Sample Household Budget For Early Retirement: 85% Savings Rate!

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The Hustle has an article on 30-year-old early retirees and it serves as a quick introduction to the concept of FIRE (Financial Independence Retire Early). For the most part, it profiles young tech workers and engineers with very aggressive savings rates. Here is the budget of a 28-year-old computer programmer in San Francisco who saves 85% of his take-home pay (over 91% of gross pay):

At first glance, isn’t the budget missing a few lines? Health insurance? Paid by employer, I assume. Transportation? No need for a car in the city, I assume. Utilities? I guess renting a room in a 5-bedroom can become quite a deal when splitting things that many ways.

On the other hand, how does $165,000 gross salary end up as only $91,000 take-home pay, even in California? His true saving rate might be even higher than stated.

Let’s forget the details. He makes a big salary, and spends very little. That’s all you really need to know. I don’t question the overall spending numbers because I also lived on less than $20,000 a year as a 20-something single person in a budget apartment shared with a roommate. Even that 165k income is simply about average for a tech worker, per Statista:

(If you are prone to salary envy, don’t poke around the tech worker salary comparison site Levels.fyi.)

I’m happy for Kevin, but is frugality only for the rich? No, I don’t think that is a fair statement. Now that I am older, I can estimate the income of my parents and can appreciate the lengths that they went to in order to manage our family without going into debt. You have to to believe that you can make a difference. I hate the suggestion that there is no point in trying, and that we have to wait for the politicians to save us.

Now, I would agree if you are a household that is earning significantly over the median income, then yes, you have the power to quickly build a pile of money that is big enough to change your life. “Financial freedom within 10 years is for the rich” isn’t quite as catchy. A positive aspect of the FIRE movement is that it is showing people an alternative way. You don’t have to save 85% of your income, but you should realize what you are giving up if you’re just spending it all.

My overall message? Personal finance still matters. You can make a difference. You can raise your income. You can prioritize your spending. I avoid the acronym FIRE acronym because the words are confusing for too many people. The vast majority are not going to “retire” completely from paid work in their 30s or 40s (even if they technically could). However, you can still read about the examples of others in order to find inspiration. Take what works for you, and leave the rest.

The fact is, if you are able to use your saved money in order to lead a life with less stress and more meaning, then you are winning the game as far as I am concerned. Different job/same place, same job/different place, less hours, more flexible hours, better hours, there are countless possibilities to improve your daily life.

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Standardized Personal Finance Advice: Reddit Flowchart Version

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funny flowchart exampleWhen creating financial statements, there are “generally accepted accounting principles” (GAAP) so that all companies follow the same standardized set of rules. After reading 100+ books on personal finance, you could also create what I would call “generally accepted personal finance principles” (GAPFP?), as organized into a flowchart below by u/atlasvoid in the r/personalfinance subreddit. Hat tip to the NYT article So You Saved a Little Money This Past Year. Now What?. (Click to see full version. Might be hard to read on mobile.)

There are also additional versions for Canada, Australia, European Union, Ireland, New Zealand, and the United Kingdom.

I view this as the next step up in detail from personal advice on a 3×5 index card, while still trying to maximize the amount useful information in the given space. You might have some minor quibbles with the ordering or want to add some exceptions, but it still provides a good place to start additional research.

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The Warren Buffett Pilot Story: The Importance of Making a NOT To Do List

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Even before COVID, I hated that feeling at the end of the day that comes after running around but not being able to list anything accomplished. Here’s a helpful idea of what I call the story of Warren Buffett and his pilot. I’ve read a few different versions from various sources, and I honestly don’t even know any of them are true. This one is taken from the book Grit: The Power of Passion and Perseverance by Angela Duckworth:

Warren Buffett—the self-made multibillionaire whose personal wealth, acquired entirely within his own lifetime, is roughly twice the size of Harvard University’s endowment – reportedly gave his pilot a simple three-step process for prioritizing.

The story goes like this: Buffett turns to his faithful pilot and says that he must have dreams greater than flying Buffett around to where he needs to go. The pilot confesses that, yes, he does. And then Buffett takes him through three steps.

First, you write down a list of twenty-five career goals.

Second, you do some soul-searching and circle the five highest-priority goals. Just five.

Third, you take a good hard look at the twenty goals you didn’t circle. These you avoid at all costs. They’re what distract you; they eat away time and energy, taking your eye from the goals that matter more.

(Note that this is from a book about not giving up!)

Creating this list provides a clear yardstick at the end of each day. Did you make any progress towards your top 5 goals? Even a little progress makes the day seem well spent. A common problem is that not even knowing what those top 5 goals are.

However, equally if not more important is the second list. Instead of the ever-expanding To Do List, we need a NOT To Do List. In order to be truly productive, we need to be willing to focus on the most important things and not just ignore the unimportant things, but also ignore the simply not-quite-as important things. You only have a limited amount of time and energy (focus). As someone with completionist and perfectionist tendencies, this is hard!

Doing this properly means giving up on a good and respectable goal (at least temporarily). For example, I chose to give up pursuing rental properties and residential real estate. I also spend minimal time on Facebook/Twitter/Instagram, even though it can be useful for research, networking, and marketing. These might be near the top of someone else’s list, but just not high enough on my personal list. I still don’t feel like I have enough time, but it is nice to let go of feeling guilty about not doing something that other successful people do.

This concept can apply to many different areas of life. Money is finite as well, so we have budgeting. You should have two lists: What can you cut? Yes. But also, what do you love so much that you want to spend more on? Ideally, you now have a positive reason that motivates you to make that change.

Marie Kondo has created an entire brand in applying this to getting rid of your stuff. I don’t claim to grasp her ethos completely, but my take is that you can spend more money (and space and time) on the list of things that “brings you joy” if you get rid of the other list of things that “you don’t really need but still can’t seem to give away”. (Still working on this one too.)

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Money in Excel Review – Good For Budget Tracking, Bad For Investments

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Thanks to generous assistance from a reader, I was able to spend some time poking around the new Money in Excel template for Microsoft 365 Personal or Family subscribers. Does it fulfill its promise of helping you “see all your financial accounts in one place, make a plan, and reach your financial goals”? Here’s my rundown of the features that were included and those that were missed.

Accounts Toolbar. After following the clear installation instructions, you can add your various financial accounts using the toolbar on the right-hand side. (I just connected a few secondary accounts for review purposes.) Plaid is used for account aggregation, where you provide your login and passwords and they use that to grab your account balances and transaction history. This data import feeds the rest of the Excel worksheet, but the panel itself is a useful at-a-glance snapshot of your finances. The feel is very similar to the “Overview” page on the Intuit Mint app.

Customized Categories. In the “Categories” worksheet, you can create and edit the names of custom categories used to organize your transactions. For example, I added “Charitable Giving”. You can’t edit the original, default categories.

Transactions. You then move onto the “Transactions” worksheet, where you can edit the categories assigned to each specific imported transaction. If you have a lot of transactions across different bank and credit card accounts, this provides a handy aggregate view of everything together.

Spending analysis. For the most part, this template is about budgeting and spending. Once have all your transactions imported and categories, it will generate some basic charts and provide some simple insights into your expenses. Here are some examples:

  • Spending breakdown by category
  • Current vs. previous month spending
  • Cumulative spending over the month
  • Net worth calculation (assets minus liabilities)
  • Top merchant: Where did you spend the most money?
  • Bank fees: How much are you paying in fees?
  • Subscriptions: Where are your recurring expenses?

This is all useful for someone trying to understand their spending and developing their own budgeting system, but it’s definitely not groundbreaking. Mint.com has providing this type of service for many years. The main differences are that there are no pesky advertisements inside your own Excel worksheet, while the Mint smartphone app may be more convenient.

Missing: Holdings, asset allocation, performance tracking. I am able to connect to an investment account, but it only shows me the total dollar balance. That’s it, as far as I can tell. There is no data on individual holdings, no asset allocation breakdown, no performance tracking.

Missing: Investment transaction list. I am not able to see historical buy/sell transactions on a simple view-only basis, like on the credit card side. It would be nice just to see the last 10 transactions, for example.

There are other portfolio spreadsheets where you can manually input ticker symbols and share counts and they’ll pull in market quotes, but that doesn’t adjust for events like dividends, stock splits, and dividend reinvestment. I was hoping to create a single portfolio spreadsheet using the imported data cells from my brokerage accounts, one that would provide a live view of all my investment accounts, but also allow me to manipulate those data in order to determine if/when to rebalance my portfolio.

For now, I will have to stick with my existing system using both Personal Capital and a custom Google Spreadsheet to track my investment holdings. The Personal Capital financial tracking app (free, my review) automatically logs into my accounts, adds up my balances, tracks my performance, and calculates my asset allocation. Then, I use my manual Google Spreadsheet (free, instructions) to help me calculate how much I need in each asset class to rebalance back towards my target asset allocation.

Bottom line. The “Money in Excel” template for Microsoft 365 Family and Personal subscribers is a free, basic template that imports your spending transactions across different bank and credit card accounts. It can help you with monthly budgeting, but not much beyond that. I hope that in the future they expand it to investment accounts and allow you to have more control over your data. It would also be nice if they made it free for everyone with access to Excel, not just Microsoft 365 Family and Personal subscribers.

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Money in Excel: Automated Budgeting and Personal Finance Template (Free for Microsoft 365 Subscribers)

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It’s not the classic Microsoft Money application (which I’m still asked about periodically), but Microsoft 365 Personal or Family subscribers can now download “Money in Excel” (free) which promises to help you manage your personal finances using Excel tools and the automated import of your transactions. Thanks to reader Motti for the tip. From their official blog:

Money in Excel is a dynamic, smart template and add-in for Excel that allows you to securely connect your bank, credit card, investment, and loan accounts to Excel and automatically import your transaction and account information into an Excel spreadsheet.

The service uses Plaid, a third-party company (recently acquired by Visa) to synchronize with all of your various financial accounts. You will have to provide the username and passwords for those accounts. (If you haven’t already, use a password manager so that you can maintain unique, strong passwords for each of your bank or brokerage accounts.)

You can do things like track your monthly spending by category, add up your net worth instantly, or get notified of selected transactions like big purchases or bank fees. Here is a screenshot:

Unfortunately, there doesn’t appear to be a way to access this premium template if you do not have a Microsoft 365 Personal or Family subscription ($70 to $100 annually). I am not a 365 subscriber myself, so I am unable to test this out further. I’d be interested to see if you are completely free to customize the Excel using all the imported data. That might work like the combination of Personal Capital and Google Sheets (also free) that I currently use to track my portfolio. If you try it, please let me know what you think in the comments or via Twitter @mymoneyblog.

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The Enough Curve: Consider the Ongoing Costs Of Your Purchases

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Our youngest child successfully completed her first semi-autonomous Halloween, but also threw up after eating her candy. Instead of just a case of diminishing returns (stops tasting as good), it was an important life lesson about negative returns! This reminded me of the “Enough Curve” from the early retirement manifesto Your Money or Your Life, which maps the relationship between fulfillment and the money spent.

In the beginning, you are getting a lot of “bang for your buck”. You have the basics: enough to eat, safe shelter, clothing and general safety. After that, you are moving into comforts that help you think beyond day-to-day survival. This is a good thing. However, eventually you start getting diminishing returns where an extra dollar spent isn’t getting you much more in personal fulfillment.

If you keep going, as the TV ads say you “deserve”, you can get to a point where you experience negative returns. You spend more, but get less. Minimalists call this when “Your stuff owns you” vs. You owning your stuff. Here’s a few examples:

Too much housing. The more house you buy, the higher the insurance costs, lawn maintenance costs, home repair costs, heating/cooling/electricity/gas/utilities costs, cleaning costs, security costs, and so on. If you have too much space, you may also find yourself filling the extra space with junk you don’t even need. Extra furniture, extra toys, who knows.

Too much car. The more car you buy, the higher the insurance costs, repair costs, maintenance costs, detailing costs, and so on. You worry more about small scratches and dings. The strange thing is that the most expensive cars are not any more reliable or long-lasting than a Toyota Corolla or Prius.

Housing, cars, utilities, gas, and insurance costs are linked together and add up to nearly half of all household spending as shown in this visualization from Engaging Data :

Housing and car purchases tend to be infrequent, so the next time it comes up, try to take a good hard look at the total cost. One of the central tenets of Your Money or Your Life is that you are exchanging your finite life energy for money. Once you internalize that, you realize that many things are not worth exchanging years of your life working.

I’m not here to draw a line about what is okay and what isn’t, as it will be different for every person and every expense. I struggle with this as well. This is just a reminder that it’s easy to minimize this extra financial and mental baggage when the dopamine rush comes at the time of purchase. Finding enough is hard, but taking a moment to consider the ongoing costs helps me make better decisions.

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Mental Model For Expenses: Past, Present, and Future (With Animated GIFs!)

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The theory behind financial independence is simple. Spend less, save more, invest it into income-producing assets. The reality is complex, full of daily decisions about balancing income and spending. The Morningstar article (yes, M* is writing about early retirement too now) A Simple Plan for Financial Independence presents this simplified graphic of your “personal economy”.

Income can come from labor, capital, or land. Expenses can be put toward your past (debt), present, or future (investing in capital or land).

I’ve been thinking about this “past, present, and future” mental model for expenses, it meshes will with the simple rules that I want to teach my children: Avoid debt whenever possible, and seek out income-producing assets.

Present. There is countless advice to save money on current expenses. Call it prioritizing, call it frugality, call it whatever. These are important, but I’d rather focus on the added ideas of past and future.

Past. While debt is an important part of the economy, I hate that going into debt for non-essentials is so readily accepted in today’s society. Using home equity lines of credit for a kitchen remodels. Credit cards for vacations. The entire microloans trend where you buy a $100 pair of jeans for $10 a month times 12 months ($120) is a dangerous mind game. Debt is having compound interest work against you, and thus making someone else rich. Debt should not be normalized. Debt is an emergency!

via GIPHY

Future. If you look at people who have really achieved financial freedom, where they truly spend the day doing whatever they want and without money worries, they have all have collected a big pile of income-producing assets. It could be rental property, commercial real estate, a laundromat/car wash/business, dividend-paying stocks, municipal bonds, a pension, Social Security or even just bank CDs if you have enough. In most cases, they collected them with purpose. They didn’t just put the minimum into their 401(k) and call it a day. They would shovel whatever extra money they had into their favorite money-making machine. When I buy more stocks, I see a future income stream:

via GIPHY

When you buy one of these income-producing assets, it should get you excited!

via GIPHY

I’m still not sure exactly how to create this distaste for debt and this desire for money factories, but I’m working on it. If you have these two in place, that should help with everything else – earning more income with labor, spending less on the present.

Oh, and here’s a funny-but-sad representation of the paycheck-to-paycheck lifestyle.

via GIPHY

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The Power of Being Open-Minded About Cutting Your Household Expenses

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Here’s the short version of this depressing WSJ article Families Go Deep in Debt to Stay in the Middle Class (paywall?). Household incomes have gone nowhere. Meanwhile, housing prices are up, healthcare costs are up, and college tuition has skyrocketed. Ouch. However, you can’t control that things are worse for you than if you lived in another time period. You can only control your response, and that is why I try to focus on actionable ideas instead of dwelling on “the way it should be”.

“Make more money” advice is hard to pin down. Of course I want everyone to have a high income. I like the idea of spending money on improving your marketable skills, “investing in your yourself”. However, everyone has a different combination of what they are good at, what they enjoy, and what others will pay them to do:

caddell620

Meanwhile, I find that spending advice applies much more broadly. My most general spending advice is that you need to expand what you think is an option. Most people hang out with people around their own income level, look around, and then spend the same money on the same things. The trick is that net worth shoots up when you earn a good income, but spend like someone who earns about 1/2 or 2/3rds of what you make. It may not feel natural, but you have to trick yourself into picking from a wider menu of options. Here are some quick examples.

  • Housing. You could buy a 4,000 sf house with a 3-car garage. A family of four could live in a 1,000 sf apartment (mine did). You could share an apartment with roommates. You could rent a room inside a large house. You could buy a duplex and live in one side, rent the other. You could buy a 4-plex and live in one unit and rent out the rest.
  • Transportation. You could lease a $60,000 SUV and pay about $8,000 year in lease payments – after 3 years and $24,000, you’d have to start all over again. Alternatively, you could buy an entire car for $8,000 and own it for another 10 years. You could downsize from a 2-car to a 1-car household. Many urban residents don’t own a car at all.
  • Food. A single person could eat out at every meal, never touch their stove, and easily spend $1,000 or more per month on food and alcohol. A family of four can cook all meals at home and spend under $600 a month. These days, food has become the ultimate convenience item, but it’ll cost you.

I can be hard to stay open-minded about your expenses. In fact, many quickly become defensive. You’ll often hear a straw-man argument like “I don’t want to sit around sorting coupons, eating lentils every meal, or living in poverty”. I wonder if they have seriously considered all of the options above.

You don’t have to pick the cheapest option in every category. You probably know someone in an expensive house but drives a 20-year-old Toyota. I know someone who makes over $250,000 a year but rents a cheap, single room in a large house (while eating out every night). I know someone who owns a beautiful beachfront house, but AirBNBs the majority of it.

I’ve been looking for over 15 years, and there is no single path to financial independence or early retirement. Even if you don’t want to embrace frugality as the cure for everything, the cold reality is that it’s hard to live at life true to yourself unless you first reach at least $10,000 in savings to ride out the bumps.

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Couples and Money: The Proportional Sharing Method

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If there’s one topic that’s probably more sensitive than people talking about their money, it’s how they split their money with their partners. I am swayed by the method proposed by this post – Why Couples Should Split Expenses By How Much They Make by Tracy Moore.

Let’s say Partner #1 makes $7,000 per month and Partner #2 makes $3,000 per month. That means Partner #1 makes 70% of the total income and Partner #2 makes 30% of the total income. The proportional sharing method would have Partner #1 pay for 70% of the total expenses and Partner #2 makes 30% of the total expenses.

Result: If the household expenses are $5,000 per month, Partner #1 pay $3,500 per month (70%) and Partner #2 makes $1,500 per month (30%). Why not any of the alternatives?

You can act all day long like you don’t mind supporting someone, but you do. You can act all day long like you don’t mind being completely subsidized by someone else, but you do. You can act all day long like you don’t mind going halvesies even though she makes $50k more than you do, but you do. And so on. You can pretend to throw everything together in a blind pot and pay everything out of it, but if the one who makes less spends more, and believe me, they always do, you’ll care.

I should disclose that my wife and I don’t do this, and we’ve always just put everything into a single pot and spent from there. However, I don’t think what works for us will work for everyone. First, we married relatively young with minimal individual net worth. (I did work really hard to pay off my student debt so I could at least start us out on a positive number.) Second, we both agreed to the communal pot idea from the beginning. I’ve always figured that if somehow we divorced, we’d just split whatever assets we had down the middle anyway even if I earned more. Third, although our incomes both varied, we never went through a prolonged period where one person was unemployed and resentment could possibly build up. We have both worked consistently the entire time, even after transitioning to working less than full-time and watch the kids the rest of the time.

In the end, I do know that both sides have to agree that the setup is fair. Our choice to both work and both take care of the kids was definitely a conscious decision to pursue our idea of “fairness”, although I know that setup isn’t possible for everyone. That’s why, for a couple that is starting out with a history of being on their own financially, it seems like this idea of proportional sharing is a good starting point for an open discussion.

Do you think there is a better “default” method for merging finances if you’re a couple with different incomes?

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Spending Diary: The Most Commonly Ignored Personal Finance Advice?

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After finishing The Index Card: Why Personal Finance Doesn’t Have to Be Complicated by Helaine Olen and Harold Pollack, I found it to be a solid all-around personal finance book that joins others like If You Can by William Bernstein and The Richest Man in Babylon by George Clason in the category of “recommended books about money that are short and easily digestible”. All good ideas for gifts for recent graduates.

They don’t shy away from what I think is the most commonly-ignored financial advice: TRACK YOUR SPENDING FOR THREE MONTHS. Even if you don’t track your budget closely after that, this initial spending diary can be eye-opening. Yes, it takes a bit of effort and can be rather uncomfortable psychologically. Here are some book highlights:

Track ALL of your spending…

For three months, keep track of everything you spend money on, no matter how small. That $1.50 bag of Cape Cod Waffle Cut Sea Salt potato chips? It counts, just as much as your four-figure mortgage or health insurance payment.

… for THREE MONTHS.

If you monitor only one month of spending, you won’t gain a full picture of where your money goes. Routine but sporadic expenses such as car repairs, doctor bills, and the emergency trip to the cat’s vet are more likely to occur over a several-month period.

Now, you can pick your “must keep or I’ll wither away” purchases and the things what won’t hurt as much to cut.

You need to determine what day-to-day spending is necessary and unavoidable, what is a luxury but helps you get through the day, and, finally, what is excess. Only then can you avoid falling prey to spending traps.

This allows you to make trade-offs: I’ll take advantage of the office coffee machine, but I’ll use the money I saved to travel to Italy next summer to attend my best friend’s wedding. I’ll drop my landline phone to pay for my gym membership or boost my child’s college savings.

Final tips. You can put everything on a single credit card or debit card, and then go through your purchases line-by-line. If you use cash, take a picture of your receipts and/or purchases on your phone. If you feel comfortable with it, link your account to Mint.com (or similar) and they will help you categorize things automatically. You’ll need to spend a few weeks teaching it (check in every few days), but it gets better over time.

If you can manage to track everything for three months to get an honest (if uncomfortable and scary!) view of your finances, you may find a big gap between what you think you spend vs. what you really spend. Where does your money go every month?

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The Personal Finance Index Card: Book Version Differences

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After rediscovering the young adult versions of fitting personal finance advice on an index card, I decided to go back and read the book The Index Card: Why Personal Finance Doesn’t Have to Be Complicated by Helaine Olen and Harold Pollack. (I was able to find it via library eBook.)

I noticed that the book version of the “index card” was slightly different. The original card had 9 items, but two of them were merged away into each other (401k/IRAs) and (Pay Attention to Fees/Buy Index Funds). I bolded the new additions below. (You can see all chapters on the Amazon page.)

  1. Strive to Save 10 to 20 Percent of Your Income
  2. Pay Your Credit Card Balance in Full Every Month
  3. Max Out Your 401(k) and Other Tax-Advantaged Savings Accounts
  4. Never Buy or Sell Individual Stocks
  5. Buy Inexpensive, Well-Diversified Indexed Mutual Funds and ETFs
  6. Make Your Financial Advisor Commit To a Fiduciary Standard
  7. Buy a Home When You Are Financially Ready
  8. Insurance – Make Sure You’re Protected
  9. Do What You Can To Support the Social Safety Net
  10. Remember The Index Card

Here again is the original:

Here are my notes on the newly-addressed topics of home-buying and insurance.

Home-buying. This will always be a hard topic because it mixes in emotion, personal history, peer pressure, and all that fuzzy stuff. If you want to own a home, you need to make sure the purchase won’t blow up your overall financial picture. Nothing really surprising, but still good advice.

  • Get your debt under control first.
  • Save up as close to a 20% down payment as you can.
  • Stick with a 15 or 30 year fixed-rate mortgage.
  • Prioritize what you really want and need in a home. Stay within your budget.
  • Location, location, location.

Insurance. There are low-probability events that can destroy decades of hard work, and that’s why humans invented insurance to spread the risk. Here are their cut-to-the-chase bullet points:

  • Emergency fund – Maintain one!
  • Life insurance – If you’re young(ish), just buy 30-year level term insurance.
  • Property insurance – Raise your deductible as high as you can handle.
  • Health insurance – Always sure you stay in-network.
  • Liability insurance – Coverage for at least twice your net worth.

I’m glad that this book still retained its “quick-and-dirty” nature. No single rule will cover every scenario, but it’s good to have a clear and concise collection of the big points along with just enough explanation that you understand the basic reasoning behind it.

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MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


US Household Spending Breakdown: Top 20% vs. Bottom 20%

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Engaging Data has another neat visualization tool up, How do Americans Spend Money? US Household Spending Breakdown by Income Group, using household spending data from the US Bureau of Labor Statistics. Below is a screenshot of this interesting visualization technique (the full version is more interactive). The biggest contrast is seen when comparing the spending breakdown of the top 20% of income earners with the bottom 20%. (Click to enlarge.)

There are a lot of complex interactions going on inside this data visualization. Here are just a few things that I noticed:

  • The average household in the bottom 20% of income only has 1.6 people and 0.5 income earners. The average household in the top 20% of income only has 3.1 people and 2.1 income earners. Is there any causation to this correlation? Does having a high income make you more likely to have a bigger household? Or do bigger households tend to make more money since there are more earners?
  • The bottom 20% by income earns about $25,500 annually while saving absolutely nothing (and either spending down savings and/or going deeper into debt). The top 20% earns $188,000 and saves $50,000 of that annually. For the top 20%, that’s a savings rate of over 25%. Instead of a generic goal like saving 10% of your income, perhaps it is more appropriate to judge yourself by income group. Should a household earning around $200,000 a year expect to save $50,000 a year or be considered an “under-saver”? Or do the ultra-high income earners skew this savings number?
  • The bottom 20% by income has the biggest chunk of their income from “Borrowing and Savings”. The top 20% has the vast majority of their income from salary and/or self-employment income. What is “Borrowing and Savings”? The tool says it could be students living off loans while in school, folks spending down cash savings during unemployment, or retirees drawing down savings. How much of this is people going into debt?
  • If you only looked at the “average” of all households, you wouldn’t see this big difference. You would see a total income of $73,500 a year (mostly from a salary) and a relatively solid savings rate of about 13%.

Bottom line. You see a lot of statistics that use average or median numbers. However, I think that hides the fact that most people aren’t average. The top 20% and bottom 20% of households by income are leading very different lives, at least according to their spending patterns.

You can also view household spending breakdowns by age.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.