Happy New Year! January is a great time to review our budgets and make financial changes.
Within the first few moments of birth, we are measured and weighed. This begins a life full of ways to be measured and graded. Job interviews, grades, tryouts, and credit scores are some ways we are measured and valued. Most of these measurements are from external sources.
At a recent conference, I learned that only 10% of Americans make a budget and stick to it.
People have difficulty sticking to a budget because they don’t know what a healthy budget looks like. Some people think they have made a budget if they list their expenses. Not so fast. Once you have completed the list of expenditures, could you give it a haircut? The concept of a budget should be intertwined with the goals. Knowing how you waste your money only makes you an informed, broke person. Your budget should be a goal you need to try and meet.
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Every household worldwide has different needs and expenses, but may we offer a measuring stick to compare your budget?
The Bureau of Labor Statistics compiled the following data. Compare yourself to these numbers.
Housing is, on average, 33% of the budget. That should come as no surprise as lenders are unwilling to lend much more than this. Food consumes 12.8% of the average budget. Most people spend too much on food. There are so many guilty pleasures that can be avoided, consider that a PB&J sandwich costs around 25 cents. Transportation takes 17% of the American budget. Americans love their cars and the control and freedom they provide, but it comes at a cost.
Medical costs comprise 5.9% of the average budget. This sounds low, but the Bureau of Labor Statistics did their homework. Medical costs can vary significantly depending on age. People can’t always control their health costs. Accidents happen, and diseases can strike randomly, but we can control our eating and exercise habits.
Clothing comes in at 3.6%, entertainment at 5.6%, and education is 2.1%.
So, how do you measure up? Did you find any surprises?
Remember that these are the averages and not necessarily worthy goals. It would be great if these costs could be reduced from the national spending average. A worthy goal would be to be as far below the averages as possible. Why? So you can save the surplus. The Bureau of Labor Statistics also stated that most money set aside for the future is in the form of a forced social security tax.
People who want to retire successfully should save at least 10% of their income. In our experience, people who retire early didn’t arrive at that point by accident. They methodically planned and were disciplined enough to stick to a budget.
Pay yourself first by making your savings automated.
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John Mills is a registered investment advisers and certified financial planner. Reach him at 707-254-0155 or MillsWealth.com. Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Strategic Wealth Advisors Group (SWAG), a registered investment adviser.
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