4 Regarding personal finance charts

4 Regarding personal finance charts

This is how Americans spend their money1 (according to a Bureau of Labor Statistics study):

Like most aggregates when you’re dealing with hundreds of millions of people, everyone’s spending is likely to be somewhat different from these averages.

But directionally, these numbers seem correct to me from an overall point of view. The two most important items for the majority of households are housing and transportation.

These two categories represent half of the budget of the average American household.

If you want to move forward financially, you need to scale housing and transportation. If you spend too much money on your living situation or your vehicle or both, you will struggle to build wealth.

I don’t like shaming people, but I’ve been concerned for a number of years about how much people spend on trucks and SUVs.

It’s getting out of hand.

Take a look at this chart that shows the percentage of residents by state paying $1,000 per month or more for their autopay:

A quarter of Wyoming residents spend more than $1,000/month! More than a fifth of Texas residents do the same. It’s almost 1 in 5 in California.

This is personal finance madness.

There are a number of economic reasons why these payments have increased in recent years. Supply chain shortages have driven up the cost of automobiles and it still hasn’t returned to normal.

In the last 3 years alone, the price of new cars has increased by more than 20%. Used car prices have increased by more than 45%:

Anyone who has had the misfortune of having to buy a vehicle has been in a difficult situation for the past few years.

But that’s not the whole explanation. Look at the increase in luxury vehicle purchases over the past 10 years:

It’s almost 20%.

I am an A to B guy when it comes to my vehicle. Some people like to drive a nice car, truck or SUV.

And that’s fine – assuming you have the rest of your finances in order and saving some money.

If you’re not saving enough, your ridiculously high monthly SUV or truck payment is likely the culprit holding your wealth back.

And if that’s not your choice of vehicle, it could be housing that’s holding you back.

The New York Times argued this week that the housing market is worse than you think.

I tend to agree.

They show that the number of single-family homes for sale remains close to its lowest level in 40 years:

But this picture is even worse than it looks. The Times points out that the American population has increased by more than 40% since 1982.

There were about 230 million people in the United States in 1982. Now there are over 330 million. The ratio per person is so much worse now.

The same goes for the number of new houses being built. I’ve adjusted US housing starts (when construction begins on a new home) for the population going back to 1959:

We were building so many more houses relative to the size of the population in the 60s, 70s and 80s. Things were going pretty well in the 90s as well.

Then the real estate bubble burst in the 2000s and we no longer approached those levels.

In 1959, there were about 176 million people in the United States, and we were building about 1.6 million homes a year.

We now have 333 million people and the most recent readings show that we have built 1.4 million homes in the last year.

Unfortunately, there is a lot of luck when it comes to your housing situation. Sure, there are people who buy more homes than they can afford, but a lot of people get tricked or lucky depending on when they were born and where we are in the cycle. housing.

Housing prices are already outpacing higher mortgage rates, but those same mortgage rates have made it even more expensive to buy a home right now.

Things will eventually stabilize and hopefully mortgage rates will drop in the years to come.

But if we don’t build more houses in this country, buying a house will be more and more difficult for young people in the future.

Michael and I talked about car prices, the housing market and more in this week’s Animal Spirits video:

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Further reading:
Is the Ford F-150 partly to blame for the retirement savings crisis?

Here’s what I’ve read lately:

1It is a percentage of income, so after tax.

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