It's Almost Impossible To "Get By" In The US Today

Zero Hedge ^ | 04/13/2010 | Graham Summers of Phoenix Capital Research

[SeekAndFind]

While the market cheers on the fantastic job “growth” of March 2010, the more astute of us are concerned with a growing tide of personal bankruptcies. March 2010 saw 158,000 bankruptcy filings. David Rosenberg of Gluskin-Sheff notes that this is an astounding 6,900 filings per day.

This latest filing is up 19% from March 2009’s number which occurred at the absolute nadir of the economic decline, when everyone thought the world was ending. It’s also up 35% from last month’s (February 2010) number.

Given the significance of this, I thought today we’d spend some time delving into numbers for the “median” American’s experience in the US today. Regrettably, much of the data is not up to date so we’ve got to go by 2008 numbers.

In 2008, the median US household income was $50,300. Assuming that the person filing is the “head of household” and has two children (dependents), this means a 1040 tax bill of $4,100, which leaves about $45K in income after taxes (we’re not bothering with state taxes). I realize this is a simplistic calculation, but it’s a decent proxy for income in the US in 2008.

Now, $45K in income spread out over 26 pay periods (every two weeks), means a bi-weekly paycheck of $1,730 and monthly income of $3,460. This is the money “Joe America” and his family to live off of in 2008.

Now, in 2008, the median home value was roughly $225K. Assuming our “median” household put down 20% on their home (unlikely, but it used to be considered the norm), this means a $180K mortgage. Using a 5.5% fixed rate 30-year mortgage, this means Joe America’s 2008 monthly mortgage payments were roughly $1,022.

So, right off the bat, Joe’s monthly income is cut to $2,438.

According to the US Department of Agriculture, the average 2008 monthly food bill for a family of four ranged from $512-$986 depending on how “liberal” you are with your purchases. For simplicity’s sake we’ll take the mid-point of this range ($750) as a monthly food bill.

This brings Joe’s monthly income to $1,688.

Now, Joe needs light, energy, heat, and air conditioning to run his home. According to the Energy Information Administration, the average US household used about 920 kilowatt-hours per month in 2008. At a national average price of 11 cents per kilowatt-hour this comes to a monthly electrical bill of $101.20.

Joe’s now down to $1,587.

Now Joe needs to drive to work to make a living. Similarly, he needs to be able to drive to the grocery store, doctor, etc. According to AAA, the average cost per mile of driving a minivan (Joe’s a family man) in 2008 was 57 cents per mile. This cost is based on average fuel consumption, tires, maintenance, insurance, license and registration, and average loan finance charges.

Multiply this cost by 15,000 miles per year and you’ve got an annual driving bill of $8,550. Divide this into months (by 12) and you’ve got a monthly driving bill of $712.

Joe’s now down to $877 (I’m also assuming Joe’s family only has ONE car). Indeed, if Joe’s family has two cars (one minivan and one sedan) he’s already run out of money for the month.

Now, assuming Joe’s family is one of the lucky ones (depending on your perspective) they’ve got medical insurance. Trying to find an average monthly medical insurance premium for a family in the US is extremely difficult because insurance plans have a wide range in deductibles, premiums, and co-pays. But according to eHealth Insurance, the average monthly premium for family policies in February 2008 was $369.

So if Joe has medical insurance on his family, he’s now down to $508. Throw in cell phone bills, cable TV and Internet bills, and the like, and he’s maybe got $100-200 discretionary income left at the end of the month.

This analysis covers all of the basic necessities of the average American household: mortgage payments, food, energy, gas, driving expenses, and medical insurance. It also assumes that Joe:

1) Didn’t overpay for his house 2) Made a 20% down-payment of $45K on his home purchase 3) Has no debt aside from his mortgage (so no credit card debt, student loans, etc) 4) Only has one car in the family and drives 15,000 miles per year 5) Keeps his energy bill reasonable 6) Does not eat out at restaurants ever/ keeps food expenses moderate 7) Has no pets 8) Pays for health insurance but has no monthly medical expenses (unlikely with two kids) 9) Keeps his personal budget under control regarding cable TV, Internet, and the like 10) Doesn’t spoil his kids with toys, gadgets, trips to the movies, etc. 11) Doesn’t take vacations.

Suffice to say, I am assuming Joe maintains EXTREMELY conservative spending habits. Personally, I know NO ONE who meets all of the above criteria. However, even if the above assumptions applied to the average American, you’re still only looking at $100-200 in “wiggle” room for spending per month!

If Joe:

1) Overpaid on his house 2) Didn’t have a full 20% down payment 3) Owns two cars 4) Eats at restaurants 5) Splurges on heating & A/C bills 6) Has any medical expenses aside from monthly premiums…

… he is running into the red EVERY month.

I also wish to note that my analysis didn’t include real estate taxes and numerous other expenses that most folks have to pay. So even if you are extremely frugal and careful with your money, it is impossible to “get by” in the US without using credit cards, home equity lines of credit or burning through savings. The cost of living is simply TOO high relative to incomes.

This is why there simply cannot be a sustainable recovery in the US economy. Because we outsourced our jobs, incomes fell. Because incomes fell and savers were punished (thanks to abysmal returns on savings rates) we pulled future demand forward by splurging on credit. Because we splurged on credit, prices in every asset under the sun rose in value. Because prices rose while incomes fell, we had to use more credit to cover our costs, which in turn meant taking on more debt (a net drag on incomes).

And on and on.

Does this mean the market is about to tank? Not necessarily, stocks have been disconnected from reality since November if not July. Bubbles (and we ARE in a bubble) take time to pop and this time around will be no different.

Best Regards,

Graham Summers

[carton253]

Yeah, it’s the law of the jungle actually.

[MS.BEHAVIN]

No..
Hubby and I live in the country.
It is peaceful and virtually crime free.
Our jobs take us to different destinations, one near and one far.
Both cars are older, paid for, and well cared for.
The peace we feel living here is worth not having a bus line.

[carton253]

If you place your cursor on a FR screen name, it will tell you how long a FReeper has been here.

Just a heads up.

[lwd]

That's called being a "gold digger".

So....when are you going to divorce the "geeky guy", take HALF and go marry the "the hot man"?

[reagan_fanatic]

I know. I’ve done sales before, and I HATED it. I was not very good at it anyway, and the constant phoney-baloney ass-kissing rubbed me the wrong way.

I’ve been at my current job for almost twenty years. It was fine up until about 1-1/2 years ago, when the owner started losing his business sense and let the business languish. Once Obama’s policies started sinking the economy, it hit us hard. If we’re open in 6 months, it’ll be a miracle.

[668 - Neighbor of the Beast]

What do they do for a living?

Various things. And they get to work by walking or mass transit or in a used car they've paid cash for. Work close to home.

Anyone can look at their own budget and calculate what it would be without a mortgage, a car payment, cable tv, or the extra expense of commuting a distance.

What are the unavoidable living expenses of a civilized life? Food, electric, water, taxes, car insurance, trash removal, internet connection, gasoline, telephone, heat. If you're trying you even go without some of that. For sure you don't have to live in an area where the taxes are high and the a/c needs to run. Look around. Go to realtor.com and find a rural happily-ever-after. We did it. Our property taxes are now $40/mo instead of $1000/mo. (Yes, we were paying one THOUSAND a month for the main residence, in property taxes. For the privilege of living in a high crime area. Financially it was no sweat so we figured we could afford it...until somebody got killed. That is one of those hidden expenses you sometimes run into.)

I tell this to people all the time: use your imagination, that's all that is limiting you. You think you can't move, can't afford to change jobs, can't this, can't that...but you've never really thought it through. People are creatures of habit, and they hate to pull up roots, explore new things and make big changes. Fine. Spend $5k/mo, or ten, or more. But don't call it unavoidable.

[CodeToad]

“and my critique stands.”

Wow, this is really important to you, isn’t it?

[reagan_fanatic]

It’s OK, Megan D - if I had a hot ass and no morals, I’d reel in a rich babe and be living on Easy Street, too.

Unfortunately, not all of us can use our bodies to get what we want in life.

[TChris]

If you place your cursor on a FR screen name, it will tell you how long a FReeper has been here.

Just a heads up.

That works in some places, but doesn't in others.

Also, I, for one, don't put much stock in FR "longevity". After determining that a poster isn't a drive-by troll, which is easy enough to tell from their posts, what does a FR age tell you? There have been some long-time FReepers suspended and/or banned.

Judge a FReeper by his/her posts. I didn't sign up to join some kind of union where seniority rules.

Meagan's post was a very good example of conservatism in action. Control your own destiny!

Bravo!

[D1X1E]

The emphasis on education and fitness are valid points and good advice. The "teaching hubby how to dress" and "have plenty of money" give one a rather unfavorable impression. The term "snob" who has never experienced a real life crisis comes to mind. Missing a beauty parlor appointment doesnt qualify.

There is nothing in ChocChipCookie's profile to suggest she is pro government handout or has jealousy issues either. That perhaps is your incorrect impression of her, as the above is my, possibly incorrect impression of you.

[Smokin' Joe]

The assumptions are calculated on a one breadwinner family. That may have been true in the 1950s but its not true today. Both husband and wife have to work of necessity to keep the family afloat and to make ends meet.

Then, though, you have to add in the second vehicle and day care.

[Smokin' Joe]

Last time I looked up the street, the bus was still running its usual route. Does everybody now think they’re too fine to hop a bus?

Not too fine. It's the 90+ mile drive to the nearest bus that is the budget killer.

The nearest 'large' town does have a cab service, but it's cheaper to have and drive a car.

[carton253]

Fine...I was just trying to save Megan D some uncessary hassle. That’s all... If you and Megan think your ways are best, who am I to argue.

[Woebama]

Megan, I don’t mind that you had a plan to find a good husband. I do “mind” your lack of sympathy for people who didn’t plan well or who had their plans not work out. You don’t seem to have sense that you have been blessed and that it could have worked out very differently for you.