Posted on 04/13/2010 6:59:30 AM PDT by 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
Apologies for the bit..hcy sounding post. As I said, impression. I am willing to admit, judging from your gracious reply I could have made false assumptions.
The US is a Christian nation, or at least should be that way. Having plenty of money is not very important in your relationships with God or His children.
Thanks HCMomma for the ping.
Acting our wage makes “getting by” a lot easier.
Dave Ramsey Fan Ping List.
If you would like to be added to the “Live like no one else, so that you can LIVE like no one else” list, feel free to Freepmail me.
The mistake here is that a lot of houses don't heat with electric. They burn gas or oil.
Later in the article, Joe needs to pay 300-400 a month for cell phones, cable TV, internet and such. This is not a need. My wife and I have prepaid cellphones. A thousand minutes lasts a year, for $100. Mine carry over and I pay less than $100 a year. My wife uses her cell phone more, but still keeps it down to ~250 a year. This is about $30 a month for both. Our TV, Internet and land line are bundled for $100 a month plus fees, but in a pinch we would just have Internet and use Vonage for phone; there is no reason to "need" cable TV, especially if you have Internet.
last time I looked up the street the bus was still running
I have never lived anywhere in my entire life where I had city transportation. Good for you on your street. Maybe you haven’t figured out not every one lives in the city???
And in my case, by choice.
“One thing for sure — in the USA ( unlike in most other countries, except maybe Canada or Australia, or perhaps if you live in the New York City and surrounding area), YOU CANNOT SURVIVE WITHOUT A CAR !”
I call BS. I have “survived” just fine without a car for the last few years. No, I don’t live in NYC or Chicago. I never take public transportation and I live in an area with all 4 seasons. It is tough about 1 month a year, but otherwise it is no big deal.
Bingo! We can be 'victims', which is what the Socialists want, or we can get back on our feet and try again. (Everyone knows what the first step to getting back on their feet is, I hope.)
It might not be easy, it might be darned discouraging, and it is often unfair. Expect that. Handle it, and keep trying.
For people out of work, check here, and here, with the caveat that housing is hard to find, and for here, expensive (1200-1500/mo for a 2 bdrm appt in some towns) but there are jobs, if you can do the work and handle the weather. A warning, though, get the job before you come here, even motel rooms are tough to get.
as a Depression baby and WWII survivor, I am amazed at what people consider necessities these days. When we were young, we rented modest homes and fixed them up. I stayed at home back then and used my time to do things that cut costs. No frills for the kids, just basic food, clothes & education.
My favorite is the bartender that complains about the potential foreclosure as she plays games on her new phone, talking about how the game is better on one of her 3 brand new gaming systems and later bragging about her new car.
Oh, and she is so happy to finally be getting health care paid for by the government.
A pox on all moochers!
avoid borrowing—live within your means
Ah what an old fashioned idea. How quaint. And what a great life that concept allows us to have when we understand keeping up with or outdoing every one else is not where happiness and security comes in to play. If more people understood that, our country would not be in the mess it is today.
It describes us almost exactly.
Get a Pellet Stove. We did and it is well worth it. God knows we would never be able to afford the electric bill since it went up 30% this winter. PP&L sucks.
“Boring is a state of mind, not a place. Anyone who is bored has only himself to blame. Some people might look at my life and say that I am a boring person but I am never bored.”
I am exactly the same way and I have never felt so much peace in my life.
My issue wasn’t whether your response to anyone was right or wrong... I just didn’t want you harangued on your first day. We need people like you, but FReepers are notorious for “picking” on the Newbies. If you thought I was picking on you, then I’m sorry.
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