Living better than your neighbors on 75% less

In one of the earliest articles on this blog called “If you Try Sometimes…“, I briefly described my goal of living life at a cost of 75% less than “normal”. Since then I have received many questions:

What is Normal anyway?
Where did I get this 75% number?
Is it ridiculous or is it easy?

First of all, there are three major reasons that I set the target at 75% off:

  • After measuring my own spending compared to others in the same income/assets group, I found that my own family seems to spend about 75% less overall, and yet we still seem to have a better and happier/healthier life than most people, and plenty of material comforts as well. I’ve mostly cut out only the Wasteful Bullshit like Cable TV and diamond rings and such, while keeping all the Awesomeness of a nice place to live, good food and health, good times with friends, etc.
  • When reading various science books about the natural environment, and even the book Your Money or Your Life, I find that they calculate that if everyone in the world used resources at the same rate as the US population, we would be consuming most of our natural resources at 400-500% the rate that the Earth can regenerate them for us. (As it is, since most countries are still poorer than us, humans as a whole are “only” burning up the planet at 125% of the sustainable rate, although this number is growing rapidly thanks to booming industry in India and China). So to be decent citizens of the Earth and use only our fair share, we need to cut our average consumption by at least 75%.
  • Since the default US household saves juuuust about 0% of its income, you will end up saving about 75% of your income if you can reduce your spending by 75% below these defaulters. For each year you save at this rate, you have bought three years of retirement. With compounding, you will have 25 years of living expenses saved in about 7 years, which will generate enough passive income to pay for your lifestyle forever, even assuming only a 4% annual dividend/withdrawal rate.

Now to get into some interesting specifics. An MMM reader recently sent me a link to an eye-opening spreadsheet at the US Bureau of Labor Statistics (thanks Paul!). It is called the 2010 Consumer Expenditure Survey. You can check out the whole spreadsheet at this link, and for casual readers we’ll dive into a fun column from it right here.

My favorite column is the “$70,000 and above” one, since it turns out to represent an average household income of $129,528 before taxes. The solid well-to-do middle class two-income working family that Mr. Money Mustache hears from so often. The people that complain that they need two incomes to put food on the table, and that President Obama claims are suffering so dearly due to 8% unemployment and $3.75 gasoline. The same people that could be retired in 5-10 years if they could grow themselves a Money Mustache.

So let’s go through the annual spending of our high-income compadres and see where we can make fun of them:

Income before taxes         $129,528
Income after taxes         $123,705  <-Wait.. a 4.5% tax rate on this huge income? What is the Tea Party complaining about again?
Age of reference person        47.3

Average number in consumer unit:
Persons        3.1
Children under 18        0.8
Persons 65 and over        0.2
Earners        1.9
Vehicles        2.7 <-Wow, an average of almost 3 cars for a 3-person household. Nice!

Housing tenure:
Homeowner        86
With mortgage        68
Without mortgage        18
Renter        14
Average annual expenditures        $82,060

Food        $9,761
Food at home        $5,236
Cereals and bakery products        $701
Cereals and cereal products        $235
Bakery products        $467
Meats, poultry, fish, and eggs        $1,125
Beef        $301
Pork        $204
Other meats        $158
Poultry        $210
Fish and seafood        $199
Eggs        $53

Holy Crap! $1125 of Meat! My pricey cage-free organic eggs do add up to $200 per year, but the rest of the meat and fish is only $250 at most. Our total grocery spending was about $3800.

Dairy products        $577
Fresh milk and cream        $189
Other dairy products        $388
Fruits and vegetables        $928
Fresh fruits        $320
Fresh vegetables        $304
Processed fruits        $162
Processed vegetables        $142
Other food at home        $1,904
Sugar and other sweets        $203
Fats and oils        $138
Miscellaneous foods        $1,014
Nonalcoholic beverages        $455

Food prepared by consumer unit on out-of-town trips        $95
Food away from home        $4,525 <-Whoa – their restaurant budget is more than my whole combined food budget! MMM family restaurant spending was $525 last year.
Alcoholic beverages        $765  <-Surprisingly, this is within the $9/week/person MMM drinking limit :-)

Housing        $26,386
Shelter        $15,916
Owned dwellings        $12,306
Mortgage interest and charges        $7,171
Property taxes        $3,231

Maintenance, repairs, insurance, other expenses            $1,904
Rented dwellings        $2,098
Other lodging        $1,511

Utilities, fuels, and public services        $4,849
Natural gas        $683
Electricity        $1,729
$1729 in Electricity is an interesting number. Even for 100% wind power, I’m still comfortably burning less than $300 per year.

Fuel oil and other fuels        $199
Telephone services        $1,556
Water and other public services        $681
Household operations        $1,873
Personal services        $794
Other household expenses        $1,079
The following section is a good candidate for some serious chopping without compromising quality of life. A thousand dollars of housekeeping supplies? I am more in the zero-to-ten dollar annual range here.
Housekeeping supplies        $1,018
Laundry and cleaning supplies        $214
Other household products        $583
Postage and stationery        $221
Household furnishings and equipment        $2,730
Household textiles        $214
Furniture        $611
Floor coverings        $67
Major appliances        $314
Small appliances, miscellaneous housewares        $153
Miscellaneous household equipment        $1,371

Apparel and services        $2,850
Men and boys        $644   
Men, 16 and over        $511
Boys, 2 to 15        $133
Women and girls        $1,156  <-Dang.. lots of independent runway models in the average household I guess.
Women, 16 and over        $966
Girls, 2 to 15        $189
Children under 2        $127
Footwear        $460  <-Six pairs of $75 shoes every year? Wowee. My $75 Timberlands from 2003 are still going strong after over 2500 miles of walking, thanks.
Other apparel products and services        $464

Transportation        $12,603   <-My whole debt-free vehicle fleet, including a year worth of gas and insurance, is worth less than this.. and it will be about ten more years before I need my next car at current driving levels.
Vehicle purchases (net outlay)        $4,775
Cars and trucks, new        $2,712
Cars and trucks, used        $1,953
Other vehicles        $110
Gasoline and motor oil        $2,881  <-MMM family this year: $650 because of major road trips.
Other vehicle expenses        $3,976
Vehicle finance charges        $477  <-You borrowed money for your car even while buying six pairs of shoes?
Maintenance and repairs        $1,162
Vehicle insurance        $1,503

Vehicle rental, leases, licenses, and other charges           $833
Public transportation        $971  <- This includes plane tickets. Unfortunately we are probably up near the average here.

Healthcare        $4,393
Health insurance        $2,380
Medical services        $1,212
Drugs        $621
Medical supplies        $180

Entertainment        $4,733
Fees and admissions        $1,363  <-Hint: Forests and Mountains are usually free!
Audio and visual equipment and services        $1,416
Pets, toys, hobbies, and playground equipment        $1,146

Other entertainment supplies, equipment, and services           $809

Personal care products and services        $991

Reading        $182

Education        $2,257

Tobacco products and smoking supplies        $371  

Miscellaneous        $1,351

Cash contributions        $3,176

Personal insurance and pensions        $12,241
Life and other personal insurance        $607
Pensions and Social Security        $11,634

Sources of income and personal taxes:

Money income before taxes        $129,528
Wages and salaries        $111,256
Self-employment income        $7,408

Social Security, private and government retirement                $6,155

Interest, dividends, rental income, other property income              $3,343

Unemployment and workers’ compensation, veterans’ benefits                $400

Public assistance, supplemental security income, food stamps        $123
Regular contributions for support        $489
Other income        $355

Personal taxes        $5,823
Federal income taxes        $4,187
State and local income taxes        $1,317
Other taxes        $321

Income after taxes        $123,705

Addenda:
Net change in total assets and liabilities        -$10,318  <-So somehow, this average wealthy family still ended up in the red this year?
Net change in total assets        $15,608
Net change in total liabilities        $25,926

Other financial information:

Other money receipts        $845
Mortgage principal paid on owned property        -$4,552
Estimated market value of owned home        $274,601
Estimated monthly rental value of owned home        $1,413

Gifts of goods and services        $2,119
Food        $189
Alcoholic beverages        $17
Housing        $353
Housekeeping supplies        $50
Household textiles        $17
Appliances and miscellaneous housewares        $29
Major appliances        $8
Small appliances and miscellaneous housewares         $21
Miscellaneous household equipment        $80
Other housing        $178
Apparel and services        $392
Males, 2 and over        $95
Females, 2 and over        $145
Children under 2        $71
Other apparel products and services        $82
Jewelry and watches        $27
All other apparel products and services        $54
Transportation        $177
Health care        $39
Entertainment        $173
Toys, games, arts and crafts, and tricycles        $62
Other entertainment        $111
Personal care products and services        $18
Reading        $1
Education        $626
All other gifts        $134
———————

All silly comments aside, it is a very useful spreadsheet that the BLS has created here. Even the first column in their online version, describing the overall nationwide average which turns out to be a $63,000 family income, contains lots of stuff with room for chopping. Rather than doing an across-the-board chop, I find that my own spending ranges from close to 100% in several areas, all the way down to 0% in a large swath of expenditures. All told, we currently live on $20-25k per year, plus a mortgage-free house, as described in the Exposed! article. We consider this our Luxury Retirement spending level – if we were still saving for retirement the level would be considerably lower, as yours should be on a per-person basis if you are not yet financially independent!

Welcome New Readers! Take a look around. Feeling Hardcore? Start at the first article and read your way through using the links at the bottom of each article. Casual Sampler? Browse the complete list of all posts since the beginning of time. Hope to see you around here more often. ~ Love, Mr. Money Mustache

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37 Responses to “Living better than your neighbors on 75% less”

  1. Alan July 14, 2011 at 9:05 am #

    Fantastic!

    The Australian version is here http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6530.02003-04%20(Reissue)?OpenDocument
    Alan

  2. No Debt MBA July 14, 2011 at 9:07 am #

    Spending $1,000+ on meat would be crazy talk around here. But the spreadsheet left me wondering who pays the taxes in this country?!? The rate for “all consumer units” is 3% and the rest range from -3% to 4.5%.

    • Madge July 16, 2011 at 12:58 pm #

      hmm, we probably spend about $1000 a year on meat. i am insulin sensitive and respond really well to a paleo-style diet but don’t do so well on grain/legume-heavy foods.

      of course we buy our meat at whole foods and from local farmers which costs a lot more than the $.99/lb stuff at the supermarket. comes out to about 2 lbs each per week, which doesn’t seem too excessive to me.

  3. Geek July 14, 2011 at 9:55 am #

    Huzzah, we only spend 20k on housing/year! Better than average!
    ….Though we rent.

    As a renter, I would love to see an article about before your mortgage was paid off. I don’t plan on retiring in Seattle unless we get very rich (houses are more expensive than average here), but 200k+ still represents a large amount of saving time for us.

    • MMM July 14, 2011 at 2:24 pm #

      Hi Geek!

      The “exposed” article linked from this one does describe my own family’s spending in 2010, which is before the mortgage was paid off. It was closer to $40k as I recall, although principal payments are really a form of saving rather than spending, so really it wasn’t much different than today.

      Retiring elsewhere is a great idea. I am writing an article right now reminding people that moving is actually fun, so people should consider it more often. It is good for you, and can save you millions over a lifetime. Why does everyone live in crowded, expensive, flat, cloudy New York City, for example, when they could live in wide-open, sunny, beautiful, mountainous, warm New Mexico for a tiny fraction of the cost!? Mostly because they have some form of Excusitis regarding making exciting changes in their lives.

  4. Ginger July 14, 2011 at 10:38 am #

    Maybe they are including deprecation in the vehicle cost? But still $12000 a year? Ouch, that is nuts. I spend $3300 in car expenses for one car (a Toyota), but that includes saving for my next car.

  5. Scott July 14, 2011 at 12:34 pm #

    If they are making $123,705 after taxes and spending $82,060, how are they ending up in the hole every year?

    • Steve July 14, 2011 at 2:41 pm #

      The average family earning $123K after taxes is not ending up in the hole every year. The average family at this income is cash positive.

      It’s only those under 40K that who on average are cash negative. The problems the average person has is they will not always be in the $123K level. When they are younger, they’ll be going in debt they will have to pay off at the higher income levels. The same as when they grow older and their earning power decreases, dropping them down lower into negative cash flow.

      • Scott July 14, 2011 at 3:32 pm #

        Well, what you say makes perfect sense but I looked at the linked chart and it says “Net change in total assets and liabilities.” So how do you make $40K more than you spend in a year and still lose $10K in net worth in the same period?

        I feel like I am completely missing something.

        • Steve July 15, 2011 at 1:15 pm #

          I assumed they lost money on their investments while consumer debt increased. I could be wrong though. That part seems confusing to me since they account for expenses and taxes that only add up to 80+K

  6. Heidi July 14, 2011 at 1:17 pm #

    Thanks for mentioning diamond rings. My heart is warmed.

  7. mark gregory July 14, 2011 at 1:44 pm #

    Wow,great post,

    I think in the U.S. you must have a great standard of living…. if this is atypical of an average American family.

    I see many, many areas that ‘mr. average’ could reduce costs, but maybe that would hurt the wider consumerist economy?

    That aside, to spend this much money means to consume/use/utilise… MMM comments re: natural resources depletion are hitting the spot.

    • MMM July 14, 2011 at 2:38 pm #

      Yeah, I try not to use the term “standard of living” because it implies that spending more money makes your life better. Instead, we could say “level of spending”, because that is the voluntary spraying of money all over the place we do in rich countries, and the mostly unrelated “quality of life” which measures happiness, ecological health, and things like that.

      • rosarugosa July 16, 2011 at 3:08 pm #

        “spraying of money all over the place.”
        Love it – well put!

  8. Rainbow Rivers July 14, 2011 at 5:13 pm #

    Another great article from you , I always find it fasinating reading the numbers how average households spend money, some of it I must admit, I find insane the amounts folks spend on certain items. Well I suppose A LOT of the catagories I find to be insane amounts. It is useful and wonderful to see all the facts and figures though as a great way to measure how we are doing and what areas we ourselves can work on!

  9. Bakari July 14, 2011 at 5:47 pm #

    The most interesting and unexpected thing I noticed on the chart is that, among home owners, the more money you have, the more likely you are to be paying a mortgage, while the less your income, the more likely your home is paid in full.

  10. Marcia @Frugal Healthy Simple July 14, 2011 at 6:05 pm #

    Wow that was pretty eye-opening. I hope to peruse it more later when I have time and am not exhausted. I am impressed with the tax value. We are in that bracket and easily spend 25% of our income. Also, our housing is over $50,000/yr, but that’s the joy of buying at the wrong time and wrong place (2004, So Cal).

    On one hand, I am amazed at the food expenditures (esp. out of the house). On the other hand, with 2 FT jobs, I can see the appeal. I try hard to avoid it, but am not always successful. I prefer to work vs. stay at home though, so there’s not a huge tradeoff for me.

    I can see the shoe budget though! When I was running half marathons, I easily went through 2-3 $100 pairs of shoes a year (I am hard on shoes!) Now that I’m walking or running shorter distances, my shoes are lasting longer – and I’m trying “barefoot” running too which should extend it even further!

    • Steve July 15, 2011 at 1:16 pm #

      Yes, but it’s going to be hard on you when you have to change out your feet..

      • Marcia @Frugal Healthy Simple July 15, 2011 at 9:41 pm #

        I’m more worried about the knees and hips than the feet! That’s why I switched to barefoot…much “lighter” running style and easier on those two sets of 41-year old joints.

  11. Chris O July 14, 2011 at 9:10 pm #

    Mr. Money Mustache isn’t a Tea Partier? Actually, I don’t care if he is or isn’t. I don’t want to start a political debate (mostly just because I’m tired of hearing them). I would like to know, however, just how that quoted tax amount is possible? I make around and 104k a year currently and pretty much around 30% of that is taken out in taxes. Do you know how this data was collected or how valid it is? I know it’s an official report from some government bureau, but I’d still like to know how they found these averages? I feel like this data would be hard to come across. If people were organized enough to report their spending in this much detail, they should definitely be smart enough to figure out they’re spending too much. I can’t really see them paying someone to audit a random sampling of people either. Just curious…

    • Bakari July 14, 2011 at 10:34 pm #

      30% out of each check, or 30% at the end of the year, after deductions and exemptions, credits, and deferments, and considering both refunds and rebate checks?

      Also, are you counting social security, medicare, and unemployment as “taxes”? Those (assuming you live long enough) you get back.

      How much is “taken out” isn’t what most people are actually paying.

      • Chris O July 15, 2011 at 7:48 am #

        I just reviewed all of my paychecks and taxes for the past year. They took out a total of 27.6% out. This includes, federal, state, and social security. I am single, have no children, and really have no other deductions I can take out so that probably doesn’t help. I also live in DC with an 8.5% tax rate. Guess I need to move, get married, pop out some kids and put the rest of my money into offshore accounts to get down to this average haha. (Side note: I’m 24 so I see the SS tax more as a donation, because I really don’t plan on getting it back)

        • Tim July 15, 2011 at 8:58 am #

          There is a site:

          http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=456

          that shows very different conclusions than this Consumer Expenditure Survey. The 4.5% tax rate for someone making $129,000 was really bothering me. I know that it shows how the calculations were made, but I do not understand how their numbers could be accurate.

          • Bakari July 15, 2011 at 4:51 pm #

            The link you provided not only counts social security as a tax (when its really more of an involuntary retirement plan), but it also actually counts the amount your employer pays the government as part of your own personal taxes.

            The rational for that may be understandable (presumably employer paid payroll taxes suppresses wages) but it is very misleading to include employer paid tax and only mention it in the fine print at the bottom.

            Most likely if your source removed SSI and employer paid payroll taxes, they would end up with a number much closer to MMMs source.

            • Aleks December 1, 2012 at 2:29 am #

              I’m bewildered. Looking at my 2011 return, I paid about 20% tax on a similar amount of income. That’s not including any payroll taxes. I can’t even begin to fathom how I could have gotten $20k more in deductions.

        • MMM July 15, 2011 at 9:43 am #

          Interesting data, Chris!

          You guessed it right in your earlier post – I am not a tea partier. Although I love capitalism and riches, and I think entrepreneurs should be allowed to run without red tape as long as they are not hurting anyone, I also believe that paying taxes and being as honest and generous as possible in all areas of life and business is truly patriotic. So I view my taxes just as I view any other investment, but with the broad society as the primary beneficiary, and me as a bigger secondary one because I benefit hugely from a peaceful society with as little fear as possible, and as strict controls as possible on wrecking the Earth.

          Also, you should read up more on social security. It is not going away, it is just going to have to make small percentage changes in future payouts to remain solvent. Pessimism on the matter is widespread due to wild-eyed fox news commentators, but if you read analysis on social security by any real economists, they will give you a more rational outlook. Don’t get your economic knowledge from campaigning politicians, especially those in the party currently in opposition!

          • Chris O July 15, 2011 at 7:16 pm #

            … good call. This response is exactly why I love your blog.

        • Bakari July 15, 2011 at 4:37 pm #

          On this spreadsheet state taxes and SS are both separate columns from “personal taxes” which only counts federal taxes.

          The “income after taxes” considers federal taxes only, not state, property, or sales tax. All of those things are listed under their own columns.

          MMM’s comment is relevant because it is federal taxes specifically that everyone is always complaining about.

          If you add in all the other taxes, it comes to $10,692, or 8.25% average.
          So still, (assuming you aren’t getting refund checks at the end of the year), yeah, you really should be looking for a way to get a few exemptions and deductions and credits.

        • Katie August 6, 2011 at 3:50 pm #

          We make less than half that income and we paid 9.5% in federal taxes last year (this according to our 1040). That 4.5% is waaaaay off.

    • Scott July 15, 2011 at 7:37 am #

      Agreed. The taxes aren’t even enough to cover payroll taxes on the average wage amount.

  12. BC February 15, 2012 at 5:00 pm #

    I own a small business and oversee payroll. We have a few employees making just over 100K, and their taxes are usually in the 27-35% range. Also, in California we have fairly high state income taxes, so obviously that adds to it.

  13. Peter Lyons April 29, 2012 at 12:07 pm #

    Great numbers in here, but like many readers the tax numbers don’t make sense to me, which makes me question the rest of the numbers. I would LOVE to see more raw data like this and more MMM analysis, but with better data more clearly explained.

  14. Brett May 23, 2012 at 3:10 pm #

    I am also calling BS on the tax rate. Earning under 60k I paid 14.35% federal tax (on tax return, not estimated withholding and not including my employer contributions or SSI etc.) last year.

    I do sympathize with the tea party somewhat, government spending is almost 50% of our entire national output today, I’m confident we could defend ourselves, maintain law and order, prevent plundering of the environment, and provide a safety net all for less than 30% of our entire countries output if the government wasn’t so wasteful! And for people that want to put more of their money towards a cause, donate to a nonprofit that is working towards the same goals you have. That’s voluntarily given up by you instead of taken under threat of imprisonment. It will also reduce your tax bill :)

    • Mr. Money Mustache May 23, 2012 at 3:19 pm #

      Are you sure about that 50% figure? I thought that US gov’t revenue (all levels combined) was about 26% of GDP. By comparison, Canada, which has a booming economy and very low deficit and debt ratio compared to the US, taxes its citizens at 32%:

      http://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_as_percentage_of_GDP

      I’m not a tax lover by any means, but lower is not always better: note the countries that have the highest and lowest tax ratios in that table, and then cross reference that to the UN’s human development index for countries as well as happiness surveys.

      Hmm.. Costa Rica looks like a nice compromise at 14% of GDP and yet with relatively happy and nice people :-)

      • Brett May 24, 2012 at 1:26 pm #

        It’s an honor to get a reply from MMM himself! I’m working my way through your blog from the beginning.

        Upon closer inspection, it appears US Spending is somewhere in between our figures. Fed + state + local = 41% of GDP . It’s increased steadily throughout history, except for a jump during WWII and the Congressional Budget Office has the steady increase continuing as far ahead as they project. (http://www.usgovernmentspending.com)

        Fed spending alone is 24.1% according to whitehouse.gov which agrees with the above websites “federal” figure.

        I agree with you on Costa Rica being a desirable place to live – that’s definitely a long term retirement destination idea for me as I understand it is a great place for that, including for the reasons you mentioned.

        I don’t agree that you can conclude differences in Human Development or happiness were likely caused by differing levels of government spending based on correlation.
        (http://en.wikipedia.org/wiki/Correlation_does_not_imply_causation).

        My academic studies of Applied Economics, following of current events, conversations with government employees and union leadership, and work with nonprofits and healthcare finance industry have all given me the impression that the government is pretty inefficient and should ideally be moderately smaller than it is. I do agree that many government programs full crucial roles, I just strongly feel there is a lot of waste and inefficiency, and little justification for the trend towards government spending approaching the level of all other spending. I guess it comes down to opinion in the end though.

  15. LT September 20, 2012 at 11:22 am #

    How can anyone making that much money be receiving public assistance?! Even if it is only $123.

    • Elizabeth March 6, 2013 at 10:14 am #

      No one making that much had to be. It is averages. There may be enough people getting aid to slew the average up. I think.

      Example 20 k 60 k 220k average is 100k. If the 20 k household gets 400 in food stamps per month that’s an average of 133 per month to go with the 100 k average income.

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