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Simple Money 2 – The Problem

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I wanted to run this money thing by the numbers to see how un-simple it really is.  (check out our simple money post last Monday).  Because numbers aren’t always easy to find in a lot of areas they are not all from last year.  I tried to get as recent as possible so they should all be from 2010-2012 (but things haven’t changed that much)

Incoming

  • Average Household Income = $49, 500 ish (source)
  • 401k or retirement contribution at 6.8% = $3366 (source)
  • Per month income = $3844.50

From what I have figured out there isn’t much tax for this amount of income for a family of 4 (with deductions and tax credits) …. so we will try this experiment without taxes.

Outgoing

  • Average price of a house = $250,000 ish (source)
  • Current 30 year mortgage at 4% on this loan (including taxes and insurance guesses) = $1453.95 (source)
  • Average monthly food costs  = $950 (used the moderate eating plan for a family of 4 and split between the older and younger kids plan. source)
  • Average car cost = $28,400 (source)
  • Average monthly car loan cost at 4% for 48 months = $641.25 (source) x 2 cars = 1282.50
  • Gas = $368.09 (source)
  • Cost of car insurance and life insurance = $200 a month (taking a guess)
  • Average American healthcare costs 5,500 x 4 people / 12 months = $1833 per month (source) … this seems crazy high, but  health care costs come in waves and could easily cost this in a year.  Not clear but we can say this includes the cost of health insurance.
  • Entertainment, Clothes, Misc expenses = $400 (taking a guess)
  • Utilities including electric, gas, TV, phone, internet=  $246.60 (source)
  • What about daycare or school costs, piano, gymnastics, lawn care = $400 ish (give or take several hundred, different families are way different on needs)

Incoming = $3844.50

Outgoing = $7334.14 (almost double what is coming in)

This doesn’t include savings or charitable contributions…both of which are very important.

Here is the problem.  Take out the car payments and the health costs, or cut down the home loan and daycare, or don’t eat.  It is hard to make this work.  So, if you are having trouble making it all work…this is probably why.  If you think you are ‘average’ and want to spend only ‘average’ you can’t.  If you are making way more than average…you might still not be able to spend much more than ‘average’.  If you make below average than you are really in a pickle… but because we are talking about average it means that lots of households make less than this.

So what do you need to do about it?  In the words of Dave Ramseyyou need to live like no one else so later you can live like no one else‘.  Basically, looking at these numbers you need to live like no one else so you can live period.   If you are making average you need to be spending way less than average, if you are making way more than average you might still need to spend only ‘average’.   If you are making less than average you need to really live tight.  (check out an article about living on less than 40,000 I did last fall).

At the end of the month, if money isn’t working out as you think it should, this is probably it.  So breathe a sigh of relief. It isn’t you 🙂  No one can make this work.

Moral of the story is that we need to spend less than we think we should for our ‘economic status’.   There is no ‘but I make  decent money so I should deserve this’.  Nope, unless you are really rolling in the money there is a good chance you can afford much less than you think you should.   Pick up, move on, make the necessary changes so you can live on less than you bring in, and get on with enjoying life without money stress.

Thanks for reading!  If you enjoyed this article or this site please help me spread the word by sharing on your social media sites.  Bye for now 🙂

9 Comments

  1. Have you seen this calculator?

    Basic family budget calculator, from the Economic Policy Institute? http://www.epi.org/resources/budget/

    It lets you do similar calculations for your area of the country — with sobering results.

    • Thanks for sharing. It reminds me how glad I am to live in the cheaper area of the country 🙂

  2. I think a lot of these averages are unfair to put in this calculation. I think it would be more appropriate to look at the median home price for someone in the median income bracket you posted. I think if you used those numbers for homes and cars, you’d find a much more realistic number. To just post these numbers is very deceiving. I know a lot of people who live on that income (which to me sounds high), and that sort of living you posted does not seem average in the least bit. Just my two cents…

    • Megyn, I agree. I wasn’t trying to create a family budget, because that totally wouldn’t work 🙂 I was just pulling averages across the whole country. What it shows (on average) that people spend more than they make. Someone making an average wage in our country should be spending/purchasing for an average home price…but that is no where near true. The cars aren’t really fair because who goes out and buys a new house and two new cars…. or they shouldn’t. I just wanted to pull some numbers for people who are frustrated because they think they should be able to afford all the ‘standard/average’ things and it doesn’t work.

      Lots of the numbers are high to us because we live in cheaper areas of the country too 🙂 (thank goodness)

  3. Christa Christa

    No, I think you hit the nail on the head. Maybe some of the numbers seem like a lot, but that is the point. We always have more needs for things then money. We also have about a million different lifestyles in the USA, and a supply for all of them. The problem to be solved is making your lifestyle fit into your income.

    • Yep 🙂

  4. Lorilee, I completely agree with you! Dave Ramsey is a all around fantastic. One of my favorite phrases by him other than the one you wrote is ‘doing better than I deserve.’ Just great! Today I wrote a blog post about his radio show before reading yours, how ironic! Saving money is fun, and it’s almost a challenge to save more and more every month. Being obsessive about saving is perfectly normal in my book. Have a wonderful day!

    • Sarah, thanks for your comment. Good to hear from you! I like that quote too. Your blog looks great by the way 🙂

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