4 Regarding personal finance charts

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

Like most aggregates when it comes to hundreds of millions of people, everyone’s spending is probably somewhat different from these averages.

But directionally, these numbers seem correct to me from a general perspective. The two most important items for most households are housing and transportation.

These two categories make up half of the budget in the average American home.

If you want to get ahead financially you have to adapt 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 spend to embarrass people, but for several years I’ve been concerned about how much people spend on trucks Y jeeps.

It’s getting out of hand.

Take a look at this chart showing the percentage of residents by state who pay $1,000 a month or more for their car payment:

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

This is the madness of personal finance.

There are a number of economic reasons why these payments have increased in recent years. Supply chain shortages have pushed up the cost of cars and that’s still not back to normal.

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

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

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

It is almost 20%.

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

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

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

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

The New York Times argued this week that the housing market is worse than he thinks.

I tend to agree.

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

But this graph is even worse than it seems. The Times notes that the US population has increased by more than 40% since 1982.

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

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 house) for the population going back to 1959:

We were building a lot more houses relative to population size in the ’60s, ’70s, and ’80s. Things were pretty good in the ’90s, too.

After the real estate bubble burst in the 2000s and we have not come close to those levels again.

In 1959 there were approximately 176 million people in the US and we were building about 1.6 million homes a year.

We now have 333 million people and the most recent reading shows that we built 1.4 million homes last year.

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

Home prices are already rising due to higher mortgage rates, but those same mortgage rates have made buying a home even more expensive right now.

Over time things will even out and hopefully mortgage rates will come down in the next few years.

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

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

subscribe to the compound so you never miss an episode.

Other reading:
Is the Ford F-150 partly responsible for the retirement savings crisis?

Now this is what I’ve been reading lately:

1This is as a percentage of income after taxes.

Leave a Reply

Your email address will not be published. Required fields are marked *