Disposable Income

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Edit:
Wrong Alley, could a MOD please move to AODA please. Edit 2: Cheers DMC.

I've been mulling this one over for a while but have been spurred into action by Aldeth's comments about being able to afford to have a child.

Do folks keep a record of their spending and what it is spent on? If so, in broad figures, how do people spend their money? Do you live beyond your means? If you're uncomfortable with numbers, by all means work in percentages. I'm interested if there is any trends between different countries, ages, etc.

For myself:

Age 30, England, male full time worker.

My annual "spend" is approximately:

Mortgage: 15%
Food: 5%
Bills (inc. insurances): 10%
Car: (bills & petrol): 7%
General spending: 18%
Savings: 45%

I wouldn't say I earn particularly highly, so I did a little digging and it turns out out I'm around the 70 percentile bracket for age and sex.
Don't know if anyone else can get hold of their own statistics, but the UK's can be found via the link below.

http://www.statistics.gov.uk/StatBase/Product.asp?vlnk=14203

[ May 18, 2006, 23:55: Message edited by: Carcaroth ]

 

Me - Age 32, male, full-time
Wife - Age 31, female, full-time.

Percentages of household income earned:

Me - 56%
Wife - 44%

For the purposes of the percentages that follow, I'm using "after tax" dollars. Granted, if I have a kid, and my wife stops working, I'll be taxed less. As it stands now, our breakdown looks like this:

Mortgage: 11%
Food: 9%
Bills: 12%
Cars: 17% (ouch!)
Savings: 10%
General Spending: Everything else. 31%


You save a lot more than my wife and I do. We don't live beyond our means, but other than the 10% savings, we spend all the excess. For bills, I only counted essential services - things like electricity, heat, water, insurance, and phone. I didn't count things like satellite TV, internet access and the like. That comes from the 31% general spending pool.

Here's how the percentages change if my wife stops working:

Mortgage: 20%
Food: 16%
Bills: 22%
Cars: 31%
Savings: 18%

Which is really unfortunate, because that's already 107% of my annual income. We still haven't factored in the possibility that some bills will increase upon having a child, and I still haven't even touched upon clothing - that was included in the general spending in the first example. Therefore, I think it will likely change to savings - 5%, which at least puts me at only 94% of my annual income, but I'm not at all comfortable with that either. However, I have not factored in that with my wife not working and having a child, I will be taxed considerably less, and all those numbers are assuming that the percentage I'm currently paying out in taxes remains the same, so maybe I'll get a couple more percentage points of leeway there as well.

 

Me, male, 22, full-time worker.

Bills (phone, internet, Sky) - 20%
Loan - 15%
Rent - 15%
Insurance - 5%
Everything else - 45%

No saving going off I'm afraid! I'm sure that's something I'll come to regret later on in life. Ah well.

 

Interesting. Although, by doing it with percentages you may not get as clear a picture as other ways of doing it (but I wouldn't want to do it any other way.)

That said, here is what I figured with me:

I'm 29 and engaged but we haven't begun to combine income yet. I live in the US in a state that is probably smack in the middle of the nation as far as cost of living if I had to guess.

30% income tax
21% mortgage/property insurance/property tax
8% car/car insurance
3% bills
10% food (often for 2)
3% gas
2% entertainment
remainder into various savings.

My car will be paid off this year and I'll probably split the savings there between entertainment and savings (2/6 probably.) One caveat is that I drive a lot for work and the IRS allows the employer/client to pay me back for my mileage at 41 cents per mile (gas/wear and tear etc.) and I'm not sure how that get calculated in.

I'm fortunate to have full health insurance, dental insurance etc. and my employer also has a profit sharing plan that contributes 6% of my salary per year into savings and I haven't tacked that 6% onto the above.

Once my car is paid off my only debt will be on my house - knock on wood. I eat out too much.

 

Argh! I forgot about my student loans! Granted, that's not a significant percentage at $200/month, but still given my low margin for deviation from a budget, that might prove difficult.

 

female, 20. living off disability and wellfare, Finland

Rent: 46%
Food: 32%
Bills (phone, internet and so on): 15%
Everything else: 7%.

Lets just say that I tend to end up asking my parents for money a LOT. *grimace*

 

Male, 34, 1 Full time, 2 part time jobs (I work on average 48 hours a week, all 12 hour shifts) and live in USA, with my wife (unemployed) and 3 daughters.

Mortgage/heat/electirc 25%
Food 30%
Phones/cable/internet 15%
Car/gas 15% (we live 20 miles from everything)
Clothes/dining out/movies and games 10%
Disappears 5%
Savings (what are savings)

I definitely live above my means.

 

Hang on - why on earth would any of you make payments on a mortgage AND save?? Surely there is no way you can earn as much after tax on your savings as you are paying in mortgage interest? Why not put all your savings into your mortgage and pay it off more quickly??

My after-tax analysis looks like this:

Two adults, one child living off one and a half incomes

Mortgage 34%
Groceries 20%
Phone Power etc 5%
Transport 6%
Child 11% (nappies, creche, clothes)
Houseware etc 6%
Rates 3%
Other 15%
Savings 0% (all spare cash goes into mortgage)

By the way, when you have a kid you stop going out for dinner or the movies, or stuff like that so you can find plenty of ways to pay for all the new expenses.

 

It is going to differ person-by-person but there might be a number of reasons. First, interest rates in the US are going up but still at historical low. So, the mortgage interest rates for many Americans is low. Speaking personally, I have a fixed rate of right at 6.00%.

With interest rates that low it could be that you're better off saving. You might have an employer that has a matching 401k so, for example, they will match what you save dollar for dollar up to a certain percentage of your income. So, by saving you would automatically essentially double what you save and that's very possibly going to beat the hell out of a 6% interest rate. Maybe you are young and maybe your mortgage isn't that big and at a low rate and you invest with a Roth IRA so that your future earnings will be tax free - that will represent not only whatever growth you get but a large savings on top of that because you won't be taxed. Maybe you are shifting your income bracket with other tax vehicles. Maybe...

There are a lot of reasons one might save rather than putting the money toward a mortgage but the answers are going to be individualized. Certainly many mutual funds get 10% plus a year and are relatively safe over the long term, historically speaking.

 

Male, single aged 30. The following are expressed as % of my takehome pay - which has already had the taxes withheld as well as 6% of my gross salary which is invested in a tax deferred company stock purchase plan.

24% - Mortgage, property taxes and insurance
20% - Car Loan payments
13% - Vacation travel
10% - Utilities and other Household Expenses
9% - Home Improvement
7% - Food
5% - Gifts
5% - Car (excluding loan payments) and Commuter Travel Expenses
5% - Entertainment and other General Spending
2% - Charitable Donations

The mortgage payments are mostly principal as are the car loan payments. Together the principal components of those payments are roughly 36% of my take home. If you factor in the company stock plan (net of the tax that would normally be paid) that yould take it to roughly 41% that I would classify as savings.

 

@HB - Another factor that Laches didn't list is that interest you pay on your mortgage is tax deductible. So, if in the course of a year you pay $5,000 in interest on your motgage, it's as if you earned $5,000 less in income. So any money you spend on interest is tax free. For most people, that alone is a savings of about 27%.

 

You're absolutely right HB. I've heard some financial advisers recommend keeping an interest payment to reduce taxes. As Aldeth says, the interest is tax deductable and you save 27% for the average person, but that means you still are paying 73% that doesn't help you in any way. I tend to ignore those financial analysts.

There are two reasons to put money into savings instead of a mortgage:

1) You should always have some money in savings in case of an emergency -- I like to have enough to cover the mortgage for six months.

2) Your investments are paying greater than the interest on the mortgage. This is possible, some interest rates in America a few years ago were in the 4.75% range. Some long term CD's are at nearly 5% (0.25% isn't enough to get me excited though); however, many stock investments and mutual funds are netting 8% right now.

As for me:

Taxes: 25%
Mortgage (incl insurance and taxes): 25% (I'm also paying extra)
Cars (incl insurance and gas): 6%
Child Costs: 10%
Savings/Investments (incl retirement): 10%
Food: 4%
Utilities, repairs, improvements: 10%
Misc: 10%

 

But if it was already paid into your mortgage, that would be the same result....

Only in the USA. Not here. Here it makes no sense to save outside of mortgage, unless you have an investment that can GUARANTEE a return of 8% AFTER tax.

 

Sorry, I did intend to mention I meant after tax, but it's an easy enough calculation to work back from. I also should have mentioned the better half, but we keep our finances seperate - except for joint bills/food/mortgage which are split 50/50.

HB, you're right, however we have a system here called mortgage offsetting. - Funny I think I may have been through this before on here.

Basically the values of our bank/savings accounts is deducted from the outstanding mortgage when the interest is calculated, in our case day by day. There are a number of advantages:

* Better equivalent rate of interest (especially if you add the additional tax you would pay on the interest earned from savings)

* Able to keep the mortgage split 50/50 and our finances totally seperate (She has a lot more savings than I do) - yet still benefit from offsetting that amount.

* Still have access to all of the money in our accounts for emergency use or large purchases. (No car loans required)

A few other notes from points brought up:

Alas, the tax deductable nature of mortgages was dropped in Britain a number of years ago.

It was too much hassle for me to get a student loan - they would only except birth certificates which would have led to an interesting discussion.

I didn't really deal with car mileage. In a nutshell, what I've spent on the car (including full purchase cost, taxes, insurance & petrol) minus the returned petrol mileage equates to what I'd have spent on a railway travel ticket into london.

Mortgage - Maybe should do a seperate poll on this one. Having thought about it more, it's going to make a major difference of what quantity of mortgage people have compared to income. Generally in the UK the allowance guideline used to be 3.5x single income, 2.5x joint income, though this has changed recently and we could potentially get 4x joint income. We actually only have 1.2x joint currently.

 

In Canada one good thing about paying down a mortgage early is that under most mortgage agreements you are automatically entitled to increase your mortgage back up to the amount that it would have been if you had not made the early payment - which effectively means that there is no need to save for a rainy day instead of paying down the mortgage.

Edit: Grammar correction.

[ May 19, 2006, 20:06: Message edited by: JSBB ]

 

JSBB has summed up the other reason why I don't have any savings. Effectively, the mortgage becomes the 'emergency' fund.

 

Male, 26, full-time work, and still renting, so no mortgage. Yet. Can't WAIT to be saddled with that truckload of debt.

As for my gross after-tax income...

Rent - 25%
Savings - 20-25% (depends on bills)
Bills, petrol - 10-15%
Food - 20% (includes buying lunch at work)

The other 20% gets spent on clothes, stuff for the new house, periodic payments like insurance and car registration, the odd parking fine (grumble) and adding to the liquor rack at home. Or wasted on the whims of a moment. Whatever works.

 

The return on my investments are annually over 100%. That's because my company matches my contribution dollar for dollar. Of course, most years, my investments turn a profit, so I'm making more than 100%. By not investing the money, I'd actually be losing a significant chunk of income.

 

Bah! That's an American socialist government for you


Anyway, I'm a male student at 18, getting $150 a week from the government (interest free loan) to live on while studying.

66% for basic food and accomadation
15% transport
15% other items, such as extra food, internet, cleaning products, etc.
3% savings.

The latter three items can vary by as much as 10% from week to week (about 5% from month to month), but that tends to be about average.