4 Concerning Personal Finance Charts

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

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 indicatively, these numbers look right to me from a big picture perspective. The two biggest line items for the majority of households are housing and transportation.

These two categories account for half of the budget in the average American household.

If you want to get ahead financially, you need to have the right size of housing and transportation. If you spend too much money on your living situation or your vehicle or both, you will have a hard time building wealth.

I don’t like to shame people for spending, but for a number of years now I have been concerned about how much people spend on trucks and SUVs.

It’s getting out of hand.

Check out this chart showing the percentage of residents by state who pay $1,000 a month or more for their auto pay:

One quarter of people in Wyoming spend over $1,000 a month! More than one-fifth of the people in Texas do the same. That’s almost 1 in 5 in California.

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This is personal finance insanity.

There are a number of economic reasons why these payments have risen in recent years. The supply chain shortages drove up the cost of cars and they are still not back to normal.

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

Anyone who has had the misfortune of having to buy a vehicle has been in a tough spot in recent years.

But that is not the whole explanation. Check out the increase in luxury vehicle purchases over the past 10 years:

It is almost 20%.

I’m an A to B guy when it comes to my vehicle. Some people enjoy driving a nice car, truck or SUV.

And that’s good – if you accept that you have the rest of your finances in order and you’re saving money.

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

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

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

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I tend to agree.

They show the number of single-family homes for sale remains near the lowest level in 40 years:

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

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

The same is true when it comes to the number of new homes being built. I adjusted US housing starts (when construction begins on a new home) for population going back to 1959:

We built so many more houses relative to the size of the population in the 60s, 70s and 80s. Things were pretty good in the 90s too.

Then the real estate bubble burst in the 2000s and we never got anywhere near those levels again.

In 1959 there were about 176 million people in the US and we built about 1.6 million houses a year.

We now have 333 million people and the more recent reading shows we have built 1.4 million houses in the last year.

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

Home prices are already rolling over from higher mortgage rates, but those very mortgage rates have made it even more expensive to buy a home right now.

Things will eventually even out and hopefully mortgage rates will come down in the coming years.

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

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


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Further reading:
Is the Ford F-150 partially responsible for the retirement savings crisis?

Now here’s what I’ve been reading lately:

1This is as a percentage of income so after tax.


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