Find an extra $9k in your budget (Budget bootcamp, lesson 1)

(Photo credit- visualeconomics.com)

The text in the article in italics represents the content from visualeconomics.com to explain the picture above. What's not in italics is my interpretation, a personal slant on how Mr. Cents and I find extra money in our budget, and how you can as well. Please feel free to share in the comments below on how the national average differs from your household!

The average consumer has a budget that is split into a large number of monthly and yearly spending. The average consumer spends $49,638 a year on a range of necessary and desired expenditures. These expenditures come out of an annual household income of $63,091 per year on average, before taxes. The average consumer owns 1.9 vehicles, and 67 percent of them are homeowners. Households average 2.5 people and 1.3 earners reside in each.


How do you measure up? It's helpful for Mr. Cents and I to see our budget in this context: we have both a smaller household and a larger household income. We own our home (usually owning is more expensive than renting), and are a dual income household with 2 cars.

Side tip: for beginning budgeters, I don't recommend using pre-tax income as a tool - it's much easier to plan expenses based on your take home income.

The largest expenditure of the average household is housing. This takes up an average 34.1 percent of the yearly budget of households. This is an average of $16,920 spent on housing. This amount includes $10,023 spent on shelter, $3,477 spent on public services and utilities, $984 spent on household operations, $639 spent on housekeeping supplies and 3.6 Percent spent on household furnishings and equipment.


Spending $10k a year on housing adds up to a $833 monthly mortgage payment, which is far less than average for areas with a higher cost of living. A key observation here: typically banks will approve the amount you can spend far in excess of this percentage of income. Banks base "how much can I afford" numbers on a range of 28-36% of PRE tax income, NOT including things like utilities, household maintenance and furnishings. Mr. Cents and I spend about 15% of our post tax income on mortgage costs alone in a mid- high cost of living area (Chicago). Utilities can vary widely between areas of the country, for us the amount we spend is less than the US average of $290 a month. To determine your budget on a new home, it's best to get advice from the current owners or your real estate agent before purchasing a home.

How can you cut back here? Let's assume your mortgage and utilities are fixed costs, and short of refinancing and using candles for light, there's not much you can do to change those expenses. But what you CAN do is focus on expenses that are within your control: do your own landscaping, cut back on the toxic cleansers and make some of your own, cut back on the expensive mulch, fire your housekeeper. Cutting the categories of household operations and housekeeping supplies can really add up quickly. Yearly savings: $800

Additionally, you can drastically impact your budget by eliminating most of the household furnishing expenses. Postpone replacing your living room sofa for another year or consider buying a gently used lawnmower on Craigslist. Yard and estate sales occasionally have treasures for a fraction of new cost. Yearly savings: $1500+
The second largest expenditure for the average consumer is transportation. The cost of vehicles purchased is an average of $3,244 per year, making it 6.5 percent of the average budget. The cost of oil and gas for vehicles costs the average consumer $2,384 per year, for an average of 4.8 percent of the total yearly budget. Combined, the cost of vehicles and their maintenance costs consumers an average of $8,758 per year. This is a total of 17.6 percent of the yearly budget.


Oh, transportation - how much better off we would be financially if we had an advanced public transportation system like they do in London? Aren't car expenses fixed like housing though? Not necessarily. Let's say this average spend was based on one member of the household purchasing a new car every 5 years. If we spend more to keep cars maintained and elect to keep our cars 10 years, this would reduce our yearly expenditure by 50%. Shopping around for a lower priced, reliable mechanic as opposed to the dealership wouldn't hurt either. Yearly savings: $1600

Another large expenditure is healthcare. The average consumer spends $2,853 on healthcare each year. Another physical necessity, food, costs consumers an average of $6,133 per year. An average of $3,465 of that is spent on food that is consumed at home, and $2,668 of it is spent on food consumed away from home. Combined, the money spent on food is 12.4 percent of the entire yearly household budget.

Whew - 12% of a household budget is a big number. I bet you can see ways to immediately cut that percentage - ideally cutting back on unnecessary spending (meals out of the home). Food is a necessity, but even the necessities have room to cut back. Taking a closer look at those numbers, the average family spends $526 monthly on food - both in and outside of the home. Budget tip - taking more meals from home and target your spending on food to an average of $400 a month. Yearly savings: $1500.

Insurance and pensions are important financial considerations and they cost the average consumer $5,336 per year. This is a total of 10.8 percent of the annual budget. $5,027 f this, 10.1 percent of the yearly budget, is spent on social security and pension contributions. In addition, the average consumer pays an average of $309 each year, making up 0.6 of the annual budget.

This is a category Mr. Cents and I don't really have much ability to impact and also don't usually consider this even as a factor in our budgeting. After all, our social security expenses are part of our taxable income and we never even see that money. There's not much you can do to impact this category, unfortunately.

Other expenditures include a yearly average of $945 spent on education, making up 1.9 percent of the annual budget. Consumers pay an average of 3.8 percent of their annual income, $1,881, on clothing and related services. Personal care items add up to $588 per year for a total of 1.2 percent of the annual budget.

Clothing is a necessity, as are personal care items like hairdryers. But nearly $600 on personal care items? Drugstore necessities like shampoo are added into our food bill, and we choose to buy quality items that last for years. Personal care could easily be cut to less than $200 this way, saving the average family about $400. And although I'll be the first to admit how much I love clothes, you can easily cut this category as well by thrifting and requesting clothing items as gifts for birthdays and holidays. Mr. Cents and I spend $50 a month to maintain our professional wardrobes, and could tighten this area even more if we were shopping frequently at resale shops and garage sales. The average family could easily cut down this category without feeling much strain. Yearly savings for clothing and personal expense reductions: $1600.

Entertainment costs $2,698 yearly, making up 5.4 percent of the average consumer’s income. Purchasing reading materials makes up 0.2 percent of the average income, or $118 per year. The average consumer spends $1,821 per year on cash contributions. This makes up 3.7 percent of the consumer’s annual income.

Mr. Cents and I are huge library fans. Our library saves us much more than the $118 per year, as we would be spending 10x that amount if we had to buy every book we read. Additionally, there are ways to cut down your entertainment expense from places like groupon.com, entertainment.com, and researching free things to do in your city. You could easily cut this number in half, even more if you're a family focused on doing community event rather than a young urban couple with no kids.
Savings in entertainment - at least $1400
Alcoholic drinks cost an average of $457 per year, or 0.9 percent of the budget. Tobacco and related tobacco supplies cost an average of $323 of the average consumer’s budget, for a total of 0.7 percent of the yearly income. Miscellaneous expenses make up the remaining1.6 percent of the budget with $808 per year.

Quit smoking. You know it's bad for you and it's expensive. You don't need me to tell you that. Ditto alcoholic drinks - save the drinking for home or push the alcohol back into your entertainment budget. Miscellaneous expenses can be cut at least in half once you become more aware of your spending habits. Cut your own hair if necessary, trim back on the gifts. Hey, we're all feeling the pinch in this great recession.
Yearly savings - $1100.

I hope these tips are relatively painless, and you learned at least a couple things that help you make cents. Remember, budgeting and cutting back expenses is a gradual process, one which only gets easier over time.