money

The Average American Family’s Recurring Expenses

how-the-average-american-household-family-spends-money-630x481

Cutting down your budget can seem like a daunting task, especially if you have no idea where to start. There are many items that most people assume are necessary, or that cannot be cut down. Everyone has different priorities, so everyone’s budgeting is different- but here are a few easy places to start your budget evaluation.

My biggest overall tip is to begin by cutting down your recurring expenses, and do the math on what your costs are really “costing you” over long periods of time. A purchase of an armchair is a one time purchase, perhaps you replace it every 10-20 years- that still doesn’t add up to very much money. But a recurring cost, even a low one, adds up big time in the long run. Most people simply never do the math.

Cable. I know I’ve said it before, but cable is not only crazy expensive, it’s also totally unnecessary in the age of the Internet. According to an article that I came across in the New York Times, the average household pays $90 a month for cable. That may not seem like a huge amount, but over the course of 20 years it adds up to a whopping $21,600. Over the course of your adult life (let’s say 65 years) it adds up to $70,200. Imagine how that money could grow if you invested it!

Gas, Cars, and Kids- oh my! According to AAA, the average cost of owning an operating a vehicle costs $9,122 a year, based upon 15,000 miles of annual driving. Remember this doesn’t include the cost of the car itself, so really it’s even higher, but let’s ignore that for now. Most families have at least two cars, so let’s immediately double that number to $18,244 a year and 30,000 miles of annual driving. First of all, these numbers reflect that the AVERAGE two car family is driving 625 miles a week. That’s insane. If you’re driving that much, and driving isn’t a part of your job description (like being a delivery person) then you live too far from where you work. Moving would probably be cheaper (even with a higher cost home) than continuing this habit. Check the numbers, and remember that a higher cost home in a more expensive area will likely appreciate to a higher value over time- so you’ll likely end up making more money on it.

By cutting a two car family to a one car family, you would save $273,660 over 30 years! Now let’s make this a little more complicated: the average cost of childcare (full-time daycare) is $19,733 a year per child. So if you have two working parents (and one child) both driving cars- unless both parents make over 29k take home pay, you’d be better off having one person stay home and ditching one car. If you have two kids, both parents would need to make more than 49k take home pay for the cost of vehicle operation to not leave you in the red.

Phone plans. Your typical smart phone plan will run you $100 a month. Let’s say you replace your phone every three years, and let’s assume each one costs about $100. Over thirty years you will have spent $37,000, and this is assuming phone and phone plan costs never increase. This is also the cost for only one phone plan, most families have multiple phones- and while family plans are more affordable for additional lines, it still bumps this cost up even higher over time.

4. Gym memberships. According to U.S. News and World Report the average gym membership is $55 a month. Over 20 years that’s $13,200 for a single gym membership. If you have multiple memberships in your family, multiply that number. Now let’s say that instead of having a gym membership you invested in creating a home gym (free weights, punching bag, yoga mat, jump rope, etc)- even if you spent the ridiculous sum of $5,000 setting up a home gym- your average cost after 20 years would be $20.83 a month. If you spent what I would spend on a home gym by utilizing craigslist (used gym equipment is super easy to snag for cheap because most people buy it and then abandon it)- your cost would be an up front $400 for bare bones equipment, and then an amortized cost of $1.67 a month over 20 years.

Coffee & lunch out at work. I live in New York City, so cost of food here is very expensive. Let’s pretend I live in a more average cost of living area, and let’s also pretend I eat fast food (the cheapest option) every day for lunch. Let’s say every morning I spend $1.50 on coffee, and $5.00 on lunch for a grand total of $6.50 a day. I think you already know where I’m going with this. Over a 30 year work life, assuming a five day week, this adds up to $46,800. With two working people participating in this habit, that climbs to $93,600.

Total Potential Savings

Everyone has different needs and priorities, my main goal in outlining this type of information isn’t to condemn people with two cars or smart phones- it’s just to inform them about the ACTUAL cost of these seemingly innocuous things. If a working two person family were to take all of these pieces of advice, cut down to one car, stop buying coffee and lunch out (this cost would be absorbed by your grocery budget, which I haven’t even touched here- so this number would go to zero since the category would cease to exist), get rid of your gym membership and create a bare bones home gym, get two basic phone plans, and ditch cable for basic Netflix- the total impact, or amount of money saved over 30 years would total $493,583.60, of course over sixty years this is nearly a million dollars– which doesn’t even take into account the amount of interest this money would have earned in this amount of time, so really it would be even more than this.

I think it’s emotionally difficult for people to calculate how much they spend on X over a period of 20 years, because it makes them an objective party to their own lives. Numbers don’t lie, and they can be a rude awakening. It’s kind of like being in the Matrix and choosing to see the world as it really is, it’s harder at first, but it is vitally important- it can mean the difference between early retirement and never retiring. Frugality is a way of getting your life back, it’s not just about a budget, or money, or consumer goods- it’s about your own personal time, it’s your life!

9 thoughts on “The Average American Family’s Recurring Expenses

    1. Thanks! I agree with you, I think groceries are a HUGE expense for many families. I have so many tips for cutting that budget that I actually want to do an entire separate post all about groceries and how to slash your bill. If you’re looking for just the average amount spent though, I believe the last I read it was close to $940 a month for a family of four. Of course this is inflated because the average American family spends 41% of its food budget on meals not prepared at home. And the study that I’m thinking of described things like a frozen pizza purchased at a grocery store as being “prepared at home”, since technically you have to heat it up. My personal grocery budget is between $50-$100 per person per month.

  1. I found you from an MMM forum post. I love your blog!
    DW has no ACL in her knee (we are in our 60s) so we pay $109/mo for a dual YMCA membership, so she can use the pool. I work out about 20 days a month and have lost 70 pounds in 3 years so I think overall this is $109/mo well spent.

    We are putting on about 40,000 miles a year on our two cars. Ridiculous, I know, but I’m 22 months from retirement, and we are putting our cabin up for sale this spring, so no point in moving closer to work at this point (have a nice paid for home).

    We don’t have cable, currently using Amazon Prime instant video for “something to watch” fix.

    I brown bag my lunch to work every day.

    Our cell phones cost $10/mo apiece (AIrVoice no data plan).

    And oh yes – last time I figure it, our savings rate is currently 72 percent of my take home pay (DW is a home maker).

    1. Wow, 72% is killer- sounds like you definitely have it all worked out- it’s inspiring to me to see people who are blowing my savings out of the water (something to aspire to)! Thanks so much for reading, I feel like MMM was a great jumping off point for me and of course I still frequent the forums. Since I can’t discuss this with most people day to day I started this blog, plus it lets me indulge my writing habit.

  2. The area I disagree with is the gym membership. Thats an investment in your health. The cost of a good home GYM can be thousands and you need the space for it plus you will end up with replacement cost over time. You can find gyms that cost less than $55.00 a month and the Y is always good. If you do not use the gym you’re paying for, it’s a wasted expense. I would venture to say that the vast majority of people who have a gym membership do not use it. How about canceling the cable TV and keeping the gym membership!

    1. I think gyms are well worth the money spent if they are used, like you I would guess that most memberships are underused (or else everyone would be walking around looking like the hulk). I wouldn’t be against paying for a gym if I felt I would use it a lot, for now I prefer my free weights at home, body resistance training, and the occasional drop in dance/acrobatics class- it definitely depends on the individual! I also think it’s different if you’re financially fit and you can truly afford the membership, I see all too many people paying for gym memberships as they have credit card debt and car loans piled up.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s