Lesson 5: Develop Your Budget

MYM-5-03

Spending Patterns

No one can tell you how you should spend your money. You must plan and spend according to your own situation and priorities. However, data about spending patterns of others may be useful as you examine your own spending habits. The pie charts below reflect 2000 data from the U.S. Department of Labor Consumer Expenditure Survey. These show average annual expenditures of surveyed households at three before-tax income levels-the lowest, middle, and highest. Note that these reflect expense categories as a percent of total expenditures-not as a percent of total income.

Notice the spending differences between the income levels. You can see that as income increases, a smaller percentage of total spending goes to housing and food, even though more dollars are spent in those categories. Generally, housing, food, and transportation account for about two-thirds of household spending. This means about one-third is spent on "other" expenses which include: clothing and services, health care, entertainment, alcoholic beverages, reading, education, tobacco, personal care, cash contributions, personal insurance and pensions, and miscellaneous expenditures. Generally, these "other" expenses create the real money management opportunities and challenges.

Think of all the money you spend as your "money pie." If you cut one piece really big, the other pieces must be smaller to make ends meet-or someone doesn’t get their share of the pie! Some people promise slices of tomorrow’s pie before it’s baked. That promise means some of tomorrow’s pieces need to be even smaller-or the money pie needs to be bigger. Neither of those options is a "piece of cake." It’s best to portion your pieces as you go so you don’t find yourself in over your head with costly debt obligations.

Use your spending records from Lesson 2 to see how you are slicing your pie. For example, if you spend $12,000 on housing in a year and your total spending is $36,000, then 33%-one-third of your pie-of all your spending goes toward housing. ($12,000 ÷ $36,000 x 100 = 33%.) Financial software can generate a personal pie chart for you. Compare the size of your spending slices to your financial goals. Are you spending according to your priorities?

Source: Bureau of Labor Statistics, "Consumer Expenditures in 2000" USDL­01­480 (Washington, D.C. U.S. Department of Labor, 12/27/01; http://www.bls.gov/cex/home.htm).