The Poor versus The Rich: Spending Habits
Poor versus the Middle Class and the Rich infographic.
It goes without saying that 5% of a budget varies greatly, so here are some numbers to keep in mind:
- 5% of $150,000 = $7500
- 5% of $70,000 = $3500
- 5% of $20,000 = $1000
The percentages spent from their budget look fairly similar, until you get to these two categories:
- Saving for Retirement at 15.9% for the Rich versus 2.6% for the Poor
- Education at 4.4% for the Rich versus 1.5% for the Poor
Infographic credit: FastCoDesign who also writes a great commentary on the above.
Link originally obtained via @eemusings who writes at Musings of an Abstract Aucklander
It is also no surprise to me that the Poor spend the most amount of money on Food At Home, and the Rich spend the least (although the Rich’s “least” spent is $8100/year or $675/month).
Although I daresay it isn’t such a bad thing for the Poor to eat at home, they are most certainly not able to spend their meager grocery budget on organic, fresh foods, which I suspect is where the difference is in those food budgets between the Poor and the Rich.
Everything just costs so much more for the Poor in terms of how much it eats up of their budget just to cover the basics.
Where can you really afford to cut in such a budget?!
(And I used the highest income for the Poor at $20,000 versus $15,000!)
HOW MUCH THEY SPEND AS A DOLLAR AMOUNT
The totals don’t add up to 100%, but the authors noted that there were discrepancies.
Now for some analysis!
TOP 3 CATEGORIES WHERE THEY SPEND THEIR MONEY
Housing and Transportation and Gas are the two most common categories.
The poor have to prioritize utilities over other parts of the budget, but the Middle Class and Rich save quite a bit for retirement in comparison.
WHAT IT LOOKS LIKE AS THEIR MONTHLY BUDGET
The amounts are easier to understand when they’re broken down by month.
The Rich put approximately $1350/month of food into their mouths each month, which is almost the entire monthly budget of the Poor.
For the Rich, they are spending almost 12X more on average versus the Poor (multiplier ranges from 4X to 45.8X more).
The biggest multiplier is the Retirement for the Poor at $43.33 dollars a month versus the Rich at $1987.50 a month which means they are saving 45.8X more a month.
THE BUDGET IS REALLY TIGHT
Naturally, we feel the urge to judge them and say: Well, just take the $78.33 they spend in Food on Restaurants and put some more into Food at Home, and the rest into Retirement!
I’d agree with this, but would you, if you were in that position really have that kind of foresight to do that?
1) I am fairly sure they aren’t crunching those numbers like us personal finance geeks.
2) They just want to have a break and a treat once in a while like anyone else, except they don’t realize that they can’t afford it.
3) Maybe they’ve just given up and resigned themselves to their situation, and just do the best they can while still living
It’s very easy to say what you would do, but it’s a lot harder to execute on such a tight budget.
Let’s just take a quick peek at this PDF I found via the National Low Income Housing Coalition: Hours at minimum wage needed to afford rent
Even looking at those numbers, they seem low. Minimum wage is around $7.25/hour if I am not mistaken.
So even in the cheapest of all states:
$7.25 x 70 hours = $507.50
These people obviously NEED to share housing with a roommate or 7 to be able to have shelter unless they’re living in the middle of nowhere, which means their Gas/Transportation costs will go up accordingly.
….and the IRS really thinks that people can live on $534 a month on a budget without Housing factored in!?!?
Even if you remove all the borderline-luxurious categories like Food At Restaurants or Entertainment, just the Transportation and Utilities alone ($525) will almost eat the entire IRS-proposed budget.
So what about Healthcare? What about Education? They still need a minimal budget for Clothes too!
THE NUMBERS ARE MOTIVATING ME
As this blog is clearly all about ME — I am rather pleased with my numbers against the Rich category.
- Housing: I try to spend around $1500 a month on average versus $3437.50
- Transportation: I spend about $500 maximum in this category versus $1937.50*
- Retirement: I try and save double the average — $1987.50
*This would change if I had a car, which I am not opposed to buying. I just haven’t seen a need for one yet and Public Transportation is so much cheaper when you think about Insurance, Parking, yadda yadda.
These numbers motivate me and make me think more about my own spending and especially my saving.
In the past few years, my net $ savings (not my net worth) have been:
- 2008: $60,000 <— Estimated. I lost my 2008 worksheet ; Cleared $60K debt
- 2009: $8936.18 <— Didn’t work much; Recession woes
- 2010: $130,100 <— Landed a few contracts
- 2011: $0 <– Net worth dropped because I traveled for a year & made $0
- 2012: $17,500 (Estimate) <– I am hoping so hard for this!
I could certainly save more especially at my income level, I’m sure.
Actually, I could just stand to work more, but I think traveling (on a fairly cheap budget) is something that should be done when you’re young, especially given that I can afford it and I want to do it, knowing the consequences.