When luxuries become necessities – A wealth of common sense

Each year, the Bureau of Labor Statistics (BLS) updates consumer spending data on how Americans collectively spend and earn their money.

These figures are averages, so your personal household budget probably looks different in some respects. Your circumstances – where you live, standard of living, how much you earn, family situation, etc. – often dictates how you spend.

But it can be instructive to look at the aggregate spending numbers to see where the most dollars are going:

People pay a lot of attention to gas and food prices, but housing and transportation costs account for 50% of all household expenses, on average. Add in food and now we’re close to two-thirds of household spending on necessities.¹

It’s the big things that matter when it comes to budgeting. Your daily addiction to Starbucks won’t move the needle as much as paying the costs of proper housing and transportation.

Housing is the big one, of course, but it’s a tough one to pin down on the inflation front. If you stuck with a 3% mortgage rate during the pandemic, you’ve likely experienced housing cost deflation in recent years. Yes, insurance and property taxes can go up, but that’s a completely different situation than someone trying to buy a home today at much higher mortgage rates and prices.

Renters don’t pay the ancillary costs of ownership, but inflation has been a bigger burden on the renter class in recent years than on homeowners.

Right or wrong, much of this decade’s housing inflation has come down to luck, both good and bad.

Shipping costs, on the other hand, are more about choice than luck. All-in costs for transportation — cost of vehicle, insurance, maintenance, gas, etc. — grew by more than 7% in 2023, after growing by more than 12% in 2022.

Much of this has to do with the general increase in prices during this period, but some of the shipping costs over time feel like self-imposed inflation.

Check out this chart from Bank of America that shows the changing nature of vehicle consumption over time:

Two-thirds of all vehicles on the road in the early 1990s were cars. In 2010, it was practically 50/50. Now we’re looking at 85% of the inventory mix in trucks and SUVs.

We love trucks and SUVs in this country, but this change must have made a dent in household budgets over time.

Vehicles today get better gas mileage than in the past, but households could save money on gas, insurance premiums and monthly payments if they switched from a truck or SUV to a sedan.

The crazy thing is that our vehicles are getting bigger while our families are getting smaller. The average family size 100 years ago was about 4.5, while today it is more than 2.5. I still don’t understand how people managed in the past when families often had 4-5 children.

To be fair, I’m a hypocrite about this. We are a family of two SUVs (we also have 3 children).²

If your budget is stretched, there are really only two places to look for the biggest savings – housing and transportation.

Shipping seems like the easiest solution for most people.

If you need more money, drive something smaller and cheaper.

Further reading:
Is auto insurance becoming a crisis?

¹Not all food expenses are out of necessity. Almost 40% of food spending is classified as “away from home”, meaning eating out. Inflation is much higher for eating out than for eating at home. Over the past 10 years, inflation for food away from home has been nearly 50% compared to 35% for food at home prices.

²When we’re empty in 10 years, I can’t wait to drive a sedan again. I miss you.