It’s Impossible to “Get By” In the US

[Team Revell 1]

Pirated from another message board. I know that economic posts aren't all that popular here but this one struck a chord with me. I know a lot of people are struggling. I thought it might provide some comfort for them to know they are not alone and it isn't entirely their fault.

 

 

Submitted by Graham Summers of Phoenix Capital Research

 

While the market cheers on the fantastic job “growth” of March 2010, the more astute of us are concerned with a growing tide of personal bankruptcies. March 2010 saw 158,000 bankruptcy filings. David Rosenberg of Gluskin-Sheff notes that this is an astounding 6,900 filings per day.

 

This latest filing is up 19% from March 2009’s number which occurred at the absolute nadir of the economic decline, when everyone thought the world was ending. It’s also up 35% from last month’s (February 2010) number.

 

Given the significance of this, I thought today we’d spend some time delving into numbers for the “median” American’s experience in the US today. Regrettably, much of the data is not up to date so we’ve got to go by 2008 numbers.

 

In 2008, the median US household income was $50,300. Assuming that the person filing is the “head of household” and has two children (dependents), this means a 1040 tax bill of $4,100, which leaves about $45K in income after taxes (we’re not bothering with state taxes). I realize this is a simplistic calculation, but it’s a decent proxy for income in the US in 2008.

 

Now, $45K in income spread out over 26 pay periods (every two weeks), means a bi-weekly paycheck of $1,730 and monthly income of $3,460. This is the money “Joe America” and his family to live off of in 2008.

 

Now, in 2008, the median home value was roughly $225K. Assuming our “median” household put down 20% on their home (unlikely, but it used to be considered the norm), this means a $180K mortgage. Using a 5.5% fixed rate 30-year mortgage, this means Joe America’s 2008 monthly mortgage payments were roughly $1,022.

 

So, right off the bat, Joe’s monthly income is cut to $2,438.

 

According to the US Department of Agriculture, the average 2008 monthly food bill for a family of four ranged from $512-$986 depending on how “liberal” you are with your purchases. For simplicity’s sake we’ll take the mid-point of this range ($750) as a monthly food bill.

 

This brings Joe’s monthly income to $1,688.

 

Now, Joe needs light, energy, heat, and air conditioning to run his home. According to the Energy Information Administration, the average US household used about 920 kilowatt-hours per month in 2008. At a national average price of 11 cents per kilowatt-hour this comes to a monthly electrical bill of $101.20.

 

Joe’s now down to $1,587.

Now Joe needs to drive to work to make a living. Similarly, he needs to be able to drive to the grocery store, doctor, etc. According to AAA, the average cost per mile of driving a minivan (Joe’s a family man) in 2008 was 57 cents per mile. This cost is based on average fuel consumption, tires, maintenance, insurance, license and registration, and average loan finance charges.

 

Multiply this cost by 15,000 miles per year and you’ve got an annual driving bill of $8,550. Divide this into months (by 12) and you’ve got a monthly driving bill of $712.

 

Joe’s now down to $877 (I’m also assuming Joe’s family only has ONE car). Indeed, if Joe’s family has two cars (one minivan and one sedan) he’s already run out of money for the month.

 

Now, assuming Joe’s family is one of the lucky ones (depending on your perspective) they’ve got medical insurance. Trying to find an average monthly medical insurance premium for a family in the US is extremely difficult because insurance plans have a wide range in deductibles, premiums, and co-pays. But according to eHealth Insurance, the average monthly premium for family policies in February 2008 was $369.

 

So if Joe has medical insurance on his family, he’s now down to $508. Throw in cell phone bills, cable TV and Internet bills, and the like, and he’s maybe got $100-200 discretionary income left at the end of the month.

 

This analysis covers all of the basic necessities of the average American household: mortgage payments, food, energy, gas, driving expenses, and medical insurance. It also assumes that Joe:

 

1) Didn’t overpay for his house

2) Made a 20% down-payment of $45K on his home purchase

3) Has no debt aside from his mortgage (so no credit card debt, student loans, etc)

4) Only has one car in the family and drives 15,000 miles per year

5) Keeps his energy bill reasonable

6) Does not eat out at restaurants ever/ keeps food expenses moderate

7) Has no pets

8) Pays for health insurance but has no monthly medical expenses (unlikely with two kids)

9) Keeps his personal budget under control regarding cable TV, Internet, and the like

10) Doesn’t spoil his kids with toys, gadgets, trips to the movies, etc.

11) Doesn’t take vacations.

 

Suffice to say, I am assuming Joe maintains EXTREMELY conservative spending habits. Personally, I know NO ONE who meets all of the above criteria. However, even if the above assumptions applied to the average American, you’re still only looking at $100-200 in “wiggle” room for spending per month!

 

If Joe:

 

1) Overpaid on his house

2) Didn’t have a full 20% down payment

3) Owns two cars

4) Eats at restaurants

5) Splurges on heating & A/C bills

6) Has any medical expenses aside from monthly premiums…

 

… he is running into the red EVERY month.

 

I also wish to note that my analysis didn’t include real estate taxes and numerous other expenses that most folks have to pay. So even if you are extremely frugal and careful with your money, it is impossible to “get by” in the US without using credit cards, home equity lines of credit or burning through savings. The cost of living is simply TOO high relative to incomes.

 

This is why there simply cannot be a sustainable recovery in the US economy. Because we outsourced our jobs, incomes fell. Because incomes fell and savers were punished (thanks to abysmal returns on savings rates) we pulled future demand forward by splurging on credit. Because we splurged on credit, prices in every asset under the sun rose in value. Because prices rose while incomes fell, we had to use more credit to cover our costs, which in turn meant taking on more debt (a net drag on incomes).

 

And on and on.

 

Does this mean the market is about to tank? Not necessarily, stocks have been disconnected from reality since November if not July. Bubbles (and we ARE in a bubble) take time to pop and this time around will be no different.

 

Best Regards,

 

Graham Summers

[SUXBNME 1,595]

Too long for us moufbreathers

[parrot 789]

Interesting. My one quibble would be that a median income earner is probably not going to be buying the median house. The lowest incomes tend to rent, so a median income earner is not necessarily a median home buyer. 4.5x your salary is a big mortgage. I know people have been doing this, and more, but hopefully they are figuring out what a bad idea it is.

[TheNewGirl 1,637]

Very interesting article.

[remote controller 143]

Very interesting article.

Would you explain it to me then? My AADD doesn't allow that long of a read.

[NorthernVike 2,096]

Tell his lazy wife to get off the couch and get a focking job.

[peenie 1,963]

i don't make enough to pay my bills and eat.

thank goodness for credit cards (and my vagina).

[GutterBoy 2,900]

Yup, agree with this guy whole heartedly, have been saying this for years.

[KSB2424 3,173]

Obvioulsy there are alot of rounding and estimating going on, but for all useful puporses this is pretty much it. Interesting to read. Depressing, but interesting.

[redtodd 7]

A couple of things I have an issue with:

 

- Obviously this person should be renting. We have grown to think that everyone should own a home, only people who can afford to own a home should.

- I still think the estimate for operating a car is too high. It does not cost $8500 to operate a car. Maybe they are assuming we are buying new cars. If so, this person should not be buying new cars with a $400+ monthly payment.

[KSB2424 3,173]

A couple of things I have an issue with:

 

- Obviously this person should be renting. We have grown to think that everyone should own a home, only people who can afford to own a home should.

- I still think the estimate for operating a car is too high. It does not cost $8500 to operate a car. Maybe they are assuming we are buying new cars. If so, this person should not be buying new cars with a $400+ monthly payment.

I agree. However it also takes into account no credit card debt. Only one family vehicle, which is rare. And other things. I pretty much think it all evens out by the time you look a the whole picture. It's obviously just a estimate. But fairly accurate if you ask me once you take into account all the variables.

[FeelingMN 273]

A couple of things I have an issue with:

 

- Obviously this person should be renting. We have grown to think that everyone should own a home, only people who can afford to own a home should.

- I still think the estimate for operating a car is too high. It does not cost $8500 to operate a car. Maybe they are assuming we are buying new cars. If so, this person should not be buying new cars with a $400+ monthly payment.

 

While I agree that people who shouldn't own homes should rent, in this example spending $1022 a month on housing is actually a pretty reasonable number. I'm not sure about bumfock USA, but here in the Twin Cities, you're not going to find a decent place to rent for less than a grand. So in this example, his housing costs are pretty standard. Also, he'll get more back in taxes from owning....so owning a home actually helps this poor bastard in this case. In MN, we have renters' rebates....a couple hundred per year, so that approximates your mortgage interest deduction...but a lot of states don't offer that.

 

I agree with car costs though. If you're pinching pennies, maybe you should be buying a used car. $700/month is way too much.

 

Still, the gist of the article is right on. It's harder for folks to save and to really enjoy the fruits of their labors. Income has remained relatively static while everything else in life has gotten more expensive.....and it'll only get worse.

[kutulu 1,704]

I heard edjr gets by all the time.

[CantTouchThis 23]

Kind of flawed, but true. I have always said, especially with a family, it doesn't really matter what you make(unless you inherited wealth, are an athlete, ect, are in the top 1-3% of income) you will probably struggle financially throughout most of your life. Take my sister, she and her husband together make about 200k(in jersey, so it isn't a TON of money, but it's still a lot)....they just had their first child and are in debt up to their eye balls. Why? They bought a more expensive house, bought more expensive cars, bought more expensive TVs, ect.

 

Basically, it doesn't matter if you make 40k, 60k, 80k, 100k, ect. First off, it depends on where you live, 100k in Cali is a very average income, when 100k here in Michigan is well above average and nearing upper-class level. But say someone makes 30k more than another person. Person A is going to end up buying a more expensive house, more expensive car, ect. In the end, they will both be in a similar financial situation if they both live equivalently within their means(or out of their mean). That is typical, of course person A could be very financially responsible and buy a smaller house, less expensive cars, and put the extra money in the bank. However, it's just the American way to buy more expensive stuff with more money and get in debt no matter what your income is. I play poker with a guy that makes 800k, and he claims he is in extreme debt. Yeah, he drives a Benz, has a gigantic house, and blow 2-3k in poker like it's nothing, but i am technically in a much better financially situation than him making multitudes less money.

 

 

Then again, i know beans about the economy and finances, this is just a theory based on observation.

[parrot 789]

I heard edjr gets by all the time.

[redtodd 7]

While I agree that people who shouldn't own homes should rent, in this example spending $1022 a month on housing is actually a pretty reasonable number. I'm not sure about bumfock USA, but here in the Twin Cities, you're not going to find a decent place to rent for less than a grand. So in this example, his housing costs are pretty standard. Also, he'll get more back in taxes from owning....so owning a home actually helps this poor bastard in this case. In MN, we have renters' rebates....a couple hundred per year, so that approximates your mortgage interest deduction...but a lot of states don't offer that.

 

I agree with car costs though. If you're pinching pennies, maybe you should be buying a used car. $700/month is way too much.

 

Still, the gist of the article is right on. It's harder for folks to save and to really enjoy the fruits of their labors. Income has remained relatively static while everything else in life has gotten more expensive.....and it'll only get worse.

 

I am not trashing the whole idea of the article, I agree with the premise. It reminds me of when a certain former board member used to refer to people making over $50k as wealthy.

 

I just don't like when we accept the "average" as acceptable. People spend too much on houses they cannot afford, cars they cannot afford and toys they cannot afford. They also do not do things to adjust their budgets to live within their means (this is not just with people of lower incomes).

 

I believe our parents and grandparents struggled to get by as well. I don't think this is something new. The difference is, we think we deserve more than they did.

[FeelingMN 273]

I am not trashing the whole idea of the article, I agree with the premise. It reminds me of when a certain former board member used to refer to people making over $50k as wealthy.

 

I just don't like when we accept the "average" as acceptable. People spend too much on houses they cannot afford, cars they cannot afford and toys they cannot afford. They also do not do things to adjust their budgets to live within their means (this is not just with people of lower incomes).

 

I believe our parents and grandparents struggled to get by as well. I don't think this is something new. The difference is, we think we deserve more than they did.

 

[GutterBoy 2,900]

We also have alot more to spend money on.

 

Look at all the things the average person pays for that my parents didn't pay for:

 

Cable TV Service

Internet Service

Cell Phones & Service

Computers

flat panel TVs

Kid's activities

 

technology and culture has created a market for goods and services that didn't exist 30 years ago.

[joeshushu 51]

We also have alot more to spend money on.

 

Look at all the things the average person pays for that my parents didn't pay for:

 

Cable TV Service

Internet Service

Cell Phones & Service

Computers

flat panel TVs

Kid's activities

 

technology and culture has created a market for goods and services that didn't exist 30 years ago.

 

 

Good point and I hate all of these things and didnt' have them growing up but I have them now (except for the kids).

[Frank M 181]

We also have alot more to spend money on.

 

Look at all the things the average person pays for that my parents didn't pay for:

 

Cable TV Service

Internet Service

Cell Phones & Service

Computers

flat panel TVs

Kid's activities

 

technology and culture has created a market for goods and services that didn't exist 30 years ago.

 

Other than flat panels, and maybe cable, all of these are necessities nowadays even though they seem like luxuries. Hell, even sports at school cost $$ nowadays in many parts of the country.

[Frank M 181]

I believe our parents and grandparents struggled to get by as well. I don't think this is something new. The difference is, we think we deserve more than they did.

 

I agree to a certain extent, but in our parents and grandparents age, average Americans were able to live and save on one income. That is virtually impossible for the average American today.

[GutterBoy 2,900]

Other than flat panels, and maybe cable, all of these are necessities nowadays even though they seem like luxuries. Hell, even sports at school cost $$ nowadays in many parts of the country.

 

They are all luxuries. You need a cell phone? You need high speed internet service?

[BLS 314]

If I didn't have the innerwebs, how would I communicate with my online brethren?

 

The article/post has some flaws, but overall it's true.

And it's a direct indicator as to why there was a negative savings rate for the first time EVER in this country (I believe in 2005).

 

Whether we like it or not, people are going to HAVE to learn within their means.

[FeelingMN 273]

They are all luxuries. You need a cell phone? You need high speed internet service?

 

They're uneccessary more than being luxurious. But yeah, whatever, you're right. People don't need those things to survive. Still, if we're defining the HAVES as folks who have cell phones, laptops, and flat screens from the HAVE NOTS who don't, it just speaks to the growing discrepancy between those who are comfortable in life and those who are not. It's kinda messed up.

[Frank M 181]

They are all luxuries. You need a cell phone? You need high speed internet service?

 

Yes, with kids doing online homework and two parents that work, they are necessities.

[BunnysBastatrds 2,601]

If I didn't have the innerwebs, how would I communicate with my online brethren?

 

The article/post has some flaws, but overall it's true.

And it's a direct indicator as to why there was a negative savings rate for the first time EVER in this country (I believe in 2005).

 

Whether we like it or not, people are going to HAVE to learn within their means.

 

 

Living within our means......we can't do that. That would be the responsible thing to do.

 

Go to BestBuy and see who is standing in line to get credit to buy a $1500.00 flat screen with 21% intrest rates. If everybody else has one, they do too. My parents never thought this way, but it's normal today. They saved untill they could afford it. Going without was responsible and normal. Not today.

 

It's impossible to "get by" when you're to stupid to understand that not all people are capable of the same lifestyles as others.

[Strike 6,023]

Living within our means......we can't do that. That would be the responsible thing to do.

 

Go to BestBuy and see who is standing in line to get credit to buy a $1500.00 flat screen with 21% intrest rates. If everybody else has one, they do too. My parents never thought this way, but it's normal today. They saved untill they could afford it. Going without was responsible and normal. Not today.

 

It's impossible to "get by" when you're to stupid to understand that not all people are capable of the same lifestyles as others.

 

No sh*t. I mean, even when I was growing up we only had ONE television in the house. In the living room, shared by all four of us. Same TV for probably 15 years too. What's the average number of TV's per household nowadays? Heck, I live alone and have four in the house.

 

But I can afford it.

[Gepetto 1,454]

You have to pay another $400 per month for property taxes. He didn't include that in the $1022 per month figure. That's a lot, I know. That's $1,400 per month for home mortage payments.

[GutterBoy 2,900]

Yes, with kids doing online homework and two parents that work, they are necessities.

 

You can do online homework at the library or via free dial up. You can work something out with the school if you want. There is no need for a cell phone, period.

[GutterBoy 2,900]

They're uneccessary more than being luxurious. But yeah, whatever, you're right. People don't need those things to survive. Still, if we're defining the HAVES as folks who have cell phones, laptops, and flat screens from the HAVE NOTS who don't, it just speaks to the growing discrepancy between those who are comfortable in life and those who are not. It's kinda messed up.

 

What's messed up? Are you suggesting that the "uncomfortable" people should be "comfortable". Everyone deserves to have a cell phone? Who's responsibility is it to pay for that?

[swirvenirvin 25]

agreed for the most part, but like others said lots of assumptions on the averages.

[Frank M 181]

You can do online homework at the library or via free dial up. You can work something out with the school if you want. There is no need for a cell phone, period.

 

The amount of money for a cell phone without all the bells and whistles is now comparable to a land line.

[edjr 6,898]

I only read the 1st few paragraphs

 

 

I make more than Joe, i have free insurance and I have no kids.

 

aka fockoff.

[GutterBoy 2,900]

The amount of money for a cell phone without all the bells and whistles is now comparable to a land line.

 

Way to make an irrelevant point.

 

More and more people are getting smartphones, with $30/month data plans, $10 unlimited texting, etc. My cell phone bill used to be like $50/month. Now it's almost $150. Now people are adding their kids. There are people dropping $200/month on family cell phone bills that can't afford it, but everyone else has cool cell phones, so why not them.

[edjr 6,898]

Way to make an irrelevant point.

 

More and more people are getting smartphones, with $30/month data plans, $10 unlimited texting, etc. My cell phone bill used to be like $50/month. Now it's almost $150. Now people are adding their kids. There are people dropping $200/month on family cell phone bills that can't afford it, but everyone else has cool cell phones, so why not them.

 

my cell phone bill is $240 a month (family plan with 3 people)

 

A land line costs slightly less than this

 

alsoicanaffordit

[GutterBoy 2,900]

my cell phone bill is $240 a month (family plan with 3 people)

 

A land line costs slightly less than this

 

alsoicanaffordit

 

since when do you have a ###### family?

 

Since when can you afford ######?

 

Last I knew you were a help desk mook making $50K a year and no dishwasher.

[edjr 6,898]

since when do you have a ###### family?

 

I wasn't aware only family was allowed to use a family plan.

[GutterBoy 2,900]

I wasn't aware only family was allowed to use a family plan.

 

What is it like your roomates or something?

[kutulu 1,704]

I only read the 1st few paragraphs

I make more than Joe, i have free insurance and I have no living kids.

 

aka fockoff.

 

[edjr 6,898]

What is it like your roomates or something?

 

Roomates