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
Source: Consumer Expenditures Survey
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 of where they spend
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 their monthly budget looks like
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.
Biggest spending gaps: Education & Retirement
The rich save 6X more than the poor for retirement and 3X more on education than the poor.
This obviously translates into the next generation and onwards, because if your child knows more than the next, or goes to a better school, they get into a better job, and continue to pay it forward for generations to come.
The education gap is real, and it is huge when it comes to the rich versus the poor.
Imagine starting in a class where children haven’t even seen a book in their lives? Or that they are just learning the alphabet?
Versus another school where the children are already learning how to spell basic words at the same age?
Starting from age 5 until 18, that education gap compounds exponentially, and you can’t ever really catch up from that if your start is so far below – but it isn’t impossible of course.
My partner came from the poorest of the poor background, and so did my mother. They both reached a level of education that was unheard of in their group/families at that time.