According to the Bureau of Labor Statistics, the average expenditure per consumer unit for 2017 was $60,060, a 4.8% increase from 2016 levels. 2017 is the latest data they have for 2019.
Out of the $60,060 in average consumer expenditure a year, a whopping $9,576 is spent on transportation, or 16%.
Is there any wonder why the average American is struggling with coming up with a $1,000 emergency expense or accumulating enough to comfortably retire?
Take a look at the BLS data below and we’ll go through most of the line items in more detail.
The Average Transportation Expense Is Way Too High
Below are the latest details from the BLS Consumer Finance Report broken down by category. Let’s go through some categories in a little more detail.
Average Income: $73,573
A pretty healthy amount considering the median home price in America is roughly $230,000. A 3:1 home price-to-income ratio means life is pretty affordable. So long as you can afford rent or your mortgage, your other spending besides food is quite discretionary.
Average Food Spending: $7,729
$644 a month on food seems reasonable. What’s unreasonable is the growing obesity epidemic in our country that is putting a great strain on our health care system.
According to the Center for Disease Control, about 610,000 people die of heart disease in the United States every year–that’s 1 in every 4 deaths. Heart disease is the leading cause of death for both men and women. And obesity is the leading cause of heart disease.
Average Housing Expenditure: $19,884
Seeing a 5.3% YoY jump in average housing expenditure is concerning since inflation averages roughly +2% a year. If you look at the line items under Housing Expenditure, you’ll see Owned Dwellings +10.4% YoY and Rented Dwellings +3.3% YoY.
You’re short real estate as a renter because you will lose out to ever increasing inflation as a price taker. You’re only long real estate if you own more than one property or are willing to selling your primary residence and downgrade to a cheaper property.
If you’re unwilling to own your primary residence because you don’t want to be locked down or don’t have the money, consider real estate crowdfunding or public REITs for real estate exposure.
In some cities around the country, the median home price is often 10X or greater the median or average income. For example, the San Francisco median income is $97,000 versus $1,500,000 for the median home price = 15X.
It’s recommended to avoid low cap rate, high valuation cities and buy real estate in low valuation, high cap rate cities. Real estate crowdfunding companies like Fundrise have helped savvy investors arbitrage this valuation and yield differential.
I personally sold my San Francisco rental property for 30X annual gross rent and reinvested $550,000 of the proceeds in real estate crowdfunding in 2017. Earning more money passively is a double win, although there are never any guarantees when it comes to investing.
Americans have a love affair infatuation with cars. According to Kelley Blue Book, the average car price has surged to $36,000, which likely accounts for why Americans are spending so much on transportation.
I recommend everyone spend no more than 1/10th their gross income on the value of a car. If you want a $60,000 BMW X5, then you need to earn at least $600,000 a year in gross income to be able to comfortably afford such a luxurious vehicle.
If you earn the average household income of $73,573, then consider buying a reliable second hand Honda Civic for $7,357 instead. Your financial future will thank you.
As of 2019, auto loan delinquencies have reached 19-year highs, despite a strong economy. A record 7 million Americans are 90 days or more behind on their auto loan payments, according to the Federal Reserve Bank of New York.
If you are a savvy investor, you will take this type of consumer data into consideration when making asset allocation decisions. There’s a growing chance a recession is coming within the next several years after a 10 year bull run.
Spending $411 a month on health care is largely due to employer subsidies. The average health care spend makes the average transportation spend of $798 seem that much more ridiculous.
At an annual 6%+ growth rate, we should expect the average health care expenditure to double in just 11-12 years. That’s a concerning growth rate. Best to spend less on transportation and more on saving for higher healthcare costs.
Spending $267 a month on entertainment for the average household is quite reasonable. With cheap video streaming, low cost internet, affordable mobile phones, and loads of free entertainment online, we are spoiled with multiple low cost options. No longer do we have to pay $15 a ticket to go watch a movie.
Personal Insurance and Pensions: $6,353
The average household is spending 10.6% of their annual spending on Pension and Social Security. The government considers Pension and Social Security as savings.
As you can see from the chart below, the current personal savings rate according to the U.S. Bureau of Economic Analysis is 6%, which has been trending down as consumers feel more confident.
Save Money On Transportation Fees
With the invention of ridesharing along with the further development of our public transportation system, there’s no reason to be spending $9,576 a year or $798 a month on transportation.
At the very lease, everyone should check online to see if they can lower their auto insurance premiums. I check with Allstate because they are the most trusted carrier today. Drivers who switch to Allstate can also save over $700. It’s also easy to check for a free quote with them.
Cars are fun, I get it. I’ve had over 10 cars since I graduated from high school in 1995. But a car is really a personal finance killer and I stopped trading cars once I turned 28 years old.
Think about all the money you could be investing to save for your finance future? Investing $500 a month grows to a healthy $263,000 in 201 years at a 7% annual rate of return. And you’re still left with $298 a month on average to spend on transportation based on the average spend.
For those who care about their financial future, I recommend diligently tracking your finances with a free financial tool like Personal Capital. The free tool allows you to track your cash flow, analyze your investments for proper risk exposure, and plan for retirement.
I’ve used Personal Capital weekly since 2012 and have seen my net worth grow by 5X since. There is no rewind button in life. Take charge of your finances because nobody cares more about your money than you.
About the Author: Sam worked in investment banking at Goldman Sachs and Credit Suisse for 13 years. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income. He spends time playing tennis, taking care of his family, and writing online to help others achieve financial freedom too.