Saturday, October 18, 2008
Where does the money go?
The recent discussion of the tax policies of the presidential candidates running for office and my recent discovery that I’m being paid half of what I expected for teaching an overload this semester has drawn my attention to our family budget. Jeri was concerned that we were spending too much on our sons’ allowances and not saving enough. I have therefore reviewed our spending and income over the past year, and created a pie chart to show where our money goes. I’m sharing it here.
A few comments about our family finances.
We’re spending much less on health than we have been. We recently finished paying for Sebastian’s braces. While we were paying for his braces our monthly spending on “health” was close to 11% (it took about two years to pay for his braces). In general, I think our family pays a little over 5% for health care and health insurance, but my employer (the State of Illinois through the University of Illinois) pays the equivalent of about 4% of our family income on our health and life insurance as well. Our health care expenses are low because we’re healthy and young.
The big travel segment (nearly 11%) includes recreation and fun. In our family, that mainly means books. We probably spend about 2% of our income on books and magazines. Also, we try to get to Taiwan every couple years to see our family over there, and we must save up for those trips, so about 6% to 7% of our income is saved and spent on trips to Taiwan. If we didn’t have family living abroad this money would let us have better cars, we would eat out in restaurants sometimes, we would give more to charity, and we would save more for retirement or college. But, I think it’s better to allocate money as we do, and visit the relatives in Taiwan every few summers.
Our phone budget is small. We don’t use mobile phones.
Our saving for retirement isn’t much. I am a state worker, and I have not contributed into Social Security enough to earn a Social Security pension when I retire. Also, I am in the self-managed program for State of Illinois employees, which means I won’t get any pension from the State of Illinois. All I have for retirement is the 9%-12% of my income I’ve been saving over the years I’ve worked plus any interest or capital gains realized on those savings (this year there is significant loss, but I still will be working for 20 years or more, so there is time for this to come back).
The tax figure is fairly precise, but I’ve had to estimate sales taxes based on a sample of receipts and a consideration of the tax tables the IRS uses. The property, income, and Medicare taxes are precise, and are adjusted for the refunds we get after turning in our taxes. I think a 12.4% tax rate is too low. I ought to be paying 15% to 17% (I make within a few percentage points of the Illinois state median income for a full-time year-around male worker, and our household is within a percentage-point of the national median household income). It seems to me reasonable that households such as ours, right at the middle of the middle class, at the median, ought to pay about 15% to 17%, and households making significantly more (say, $100,000, which is almost double the median household income) ought to pay more, perhaps 25%, and the top 4% to 5% (those making over $200,000) ought to be paying something like 45% to 50% of their income in various sorts of taxes.
We keep our grocery and food budget pretty low by eating out in restaurants only once or twice a month, and then eating in cheap restaurants. We barter with one local Chinese restaurant, providing help with translation and child-care, and getting free meals in return. We also garden. I think most middle-class families probably spend much more on food and groceries than we do, and 12% is probably more common than the 9% we pay.
Our transportation budget of 6.3% is probably significantly lower than most Americans. I live about 7 miles from my university, so I usually ride my bike or take a bus there, driving there perhaps once a week. My wife only works three days per week, and the schools where she works are closer to our home than my university. We have no car payments, as I drive a 21-year-old car that is in such bad shape I am waiting for it to die and not spending significant money on maintaining it. Jeri drives my grandfather’s car, which we inherited eight years ago. If we had more money we would be saving to buy a new car, either a Prius or a plug-in car (they are supposed to be on the market in a couple years, and it would take us three or four years to save up to buy one). So long as I can ride my bike or take the bus, I really think we could just do with one car, however.
Well, there you have it, an example of how a middle-class American family was allocating its income in 2008.