Using the Consumer Index Survey to Audit your Budget

One of the things I find most frustrating about personal finance is the social embargo on talking about personal finance in real numbers. How is a curious person supposed to know if they are spending too much if no one will talk about it?

Thankfully, the Bureau of Labor Statistics is as nosy curious as I am, and they have compiled data on how people spend their money into a document called the Consumer Expenditure Survey. This incredibly detailed report can be sorted based on income, education, family size, and other variables. The government uses this document for many purposes. Most importantly, it is the basis for the “market basket of goods,” the list of goods used to compute the annual inflation rate. However, it is also possible to use the data to compare your household spending to a hypothetical “average” household based on certain characteristics.

Below I have compared our major expense categories to others in our income bracket. With Mr. Steward’s recent substantial raise, we now make roughly $75,000 annually pre-tax. That puts us in the seventh decile on the most recent (July 2014-June 2015) consumer expenditure survey.

The report lists, among other things, the “share,” or percentage of overall spending, for different expense categories. Note that it is the percentage of spending, not the share of income. So, to calculate the amount that the CES says someone else in your shoes would spend, you need to find the share percentage of your expenses, not your income.

The Results

Category
CES Share Percentage
CES Expectation
Our Budget
Housing
32.6
14626.97
9186
Better
Food
12.6
5630.44
6000
Worse
Cell
2.1
942.22
1680
Worse
Clothes
3
1346.04
240
Better
Transportation
18.5
8300.58
2700
Better
Entertainment
4.7
2108.80
3132
Worse
Life Insurance
.5
223.43
672
Worse

Analysis

Our current projected spending for the year, still a whopping $44,868, is below the average of $57,464 for our income bracket. This is a good sign, although not shockingly far from average.

Housing: This includes our mortgage and our sinking fund for home repairs/maintenance. We seem to be doing fairly good in this category, although we are going to have some major expenses, particularly heating and cooling unit replacements, come up in the next few years. (Other people having such irregular occurrences likely inflated the CES number, too.) We have the ability to trim back by getting the PMI off of our house.

Food: When I initially ran these numbers, I was happier with our spending, because my budget said that we spent $100 less per month. Then I realized that I had not accounted for Mr. Steward’s work cafeteria use for breakfast and lunch, the cost of which is taken out pre-tax from his check and “hidden” in our budget. While our spending is not far from average in this category, food costs are one of the easiest variables to change. I’d like to cut this back substantially.

Cell Phone: I was shocked to see that our cell phone is nearly double the average. I suspect that some older individuals in our income category do not have a cell phone and fewer have a data plan, so this is one area where an age-sort of the data might have been useful. Our spending includes the cost of a new cell phone for Mr. Steward. I already intended to switch to a cheaper provider soon, and this seals the deal.

Clothes: Neither of us are huge clothes people. We want to look professional for work, but do a lot of secondhand and clearance shopping to do so. We both have sticker shock on clothing, which prevents us from spending more. Still, I am shocked to see we spend 1/6 of the average.

Transportation: This represents our sinking fund for maintenance costs and taxes, plus gas. Thankfully, we both own our cars, which are 5-10 year old economy models. Mr. Steward purchased his from his parents, paying it off just before we were married. Mine was a college graduation gift from my grandparents. Obviously, purchasing a car (as at least some of the data set has surely done) would inflate this number a great deal, so I’m not sure this is a useful comparison.

Entertainment: While we may not care about clothing, we love to be entertained! This represents an aggregate of Mr. Steward’s spending money budget, since it almost entirely goes towards movies, dvds, books, and games. I also included a portion of mine, then our recurring monthly costs for our ongoing subscriptions to Netflix, Amazon Prime, and Xbox Live. This clearly needs some trimming, although this may actually be the most difficult for me to change.

Life Insurance: This is another area where I was shocked to see such a difference between our spending and the average. However, many people don’t carry life insurance who should, and many older individuals no longer need it, which may bring the share down. We have already applied for cheaper insurance, but I don’t know that the number will go down substantially (although our coverage amount and term will go up).

The Takeaways

What this analysis tells me is that, while we may be doing okay on the big ticket items like housing and transport, we’re losing a lot of money to luxuries such as eating out, our cell phones, and entertainment. While comparisons with the Consumer Expenditure Survey should be done with a clear understanding of how the data is derived, I still think it’s useful as a blunt tool to help highlight areas where budgetary changes can happen first. After all, if we’re not even meeting the average for our income bracket, hopefully it won’t be that hard to bring those expenses down!

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