Is Your Cash Flow Normal?

Have you ever sat at your desk, paying bills, and wondered if everyone else spends as much as you do? The government might have the answer.

Every year, the Department of Labor issues a report on consumer expenditures. It's an interesting glimpse into the bank account of the average American. The most recent report (based on 2001 data) contains the following nuggets:

  • The typical "consumer unit" -- essentially a household, whether it's a four-person family or an independent bachelor -- spent a total of $39,518, up 3.9% from 2000.

  • Housing was the biggest expense, costing $13,011. That included spending on utilities, fuel, and public services (up 11.2%) and outlays for home furnishings (down 5.9%).

  • The average consumer unit spent $5,321 on food -- $3,086 at home and $2,235 eating out. However, that gap is closing: Spending at restaurants increased 4.6% while the grocery bill rose just 2.2%.

  • Transportation cost $7,633, almost half of which went to vehicle purchases.

  • Annual spending on tobacco products and supplies ($308) was more than twice as much as expenditures on reading materials ($141). We'd like to think that this was because so many people used the library, but we doubt it.

How does all this outflow compare to inflow? According to the report, the before-tax income of the average consumer unit was $47,507. However, the Internal Revenue Service says that the average tax bill in 2001 was $9,401. So that leaves $38,106 to spend -- which is a bit of a problem when you recall that your friendly neighborhood consumer unit spent $1,412 more than that.

Furthermore, if the consumer units are segmented according to income into five groups of equal size, the expenditures of the bottom two quintiles exceeded before-tax income by $10,937 and $6,173, respectively. The inflow and outflow of those in the middle quintile were approximately equal -- but that's before taxes. In other words, only 40% of Americans live below their before-tax means.

You might ask how the Department of Labor got all this information. No, Big Brother didn't implant a computer chip in your buttocks to monitor when your wallet is removed. The data was gathered by two methods: interviews and a spending diary.

Which brings us to the most important question: What is the outflow of your personal consumer unit? Keeping a spending diary of your own would show where your money is going, how much you're saving, and how you can decrease the former to increase the latter. The Motley Fool Personal Finance Workbook is chock-full of worksheets and tips on controlling the flow of your dough. But even using a small notebook to record expenditures would prove enlightening -- and enriching.

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