Your budget should answer one big question: How much should I spend on stuff? But it can be hard to know the right answer.
If you’ve thought at all about making a budget, you’ve probably encountered a pie chart. These charts tell you exactly what percentage of your money should go toward housing or food or transportation. Lots of personal finance writers use these pie charts. Even Oprah has one.
I depend, (probably to an unhealthy extent) on data and consensus, rather than instinct, to make a lot of decisions. So in the past, when I’ve made budgets for myself, I usually throw up my hands and ask: What do normal people spend? (Not that I’m not normal.)
I recently decided to find out. Lucky for me, there is publicly available data showing exactly what people spend on average, in the form of the Bureau of Labor Statistics Consumer Expenditure Survey. This survey collects data on the income and expenditures of Americans.
I took the BLS data for 2016 and made a pie chart of my own, showing how the average American spends their money.
Take that Oprah! Now I know how the average person spends. But this presented another dilemma: The average person can make some pretty terrible decisions. I often completely disagree with the average person, and they with me. So I called an expert to see how my “average American” budget could be improved.
A deceptively powerful concept
Pie charts like this can be a useful benchmark, especially for people who have never made a budget before, said Todd Curtis, chief customer officer for You Need a Budget, a budgeting software company. They can provide an idea of whether your spending is in the ballpark of where it should be and they illustrate that you have a finite pool of money. People often get in trouble when they try to repeatedly spend the same dollar.
“That’s a really simple concept but it’s deceptively powerful,” he said.
One of the immediate changes the average American can make is to spend less on food away from home. Eating out is usually more expensive than making food at home. Entertainment may also be an easy place to cut back. Apparel, too.
Aside from Social Security and, for some people, health care, most people can adjust their spending in any of the BLS categories, Curtis said. That includes housing. If you’re renting, you may be able to get a roommate or a place that’s smaller or farther from a major city.
Homeowners can save as well. Many people think when they buy a house they’re stuck with it, but if the costs are really too much to bear, homeowners should explore financing options or consider selling. People often assume they need the things they have. Curtis and his family recently went from two cars to one and he noticed all the times they thought they needed two cars, they really didn’t.
“Once we didn’t have two cars, we didn’t need two cars,” he said.
But the biggest flaw in the average American’s budget is that they’re not prepared for an emergency. The only thing in the chart that relates to savings is pensions and Social Security, money people can’t touch until they retire. The average American earned $74,664 before taxes in 2016 and spent $57,311, according to the BLS. That’s not much margin after taxes, especially in more expensive states.
This isn’t the only federal data to show this. A recent Federal Reserve survey found nearly half of Americans wouldn’t be able to afford a $400 emergency.
Bye, bye, American pie (chart)
So it may not be such a great idea to emulate the average American pie chart. But the same is true for Oprah’s pie chart. Or anyone else’s.
Each person’s situation and priorities is different, so each person’s budget will be different. Take food away from home vs. at home. It’s easy to say to go to the grocery store more if you live in the suburbs, but if you live in New York, where groceries are more expensive, eating out may not be such a bad value. Or if you’re set on only eating organic food, your food budget is going to be bigger than most.
Budgeting is about accepting that your resources are scarce, and prioritizing those resources, Curtis said.
“People are afraid of budgeting sometimes because they feel like they’re not going to have enough,” he said.
But budgeting is about having enough for the important things, like having enough to eat, making rent and, unlike the average American, saving for future goals and emergencies. It’s your priorities, not the percentages on a pie chart, that should guide your budget. It’s deciding, if you want to have a house one day, to save for a down payment instead of splurging on clothes or gadgets.
Your real expenses won’t fit neatly into percentages. If you bought a car, your loan payments and car insurance premiums are what they are, no matter what percentage of your income is supposed to go toward transportation. Those obligatory payments are your biggest priorities and your budget should reflect that. With what’s left over, you can make a place in your budget for smaller priorities — things that are wants rather than needs — like vacations or drinks with friends, Curtis said.
So how much should you spend on stuff? There’s no one right answer. Averages and pie charts can be helpful, but your budget should be based on who you are and what you value.
This article originally appeared on PolicyGenius.
Almost half of the U.S. adult population has high blood pressure under a new guideline set by heart experts. People with blood pressure readings of 130/80 or higher will now be considered to have the condition. The old threshold was 140/90.
That means about 14% more people will be diagnosed with high blood pressure, the American Heart Association and American College of Cardiology announced Monday. The greatest impact will be among younger people. The incidence of high blood pressure is expected to triple for men under 45 and double for women under 45, according to a report on the guidelines published in two academic journals.
The guidelines call for doctors to intervene earlier to stop further increases in blood pressure and complications from hypertension. These are the first new blood pressure guidelines in 14 years.
High blood pressure is a potentially deadly condition. After smoking, it’s linked to the second-highest number of preventable heart disease and stroke deaths. Blood pressure levels between 130-139/80-89 have double the risk of cardiovascular complications compared to normal blood pressure levels, said Dr. Paul K. Whelton, lead author of the new guidelines.
“We want to be straight with people — if you already have a doubling of risk, you need to know about it,” he said. “It doesn’t mean you need medication, but it’s a yellow light that you need to be lowering your blood pressure, mainly with non-drug approaches.”
Elevated blood pressure can damage blood vessels. The risk increases as you get into your 40s, Whelton said.
What to do about high blood pressure
Blood pressure can sometimes rise in a medical setting, but not in everyday life, so the guidelines recommend home blood pressure monitoring. Working to lower high blood pressure can help stave off health threats like heart attack and stroke. The American Heart Association recommends a few changes people can make to control their blood pressure:
- Eat a well-balanced, low-salt diet including lots of fruits, vegetables, whole grains and nuts.
- Limit alcohol. No more than two drinks a day for men and no more than one drink a day for women.
- Exercise regularly.
- Maintain a healthy weight. Being overweight puts extra strain on your heart.
- Take your medications properly. Listen to your physician’s recommendations.
High blood pressure & your money
Believe it or not, the new blood pressure guidelines could impact your finances. Life insurers use health information to determine how risky it is to cover a given customer — and how much to charge them. Blood pressure is one of the factors they look at.
It’s not clear when or if insurance carriers will adjust their guidelines for blood pressure based on the new research, said Emily Strobelberger, operations team lead for Policygenius.
“But if they do, it will likely affect rate classes and pricing,” she said.
Let’s say someone with a blood pressure of 142/82 qualifies for the best-class life insurance with the lowest premiums. If insurers adjust their best-class guidelines to reflect the new guideline of 130/80, that person may no longer qualify for the best-class rate.
“We can’t say for sure if carriers will adopt these new guidelines, but if they do, I think a lot of people could be impacted,” Strobelberger said.
Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute, expects life insurers to adjust quickly. Insurance companies act on real-world risk, and the research behind the new guidelines shows a link between lower blood pressure readings and lower death rates. So for anyone whose blood pressure is on the border of the new guidelines who’s considering life insurance, it may be wise to act now before carriers adjust their standards.
“In effect, right now if your blood pressure is on the margins of the new guidelines, I’d say life insurance is on sale for you,” Weisbart said.
Have a certain health condition? We can help you find the best life insurance company for you here.
This article originally appeared on Policy Genius.
For a holiday that revolves around a flightless bird, it’s ironic how much Americans spend on travel for the Thanksgiving holiday. Almost half of the expense of the long weekend is gobbled up (sorry) just by the cost of getting to the dinner table, according to a poll from LendEDU.
LendEDU asked 1,000 American adults how much they expect to spend to celebrate Thanksgiving this year. The average total expense is $165.14. LendEDU also asked respondents to estimate how much of that expense would be due to traveling costs like plane tickets, gas or hotel stays.
These cost made up 40.9% of what respondents expected to spend on Thanksgiving, or $67.59. Mike Brown, research analyst for LendEDU, stressed that these numbers were averages, and that many people, especially those requiring a plane ticket or hotel room, would pay much more.
How you can save on travel
There are plenty of ways you can lower your Thanksgiving travel cost. One unpleasant way is to travel on Thanksgiving itself instead of the day before like everyone else. Flight comparison site Hopper found that departing Thanksgiving and coming home the following Wednesday (Nov. 29) was $54 cheaper than departing Nov. 22 and returning the Sunday after Thanksgiving.
It’s also a good idea to book early. It’s probably too late for this Thanksgiving, since it’s only a week away, but if you haven’t booked your flight yet, DO IT NOW.
For next year, the best time to book a Thanksgiving flight is probably 11 weeks out, according to a study from Skyscanner. Mark your calendars.
You should also try to avoid paying full-price for a hotel room. If you’re visiting family, see if your old bedroom is available. If your dad has turned it into a home office/studio/man cave/yoga studio/giant walk-in closet, try splitting the cost of a hotel with other visiting relatives or opting for alternative accommodations like Airbnb, Flipkey or HomeAway.
Check out our other tips for saving on holiday travel here. Once you’ve cleared that hurdle, all you’ll have to worry about is avoiding awkward conversations about politics, religion or your depressing dating life.
This article originally appeared on Policy Genius.