken down by quintile, the same lifestyle inflation can be noted but the (by far) hugest category that gets inflated is taxes paid. I played around with this quite a bit for one post that I never wrote.
Speaking of kids… I think there’s some categories missing there – like childcare, which is pretty much the #1 biggest expense of any 2.x household (if the kids are younger).
What’s even more interesting is how few people post comments on blog posts with lots of numbers in them (I like them). It appears numbers are hard. Or scary. Or something. 🙂
*crickets chirping*
Perhaps they put Childcare under another category like Household.
At any rate, you are so right that over $90k would probably be DINKs with kids. I’d love to read that post of yours if you get around to writing it 🙂