Tuesday, January 5, 2010

Where Does Your Money Go?

A very interesting image from visualeconomics.com shows the average annual expenditures of U.S. Consumer Units (note that a "consumer unit" actually counts as 2.5 people; "household" might have been a more descriptive term):

For a full size image, click through to visualeconomics.com.

I'm more interested in how the numbers break down into investments and necessary spending vs. discretionary spending. Take a look at this:

UPDATE: A little hard to read, but in declining size, the categories are (Mixed, Necessary, Discretionary, Investment and Risk Management, and Misc.)

The "mixed" spending category shows things like house and vehicle expenses, where people have a great deal of flexibility in their spending, but they still need the items contained within. This category contains almost as much spending as the other categories combined.

The other surprising area is the "Investments and Risk Management" category. It's tiny - only about 6% of income!

So here's the interesting part: Imagine if the average "consumer unit" were to shift 1/3 of their spending away from the house and car - it seems reasonable that an average unit could live on ~$16,000/year of housing and car payments).

Then, they place this money into the investments category. That's about $8,000/year, which grows!

Best part: the rest of the family's life is unaffected.

Consider that when making a house/car choice. Tough decisions, but they seem worthwhile.

Note for those who care: this is how I categorized.

  • Mixed: Housing-Shelter, Housing - Utilities Fuels; Public Services (these vary based on size of home); Transportation - Vehicle Purchase; Transportation - Other expenses and transport; Transportation - Gas, Motor Oil; Housing - Household furnishings, equipment; Personal Care
  • Necessary: Pensions, Social Security; Food - at home; Health Care; Housing - Household Operations; Housing - Housekeeping Supplies
  • Discretionary: Entertainment; Food - Away from home; Apparel and Services; Alcoholic Beverages
  • Investments and Risk Management: Cash Contributions (savings and retirement); Education; Life, other personal insurance; Reading
  • Miscellaneous: Miscellaneous
  • Note: Tobacco was removed