Compare Your Budget With Other US Consumers and the World

The NYT Economix blog and a new BLS report had some nice graphics comparing how the average consumer spends their money in the US, Canada, United Kingdom, and Japan. The data is from 2009.



Compared with the other countries, Americans spent more of their budgets on housing and health care, and less on recreation and entertainment. The Japanese spent the largest share on food, with a higher percentage spent on food than even housing. This is somewhat surprising, given the stereotype of small living spaces in Japan and large living spaces in the US. But remember, these are percentages and not absolute numbers.

You might think that out-of-pocket healthcare costs are lower in the other countries due to government-subsidized universal health care, but the Economix article points out that the total healthcare expenditures per capita in the US are also much higher (around double) those of other countries. I can’t believe they spend more on clothing than healthcare! Of course, my wardrobe turnover rate has been described as “glacial”.

Our spending breakdown still has a much, much bigger slice going towards housing, and a much smaller slice going towards transportation and food. We are lucky to have nice employer-sponsored health insurance.

Poll: Do You Use AutoPay To Pay Bills Automatically?

One common recommendation for new parents is to save time wherever you can. So tonight, for the very first time, I have signed up for the AutoPay feature for my most heavily-used American Express card to have it pay the credit card bill in full each month by withdrawing money from my bank account automatically. I don’t have to do anything.

Usually, I don’t like giving any vendors the right to suck money (“pull”) from my checking account. It feel invasive, somehow. I prefer to use my bank’s online BillPay feature to send (“push”) money after I get my paper bill and verify all the charges are legit. I also like to see my electric bill to monitor our power usage, and the water bill to make sure there aren’t any leaks, etc.

However, with a newborn I can potentially imagine forgetting to pay a bill, so maybe automation is a good idea. I have never had any problem disputing a wrong charge with AmEx, and I have an checking to savings overdraft buffer at Ally Bank so I won’t be dinged with overdraft fees. If it works out, after looking around it appears that almost every bill that I have can be set to AutoPay. What you do think?

Do you use the AutoPay feature to pay any bills?

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Quicken Mac 2007 OS X Lion Compatible Version Released

I know that there was some noise when the Mac OS X 10.7 Lion was released and Quicken 2007 for Mac was reported by Intuit to be incompatible with any computer running the new operation system. Next, they release Quicken Essentials for Mac which was a neutered version of Quicken which quickly angered long-time customers even more. So they promised they would rewrite it to work on OS X Lion. Well, it has finally arrived. Cost is $15. Thanks to reader Paul for the tip.

Data migration. According to their FAQ, users can import data from Quicken 2005, 2006 or 2007 for Mac, as well as from Quicken Essentials for Mac. File conversion is not possible for Quicken 2004 for Mac and prior versions.

So now you can pay more to use their 5-year old software, hurray! I still think it’s pretty clear that Intuit isn’t going to spend too much more effort improving Quicken, instead they are spending more money on which is online and free to users (ad-supported). Has anyone tried it out yet?

How To Reduce Housing Expenses – Brainstorming / Request Ideas

One of my overall goals for 2012 is to make this site more of a permanent resource for information. As part of this, I want to create an “Expense Reduction Guide” that will provide an organized way to find ways to maximize personal value and make your spending efficient.

I would like this to be similar to my Favorite Posts on Investing page and Our First-Time Homebuying Experience guides (which also need to be cleaned up…).

Expense #1 – Housing

I am going to go through all the major categories, but let’s start with the biggest expense – housing. I’m keeping this part to ways to reduce either rent or mortgage PITI (principal, interest, taxes, and insurance). Things like reducing heating bills or furniture costs will be kept separate for later.

Move to a different city/state/location
Ideas for relocation: Roundup of Top 10 Lists
What cities are people actually moving to?
– international living (working or retired)

– Rent comparison sites
– rent vs buy calculators
– buying a house for psychological benefit vs. financial

Move to a different house
live in a smaller house
– neighborhood, location
– shared living, multigenerational living
– multiple units

Buying a house
– Getting a mortgage loan
– Credit scores, income, points, etc

Refinancing mortgages
– Rate comparison
– Mortgage types (fixed, ARM, length)
– Maximizing home appraisal

Homeowners Insurance
– Shopping for homeowner’s insurance
– Deductibles, options
– Renter’s insurance

Property Taxes
– Appealing assessment value
– Special rules in certain states

I’m just starting out and I know I’ll need to write several new posts to fill in the gaps. However, I want to make this an open brainstorming post so that you the reader can make sure I don’t forget anything. Got something to add? Please leave a comment with a tip, a link, or an idea to explore further.

November Spending Survey Results and Follow-Up

Last month, I challenged readers to predict their spending for the month of November, track it, and then come back and see how well their predictions went. Over 60 people completed my online Google spreadsheet survey, and an unknown amount of people did it manually via paper. It’s all anonymous so hopefully that makes it easy to be honest.

Well, I finally went back and recategorized my own expenses in Mint, and here are the results that I can share. The first two columns are the average and median of all the online responses. This is just for kicks, it really doesn’t show much valuable data. The third and fourth columns are my own household predictions and final spending tallies.

  Average Median MMB Predict MMB Actual
Housing $1,436 $1,237 $3,100 $3,100
Food $523 $500 $600 $656
Transport $305 $200 $200 $191
Debt $370 $50 $0 $0
Utilities $240 $200 $300 $317
Personal $395 $220 $100 $311
Total $3,279 $3,000 $6,000 $6,402

The real goal of this post was to motivate some of you readers to track your spending and see if you found any surprises. Budgeting every month is hard, but just tracking your spending for a single month can point out problem areas to target. If you missed it last month, you can just download the PDF version and do it this month or any time. Some thoughts on our own spending:

  • Predicting housing costs is probably not very useful, as for most people this doesn’t change much from month-to-month.
  • Food continues to be our weak spot, both groceries and dining out, although for the most part we spend a lot on food and we choose to do so. We’re trying to buy more fresh vegetables and such, and need to work on planning ahead of time so we don’t buy stuff at “retail” prices at the supermarket for our recipes.
  • Gas is another area that probably stays relatively constant from month-to-month, it’s hard to separate the noise from actual gas-saving efforts like driving less or with less vigor. We actually usually spend less than this in most months. We have no car payments.
  • I broke down Personal as “health insurance, medical expenses, clothing, personal care, entertainment, etc.” Our health insurance premiums are covered by work, but we’ve had several visits recently where the copays have been adding up as well as other things. We also bought more clothes than usual this month.
  • Regarding the total number, another factor here is that we bought most of our holiday gifts in November. I read somewhere that the average household spends about $1,000 during the holidays in general, with $700 going towards gifts. We’re pretty close to that, and our rough budget was $1,000 towards gifts for the family and friends.

In the end, I think when it comes to overall spending, it’s best to concentrate on the recurring big stuff – housing, food, transportation. This takes preplanning and structural changes such as getting a roommate, moving closer to work and getting rid of a car, or downsizing the living space. However, in month-to-month budgets, it’s often those forgotten and occasional expenses and sneak up and bite us. Things like holiday gifts, doctor’s bills, car repairs, birthdays and weddings for other people, and so on.

How’d you do?

Reader Experiment: How Well Do You Know Your Own Spending?

Even though I’m really into personal finance, I hardly ever do a monthly budget. However, I do think a common problem out there is that folks spend more than they think they do. Often this is just in one “problem area” such as groceries, dining out, clothes shopping, or online purchases. Therefore, I propose an experiment where everyone tracks their budgets for just one month. (If you already track your spending religiously, skip this post.) It’s October 31st, so how about November?

I’m doing this myself for November, and I hope you’ll join me. The experiment is quite simple. Here is the overall picture, followed by details.

  1. Before the start of the month, write down what you think you will spend that month.
  2. During the month, track your spending.
  3. At the end of the month, compare your prediction and actual spending results. What was different? Why?

Start of the Month

Without checking any other sources, just use your gut and write down how much you think you’ll spend for the month. Break it down into categories like housing, food, debt, transportation, utilities, and so on. If you’d like to participate in a group project, I’ve created this simple Google Docs form that you can fill out your predictions, and I can report on overall numbers later one. Unfortunately, the form won’t e-mail you a copy of your inputs, but you can record your prediction by printing out this PDF version or use this text file and save it on your computer.

During the Month

If you do the majority of your spending via online billpay, debit cards, and credit cards, then the easiest way to track your spending is with a online money management site like (owned by Intuit) or one of the many flavors of Yodlee out there (Fidelity FullView, Bank of America MyPortfolio, etc). You just enter your login information, and it pulls all your transactions for you. Categorization gets better the more you use it.

Alternatively, you can keep track using pencil and paper, enter expenses into a smartphone app, or use desktop software like Intuit Quicken or iBank for Mac. You could also just wait until the end of the month and tally up your statements, but then this task might become a bit daunting. It’s probably best to keep up with it at least weekly. I plan on using Mint because it’s already learned most of my categories, and it also has a mobile app that lets you enter cash transactions.

End of the Month

The moment of truth arrives. In what areas did you overspend? I’m hoping to get at least 100 readers to fill out this predicted spending survey and then follow-up with an actual spending survey to see how it went. I’ve already entered my numbers and don’t worry, it’s all anonymous. How well do you really know your own spending?

No Time To Budget? Track Your Expenses In 15 Minutes

Ah, budgeting. New year, same old goals? While I’m not one of those people that think everyone needs a detailed budget, I do think everyone should track their spending at least once a year or so. This way, you have a real snapshot of where your money is going (which may just surprise you). Writing down every little transaction on a piece of paper or even tapping it into your smartphone can get really tedious. So here’s what I do to manage it in 15-minutes a year.

Put All Your Spending On A Credit/Debit Card

The main idea is to put all your spending in an electronic format so that a bank keeps track of all your purchases for you instead of little slips of paper. If you don’t like credit cards, use a debit card. But credit cards offer superior consumer protection features, so I prefer them. You don’t need to put it all on one card, but it does make things simpler.

Now, do this for a month, and avoid paying cash whenever possible. Don’t change your spending behavior, and there is no need to record anything.

Sign Up For

Next, you should sign up for the online aggregator tool I also like versions of Yodlee, but it looks like their development has slowed significantly. To start, all you need is your e-mail address and the login details for your credit card website.

I know that many people are wary about giving out their login credentials, but in my opinion your credit card login is not as sensitive as say, a bank login. Credit card companies make so much money that they are happy to refund any fraudulent charges immediately. It is in their interest to make you feel very safe about using credit cards.

Anyhow, Mint has improved their back-end system so that most credit card information syncs up fairly quickly. Click on the “Transactions” tab on the top of the page, and you should see all your recent purchases. You can wait until after a month of spending on the card, because Mint should upload all your historical transactions within the last few months.

Categorize Transactions

Without any input from you, Mint will have tried their best guess for the Category of each of your purchases. They’ve gotten better, but there will likely still be a few that are incorrectly categorized or simply left labeled as “Uncategorized”. In addition, some of your purchases from a megastore like Walmart/Target/Costco might be “groceries” or it might be “electronics”.

Use the the pull-down menus and spend a little time “teaching” Mint the proper categories that you prefer. If you want all future CVS purchases to be under “Groceries” instead of “Pharmacy”, you can click on Details and make a rule that will do that for you automatically. This saves lots of time in the future.

Finally, if you have certain transactions that you wish to have Mint ignore in your budget calculations, use the “Exclude from Mint” category.

Pretty Pie Charts!

After all your transactions look nice, click on the “Trends” tab on top, and check out some pretty pie charts created from your spending history. The charts are very interactive, click around and drill down into your data. You might need to go back and re-label some expenses to get everything to sort nicely.

Now you should have a clearer idea of where your money goes. If you have bills that you had to pay by bank account, you’ll want to account for those separately if you don’t want to sync it up with Mint. If you make some small cash purchases, just track your ATM withdrawals. I just made a rule that labeled all ATM withdrawals “Dining Out”, since that’s usually where it goes.

Poll: Top-Down or Bottom-Up Budgeting?

I was in a discussion about budgeting and eventually decided that there are two primary types of budgeting by households. I called them “bottom-up” and “top-down”. However, there are some differing definitions of these terms floating around, mostly in connection with businesses or governments. So first, some quick definitions:

Bottom-Up Budgeting is focusing on your spending and trying to manage each one. You keep track of your spending, either item-by-item with lists or by category using software like Quicken or You look at each expense somewhat holistically and decide consciously if you need to cut back or if you are happy with the amount being spent. Whatever is left, is put into savings.

Top-Down Budgeting is the simpler, big-picture type of budgeting. You decide how much you want to save from your income, either by percent or total amount. Examples: I want to save 10% of my take-home pay. I want to save $1,000 a month. After you figure how much you want to save, you just try to set that aside, and spend the rest however you like.

Alternatively, you might say “I want to spend $3,000 a month total.” I still consider this top-down budgeting if you are not looking at each expense separately each month. The focus is still basically saving some fixed amount for the future.

Share! Vote in my poll…

What method of budgeting do you prefer?

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Slow Down Your Hedonic Treadmill

You may be familiar with Predictably Irrational, a best-selling book by a professor in behavorial economics that challenges the idea that humans behave rationally. In fact, says author Dan Ariely, humans are predictably irrational in many ways that may surprise you. I recently learned about his new book, The Upside of Irrationality, in this Yahoo article by Laura Rowley, which according to the description “exposes the surprising negative and positive effects irrationality can have on our lives.”

One of the more intriguing topics Ariely explores is the idea of hedonic adaption, also known as the hedonic treadmill. From Wikipedia:

Humans rapidly adapt to their current situation, becoming habituated to the good or the bad. We are more sensitive to our relative status: both that which we recently have and that which we perceive others to enjoy.

When things are awesome, we eventually get used to it (celebrities, lottery winners). When things are really awful, we get used to that as well (severely injured). This is why it’s hard for people to achieve a constantly higher level of happiness. We get a nicer car/house/toy, we get used it, and then soon we just want an even nicer car/house/toy, never getting anywhere as if we are walking on a treadmill.

So how does this relate to money and personal finance?

Stay Happy By Slowing Down Pleasure

Considering that we only experience transient pleasure with many improvements in our lives, we should take care and indulge very gradually. Savor each slight improvement! A good quote from Ariely:

Imagine a new college graduate, finally earning an income and eagerly anticipating a beautifully furnished apartment after years of dorm living. “The lesson here is to slow down pleasure,” Ariely writes. “A new couch may please you for a couple of months, but don’t buy your new television until the thrill of the couch has worn off.”

When Slashing Expenses, Make Big Cuts

On the other hand, we should take full advantage of our adaptability by cutting back as much as possible all at once when we have to. Don’t slow down the pain and drag it out with constant reminders.

“It will be really painful for a few months but you’ll get used to it,” says Ariely. “It might be good to cut down too much — and then increase back.” By contrast, making small lifestyle adjustments every month requires readapting over and over and prolongs the pain. (By the same token, it may be better to reduce a major expense in one fell swoop, such as moving to a smaller apartment, than to face the daily downer of skipping your favorite gourmet coffee, Ariely suggests.)

I think the apartment idea is very good application of this theory, and look forward to reading the rest of this book. Are You What You Buy?

While flipping through old magazines at the Doc’s office, I read about a site called in a Time article. It’s yet another social media site, except this time you link up your credit card data so it can automatically share all your purchases with others (amount, store, and in limited cases actual items). You can add more details, and users can comment and discuss each others purchases.

The writer initially thought that such exposure would help control her spending (I call this the “shame” theory). Perhaps you really do eat out too much. However, many users of the site have found that instead people start actually buying items just so they could show up on Blippy. Want to look outdoorsy? Better buy some camping gear at Sports Authority.

Which made me wonder… Are you what you buy? My gut reaction is that the idea just sounds horrible. Does this really paint anywhere near a complete picture of yourself? Maybe it’s actually more objectively accurate than I think. I then thought maybe you are what you don’t buy… but that probably won’t work either. I wonder what people would think of my purchases. I can’t see myself signing up for this.

Still… Twitter is huge, and I’ve only just started trying to use @mymoneyblog regularly. Blippy has been called the “Twitter of Personal Finance”, and one of the co-founders of Twitter is a major investor. What do you think?

Would you be intersted in signing up at

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Calculating Our Personal Savings Rate

Do you know what your household’s savings rate is? Most of us probably have a rough guess, but I wanted to use some more reliable data. Here’s the definition again for my purposes:

Current Spending

There are plenty of ways of tracking your expenditures, as anyone who has tried to follow a monthly budget has found out:

  • Handwritten expense lists
  • Excel or other spreadsheets
  • Online budgeting tools
  • PDA/Smartphone input tools
  • Automated account aggregation tools

I’ve tried various methods to track my expenses manually, but never had the commitment to follow through for more than a month or two at a time. I track all of my numerous financial accounts using account aggregation site Yodlee, but since August 2009 I have linked my primary checking accounts and the few often-used credit cards at the similar-but-nicer

It took a lot of manually categorizing individual transactions, but now it takes less than 10 minutes every couple of weeks at Mint to correct the few new stores I visit (mostly small restaurants). This means I almost have an entire year of spending data from August 2009 to May 2010:

As you can see, there was a general trend, but a few months had major spikes. December had holiday gifts, some travel, and end-of-year charitable giving. In April, we bought a new high-efficiency washer/dryer and had some home electrical-repair bills. In May, we bought our plane tickets and hotel accommodations for a trip to Peru. The lesson here is that there are always going to be these spikes, and it’s best to be prepared and account for them. Our actual average spending ended up being higher than I would have guessed. The monthly fluctuations ranged from 20% below average in October to 30% above average in December.

Current Income

We are a dual-income couple with no kids currently. Our “big-picture budget” is to be able to live off the lesser of our two incomes. We each make relatively good money, so we have been lucky to be able to do this for a few years now. On a practical basis, we do this by having one primary joint checking account in which we only direct deposit that one paycheck. All bills are paid out of this account. This way it psychologically easier to “live within the means” of that single paycheck as the balance goes up and down.

Current Savings Rate

I don’t reveal actual income numbers, so it’s easier to share the savings rate. I am using after-tax income because I feel it is more applicable. According to the above data, on average we spend 84% of the single after-tax paycheck each year, giving us a saving rate of 16%. This is helpful to know we have a buffer if one of us were to lose our jobs. (We also max out the pre-tax 401k plan employee contributions at our jobs, so the single paycheck is already reduce a bit.) When both of our incomes are included, our saving rate is over 60%.

You may consider this low or high, but in terms of early retirement for most people you’ll need to put away a lot more than the 10 to 15% recommended by some experts. I like the idea of both spending a year’s worth of income and saving a year’s worth of income, although this will not be realistic for everyone.

National Personal Savings Rate Definitions: NIPA vs. FoFA

In looking up some stats for personal savings rates, I found that the Bureau of Economic Analysis (BEA) provides a chart of two separate calculations that track the personal savings rates of US taxpayers:

  1. The National Income and Product Accounts (NIPAs) method, and
  2. The Flow of Funds Accounts (FFAs) method

You may find either of these quoted in mainstream media articles whenever there is a big shift or one goes negative temporarily. Both methods have been criticized for the accuracy, in which I won’t go into detail here. The main differences between the NIPA and FoFA methods are outlined in this chart from the AARP paper [pdf] “The Declining Personal Saving Rate: Is There Cause for Alarm?”:

A few things to note:

  • When I read “disposable income”, I normally think of what’s left over after paying for food and shelter. In this case, disposable income is just personal income minus “personal contributions to social insurance and personal taxes”.
  • Both NIPA and FoFA exclude capital gains on investments, which some say contributes to a “wealth effect” where people will spend more because they feel richer due to growth of investments. (not as much recently…)
  • From the chart, FoFA includes the purchase of new assets and investments as personal savings. NIPA includes employee 401(k) and pension contributions as wage income.
  • FoFA treats the purchase of consumer durables (cars, major appliances) as a form of savings, while NIPA treats it as consumption.
  • NIPA says that paying your mortgage (owner-occupied housing) is savings as imputed rent, while FoFA counts your added home equity as an asset, but your mortgage payment as a liability.

Confused yet? Well, I hope at least you came away with something. The AARP paper goes on to explore various theories for the long-term decline of the personal savings rate. If you’re looking for more, here’s another paper that explores the differences.