Get The Big Picture

Learn How Your Personal Spending Compares

What percentage of your income did you spend last year on housing? Food? Healthcare? The majority of us don’t have a clue. But, to reach our financial goals, we need see where we spend—get an overall picture of our spending profile.

Track, track, track.
To figure out our total expense allocations, we must track our expenditures. The professionals at our consumer credit counseling service (CCCS) agency offer detailed instructions on how to track your personal spending. To do so, save all of your family members’ receipts and record cash transactions for one month. Then multiply each total by 12 and place each expenditure into one of the following categories:

• Clothing
• Donations
• Education
• Entertainment
• Food
• Healthcare
• Housing
• Insurance/Pension
• Miscellaneous
• Personal Care
• Reading
• Smoking
• Transportation

Add up your total annual expenditures in each category and divide the totals by your total annual expenditures. For instance, if your family spent $450 on food in the trial month, multiply that by 12 for an annual average of $5,400. If your annual household income totals $62,000, divide $5,400 by $62,000. You’ll see that you spent approximate 9% of your annual budget on food.

Make it fun.
Recording your daily expenses for a month can be trying. If you have teens, consider getting them involved. They can sort the receipts and notes and add up the weekly totals. Several different financial planning software tools are on the market.—Many free online tools can also make the process more enjoyable.

See where you spend.
Are you spending more or less than the average American in each area? Check your spending percentages against the averages below on the U.S. Department’s Bureau of Labor Statistics’ 2007 Consumer Expenditure Survey (releases in April 2009). In our example, if your family spent 9% of its annual income on food, you can see that you’re much more thrifty in this area than the average family which spends 12.7% on groceries and eating out.

What is the ideal budget?
Like everything else, there is no one answer to this question. Your cash flow should, however, be an accurate reflection of your financial goals. If you wish to have a comfortable retirement and save for your children’s college educations, are you investing sufficient funds for each on a monthly basis? If not, once you make this realization, you may shift your spending patterns to make saving for the future a priority.

The Financial Specialists at ClearPoint recommend that overall, consumers we live on no more than 70 percent of their net income (including housing). At least 10 percent should be dedicated to savings, and no more than 20 percent spent on unsecured debt such as credit cards and car loans.

Saving: Key To Your Spending Plan
If you are living paycheck to paycheck, and can’t imagine setting aside any of your income, try saving electronically with a bank, a mutual fund or your retirement plan. This way money is automatically deducted from your paycheck before you see it in your account. This idea gave rise to the saying, “Pay yourself first.” In essence, you need to take care of your own future. Without automatic savings, no matter how much you make, it’s too easy to spend it all. Savings will tide you over in case of a layoff, help you prepare for your retirement, pay for education costs and prevent you from relying on your credit cards.

Get help.
If your debt exceeds 20 percent of your spending, see a legitimate consumer credit counselor, such as those at ClearPoint, who will help you to create a customized household budget to get you out of debt. Call 877.422.9045 to make a no-cost appointment.

Figuring out how and where you spend will help you map out a strategy, adjust your cash flow, and work toward achieving your financial goals.