99% of Americans Don't Know They're Losing Money THIS Way

The average American household spends over $72,000 a year, but they're only saving around three to maybe four, four and a half%. You might think you're doing pretty well financially. But what if you see how you stack up against everyone else?

Today, we're going to dive into the real numbers from the US Consumer Expenditure Survey to reveal how Americans actually spend their money by income, even by age and lifestyle. Some of what we found might surprise you.

The stats tell us that the average person can't afford a $400 emergency. They don't have to give up life and give up a good lifestyle, but they've got to put their mind on the things that really matter. You got to stop caring what everybody thinks about you. It doesn't matter what you make. It matters what you keep.

Today, we're asking the big question. Are you above or below average? And more importantly, what can you do about it?

Phil, today is going to be a lot of fun because I know that you're a statistics guy.

I'm a statistics guy and we've got a lot of data. We're not going to inundate our viewers, but we are going to go through a measuring stick, so to speak. And I think that this is going to allow people to see maybe how they stack up against peers in a similar income situation. There are things that everybody watching can do, should do.

That's right.

And if those things are implemented, simple steps.

Yep.

They're going to have a really good chance of being successful.

Absolutely. We're going to get into this spreadsheet. And so we're going to focus on five silos of income. So what is the makeup of that income that I just mentioned per silo?

If you look, the majority of the income in any silo, I don't care if you're earning zero, which then you don't have income, or a million. The majority, from the statistics that we get, and by the way, this information is pulled from one of the table charts on the Bureau of Labor Statistics website. So this is information from 2023. The majority comes from wages and salaries. So it isn't fancy. It's not bells and whistles. It's not privately held businesses. Maybe unless you're an S corp and then you pay yourself a salary, right? But by and large, it's from nose to the grindstone. Go to work and earn a wage or earn a salary.

Just good old W2 income.

Good old W2 income. Yeah.

You and I, Phil, work with very wealthy people. Most of them, I would argue, W2 income.

The wealthiest that we work with, Spell, they, even when they own a business, they have some form of W2.

Yes, they do.

But you're right. So many of our clients who are worth millions of dollars, they're W2 earners or were W2 earners.

Yep.

Look at the amount of tax that someone earning $0 to $70,000 pays. $23.50.

Yeah. Yeah.

Then look at the amount of federal income tax that someone, or a consumer unit, earning over $200,000 pays. $61,398. Let's just look at the state level real quick and then we'll get into some conversation and dialogue. $377 state tax for the lowest rung. A little over $14,000 for the 200,000 plus club.

I hear all the time, the rich don't pay their fair share in taxes, or those making a lot of money don't pay their fair share in taxes. Do you think that these statistics rebuke that?

Well, one, that argument gets on my nerves all the time. I'll give you a perfect example. If they're a surgeon and they're making, and thank the Lord for them because they save lives every day, and let's say they're making 7 or 800,000 a year and they don't have a lot of real estate and they don't own a business. They're just getting a W2 from the hospital. They are paying a lot of tax.

Yep.

A lot. They're probably in the 37% bracket.

Absolutely. They are.

So, they're paying a lot of tax. Now, go to this column. Look at that column, Spell. That gets us up to 100,000. Most households can live pretty well on 100k.

Oh yeah.

Well, they're paying $445 on the average in that continuum of 70 to $99,999. That's 5% tax on the high side. They get the same standard deduction that I get.

That's right.

Or that you get, or that any wealthy person gets. The ones that work the hardest, they make the most money. If they know how to exploit a tax code that might not be perfect, so be it. But if everyone's going to complain about it, go to Washington, become a senator, become a congressman, change the tax code.

There you go.

It's all you have to do.

Phil, I'm going to move into something a little different, and that's housing, and housing has been a huge topic recently everywhere. We live in Wilmington, North Carolina. A extremely desirable place. My wife and I have just recently become new homeowners and we're over the moon about it.

Congratulations.

But boy, is it expensive.

Yeah, it is so expensive. Well, the thing about this, Spell, when I moved to Wilmington, 16 years ago, almost 16 years ago, the price of homes...

Yeah.

...were literally half of what they are today. I've never seen housing prices move at this pace. And it didn't happen over 15 years. It happened over the last seven.

That's right.

And it's really been... It's incredible. Here's what I want anyone who's listening to do.

And it's around the country that way. It's not just Wilmington.

It's absolutely around the country. If you have experienced extreme growth in the value of your home, leave a comment. Tell us what that's been like for you. Did your house go from 250,000 to 500,000? Did it go from 500,000 to a million? Maybe it's even more than that. And when you put that in the comments section, by the way, tell us if it's changed your way of thinking about your net worth, because a lot of people see the net worth on paper, home's worth more.

Yep.

And all of a sudden, their lifestyle goes up.

Exactly.

Not because they have any more money.

Let me...

Their lifestyle goes up.

Let me guess what you're talking about, Phil. Are you talking about property taxes? Property tax goes up even though we don't have any money to show for it. We just have a piece of paper that says the tax man or the local assessor said, "Your property's now worth more."

Yep.

And we get to pay more tax on that.

Yep. You're right. As a result, we get to pay more insurance because it's more valuable. Now, we got to raise our insurance.

That's right.

So we can cover the home for what it's really worth.

Exactly. So to speak.

So there's two new costs that no one budgets for, but they all of a sudden feel wealthier because the home went up in price. They can't touch the money.

Yeah.

It's in the house, but they got to spend more for it.

That's right. That's right. So, there are financial metrics and ratios that you can utilize, a benchmark to determine if you've bit off more than you can chew on your house or if you've bit off more than you can chew in living in some fancy apartment somewhere. Your housing ratio one, which is a very generic general guide for most people, is 28%. So 28% of your gross income should be allotted to your housing. If it's beyond 28%, you've bit off more than you can chew, because it means that you're sacrificing something else, probably saving for your retirement, to afford a living situation that you want today.

Yeah. And I think, Spell, that's perfect place for us to throw this in. We were in COVID and all of a sudden interest rates were falling, as you know. People were buying as much home as they could afford, which meant they were really, in a normalized market, they were buying way beyond what they could afford. And here's what I mean by that. Now that things are normalizing, number one, they're stuck.

Yep.

And so if they want to sell and buy another home, they're going to be in a much higher cost.

That's right.

In terms of interest cost. And so that means the mortgage payment is going to be higher.

What does all of that really amount to? Well, when they bought that home, because rates were at 3%, they could buy a lot more home. Well, with that home came lots of larger than normal expenses, expenses that they wouldn't have if they were buying a home that was more aligned with their income. Now, fast forward four or five years, those home prices have ballooned 50%, 60%, some more. And so have the taxes, the insurance, and all of the other expenses, the labor costs to maintain those homes. All of that's gone up. And so now, yeah, they have a low interest rate, but they didn't budget for all of this other stuff.

Nope.

And it is putting people in a position of either one, requiring more credit, or two, reducing their lifestyle, which is hard for a lot of people.

Yes, it is. And when they ignore the benchmarks...

Yeah.

...they simply do what they have to do to survive. They forget the benchmarks or they don't know them, and they're getting further and further behind, all because they're trying to maintain a lifestyle, which is where the psychological side comes in. The herding mentality. They do whatever they see everybody else doing and that's what they're supposed to do. They also anchor to things that are recent to them. And so recency bias comes in as well, and they think, "Well, wait a minute. This is what I was doing. I can't change now." And they'll push and push and push, and before you know it, years go by and they realize they're further and further behind. And it's hard to catch up from that. But housing is one of the culprits.

Yes, it is.

One of the culprits because the costs keep going up.

You're exactly right.

Income may not.

It's interesting to talk about this too, because housing is thousands of dollars a year for anybody. It's thousands of dollars a year, but studies have shown that most Americans can't afford a $400 unexpected expense, which I think is a complete and total travesty.

It's such a shock to hear that.

Yeah.

$400. I see people blowing that on dinner.

Yeah.

Really, I see people go out and they think, "Oh, I'm going to have an experience." And they blow $400, right? Yet the stats tell us that the average person can't afford a $400 emergency. That is hard to believe.

And absolutely, that's tragic. Well, and not to cast dispersion, but I was listening to a financial advisor the other day on YouTube. I don't know who they are or who they represent, but she said if you have $400 in your bank account, you're doing great. And if you have $1,000 in your bank account, you're doing incredibly well.

She's a fool.

That is...

She's a total fool. Who would say that? That's horrible advice. Why would a financial advisor worth their salt say that?

Yeah. What is the point?

There is no point to that. Is she saying that so that she can get people to celebrate that they're failing? I have no idea. I have no idea. Great. Let's celebrate that we don't have any money. Great.

Yeah. Awesome. Let's go have experiences and celebrate that we have $400 in the bank.

Exactly. Woohoo.

So, Phil, wow. How do we fix this?

We'll get right back to today's show, but first, I'd like to ask you a quick favor. If you're enjoying this episode, hit that like button and make sure that you're subscribed to our channel so you don't miss what's coming next. And hey, if something in today's episode has you wondering about your own financial plan, why not get a second opinion? Visit omnistarfinancial.com to schedule a consultation with one of our team members. It's quick, it's easy, it could make a huge difference in your financial future. Now, let's get back to the show.

And I'm astounded by the amount of expense. It's spend, spend, spend. So I'm asking you, you're in your mid-50s. I'm in my late 20s. How do we fix this?

There happens to be steps that if people would simply take them, they don't have to give up life and give up a good lifestyle, but they've got to put their mind on the things that really matter.

Mhm.

Number one, you got to stop caring what everybody thinks about you. Those people are not going to be there to support you when you reach retirement. They're not going to care if you're living the life that you dreamed of living. They don't care. And if they're living theirs, guess what? They're not going to say, "Oops, wait. Let me share this with you." They're going to say, "Oops, sorry. I'm sorry you didn't save enough because I'm living the life I want to live." That's how that's going to roll.

Number two, you've got to set goals that allow you to focus on reaching something. And something is, you've got to be prepared when you don't work, right? When you retire. So, you've got to have the goals. Then you've got to have the discipline to do it.

Yeah.

And you've got to stick to it. Now, you might need a partner to help you with that. That could be a financial planner. It could be your spouse. Whoever it is, hopefully if it's your spouse, that means both of you are on the same page, and you really need that. Otherwise, the household's probably gonna be broken anyway. But Spell, I think you've got to get the basics in order.

Yeah.

To reach any semblance of success.

Yeah.

I want to throw this to you because you, in your late 20s, you face a much different challenge than I do.

Yeah.

My challenge is not that I worry about what people think anymore. I don't care.

I grew out of that a long time ago. And if people don't like what I have, who I am, how I live, and what I do, and if I spend money with it, I don't care.

Yeah.

Doesn't matter to me. And that is a wonderful freedom because I get to do what I know is best for me and my wife and our family. That's all that matters. I don't care about because no one else is going to come to the rescue, right? But I would think the pressure is on people like you because you guys have the peer pressure and it matters at this phase, at this stage of life. Everybody wants to travel, do all the things, have all the memories, create the experiences.

Hearing all that stuff, Spell, on the one hand, I say, "Oh, that's great, man. Go make some memories." But on the other hand, I think take a few pictures for crying out loud. Stay home. Stop blowing all the money traveling to all these places that really mean nothing, right? And focus on the future. Sacrifice today so you can live tomorrow.

Yep.

Right. How do you see it, Spell? Because you're right in, to me you're in the time of life where those challenges are greatest.

Social media, particularly for young people, is a vice because it shows you the best of anybody. Nobody posts their horrible experiences on social media. They post glitz and glamour and their trip to St. Kitts and they flew private to the West Coast to go surfing and there's all of this glitz and glamour. I've already said that it's, you only see the good on social media.

And what are they trying to do? They're trying to impress. They want people to see them in this best light, right? As though they, and they're living like gazillionaires, right? When chances are they're not.

Yeah. They're not. That's the reality. And it goes right back to the low interest rates during COVID. People were buying homes. Money was cheap because they could. People were bidding. There were wars, right, in these, in bidding. People were paying way beyond what a home price should be. And now that stuck and it's not coming down quickly enough. It is coming down some, but that very kind of behavior is what I believe, you say, how can we break this cycle?

I think that very behavior, allowing people, or people allowing themselves, and it's all a choice, right? Allowing themselves to get into these situations where they can't stop.

Yeah.

And they'll do whatever it takes to get whatever they want.

Yeah. And they worry about the consequences one day, maybe.

Here's how you break the cycle for a young person. And if you're listening to this and you're young, I hope that you take this to heart.

When you say young, what do you mean? Cuz I still consider me young.

You're young, too. And this is universal advice because I think everybody's affected by the world around us, right? There's, it's, you can't escape that. To be sure, get off social media. Have it for a little bit, but then get off. If you're not saving 20% of your income, you're failing yourself. Period. If you don't have that discipline to save 20% of your income, you are not doing yourself a service because the time that you have now, you will never get back. Put the money away now. Don't touch it and let it grow. You will thank yourself later.

I had great advice. I had the fortunate, I had great parents, Phil. Still have great parents.

I know your parents and I can agree with that.

But my dad always told me, and I told you this before we got on camera, live like no other so that one day you can live like no other.

Yeah.

And what he meant by that was make sacrifices today. Don't go out and drink your money away. Don't go out and party your money away. My wife and I rarely go out and when we do, we go out for a nice cocktail and we're back home. That's where we are in our lives. And it takes discipline because I have friends who

But, Spell, you probably would agree with this. The average person has no idea what percentage they're spending on those things relative to their income.

That's true, right?

They have no idea what the benchmark is. They have no idea what is too much or too little, right? And so they just go out and do it and they can pay for it and they can, and so they do.

Yeah.

But they don't know how bad it's affecting them. So here's a question for you, Spell. Younger person. What categories in spending, maybe the top three? What are the three that a person should be watching closely and have a willingness to change to get it in check so that they are not overspending, which would hopefully allow them to put money in places that they really need to put it?

Yep. Great question. The first is housing.

Okay.

Because housing is, as we already mentioned, the largest, for most people it is the largest expense on the balance sheet or the cash flow statement. That is the largest expense. If you are spending half of your paycheck to afford a cool place to rent or a home that is way more than you need, change that situation immediately. You will save yourself thousands quickly, in short order.

The second is food. Food for most people is the second largest expense item on the cash flow. I know that you mentioned earlier that yours is not food and I won't share, I won't put you on the spot, but food is expensive.

Yeah, it is, particularly eating out.

Eating out costs so much money. And if you're not using a budgeting tool, I'll throw a subcategory in there. You need to have a budgeting tool, something that automatically captures what comes in and what goes out. And from what's going out, you need to have categories. And I guarantee you that housing is probably going to be, 99% of the people listening, it's going to be the top expense. And then food is going to be right there below it.

So in the business world, we call that a chart of accounts.

That's right.

And every business runs on that with a profit and loss statement, that P&L. People somehow ignore it.

Right.

Individuals ignore this. If it's good for a business and it's how businesses are able to sustain because they can see the numbers, why don't people do it? So you said housing, food. What's the third?

The third, and it depends, for me. It's interesting here because I'm eager to hear your answer and I'm hoping that it's what I think it is. But if it's not, I'm going to throw one in there.

Okay.

That I think everybody's got to be watching. It's the excess expenditures. Just a waste.

Waste. Yeah. Required versus desired.

It's required ver... Okay. So is that where you were going to tell me to go?

I got one more.

Okay.

But I got one more. My answer, and then I'd love to hear yours.

My answer is an analysis on required versus desired.

Yeah.

And I'm speaking particularly for people who are influenced on social media by the advertisements that are designed by teams of professionals to get you to click and get you to buy.

Yeah, the clickbait's incredible these days.

It's incredible. And if I had to guess, I know my household's spending because I have a budget. We know what we spend each month. And it's not only we know what we spend each month, we have an allotment. We pay ourselves first, meaning we save. Once we check that box, then we go to the required, which is housing, food, some insurance, which is required. Then we go to desired. Usually the third largest, particularly for the younger folks that I have the pleasure of working with, is shopping. If you have the other boxes checked, shop all you want. As long as you're taking care of saving, shop on, you buy whatever you want. You got that emergency fund, you're saving for retirement 15 20%. Go shop.

But it's interesting, Spell, that you say shopping, because way back when, when I was a little boy and way before that even, America's pastime was what? Is baseball, right? That's the old saying. Could be a number of things, but it wasn't shopping. Today America's pastime is shopping. When nobody has anything to do or they're bored, well, let's go shopping. Why? What a horrible pastime, because people just go to that, well, let's go shop. And you end up buying stuff that you don't need and then you'll come justify it by saying, "Well, I got it on sale. It was half off."

Yeah. Good. Anchoring bias. Gotcha.

Or right. So you saw it, you thought, "Oh, it's 50% off now. I'll take two."

Yeah.

That's crazy logic, but that's what people do. My fourth one, because I think yours are great. So, housing, food, and then required versus desired. So, it's those miscellaneous things. It's those things that you really don't need, but you buy and then you can't undo it. And then six months later you say, "Yeah, I really wish I hadn't bought that. Why'd I do that?" But the other one's taxes.

Taxes is a good one.

Taxes. If you can control that, yeah, that to me is free money. If you understand how to control the taxes, which means using all of these tools that we talk about for savings,

Yeah.

then you can find extra money.

That's a great point, Phil, because again, Frankie and I are very blessed to have what we have and to be on the road that we're on. And taxes. And I was talking to, I have two sister-in-laws who are great, but I was telling them, and I'm not going to get into details, but I was telling them what Frankie and I paid, because this was last year, was the first year we filed jointly. I was telling them what our household tax bill was. And it wasn't anything that our clients would think, "Wow, that's a lot." But for them, they were thinking, "Oh my goodness, that's more than I make in a year." And not knowing how to mitigate the tax bill, it can be costly.

And even, it's huge. Even when you do things to mitigate the tax bill, can still bite. So even though we showed on that chart, in our data set, that lower income households really pay a very small amount of tax,

Yeah.

the problem, the people that complain about tax are the ones who never bother to understand the tax code.

Right. Right.

And if they did, you wouldn't get that response because there are plenty of ways that if you simply do things a little differently, you can save a lot of that tax and save taxes. It's like my mother always told me as a child, penny saved is a penny earned.

That's right.

So, if you can save something in one place, that means you can afford something in another.

That's right.

And if people could think more like that, then in my opinion, they're going to be successful financially anyway much sooner and it's going to be more sustainable. Building those kind of habits, understanding these items that you ought to be changing as it relates to your P&L or your balance sheet, or rather your benchmarking and your budgeting.

Yeah, and I think you're exactly right and people need to hear this.

So, housing, food, required versus desired. Get honest with yourself and know what those are and make sure that you've got taxes under control. People do that, Spell, they're going to be much better off.

They're going to be much better. So much better. Much better off.

So one more thing, Spell, that I want to toss, maybe both of us can answer this, but why do you think people make these decisions that are not good for them financially? And is there anything that's made you, other than the way you were raised, that helped, but is there any one thing that you can think about that made you say, oops, there's the light bulb, I need to be doing this differently?

Yep.

What is that?

So to answer the first part of that question, why do people make financial decisions that don't make sense for them? I think it's purely trying to keep up with the Joneses, and that's so overplayed and it's overrated, but it's true and it's been true for a long time. And guess what, Phil? 10 years from now, it's still going to be true.

Well, we are all of the herding mentality. That's human nature. And so people don't want to get left behind.

Yeah.

And so they say, "Well, everybody's doing it. I might as well." In fact, I hear marketers say, "Everyone's doing it, right?" And so it literally guilts you into doing it. I do believe that's partly why people make such horrible decisions.

I think it's that. And then I do think I want to give our viewers or anyone listening that maybe feels like they're not where they need to be the benefit of the doubt. And I'm going to say something that might rub people the wrong way. I don't think it will, but I think our education system is failing people horribly. I think that's why some people are making really poor financial decisions.

Phil, when I got out of high school, do you know how many classes I had on business or economics or how to run a financial household? Do you know how many, out of high school? Zero. No one in the educational system taught me those things. It wasn't until I went away to college where I learned them in a formal educational setting.

Yeah.

And that I think is probably leading to some of the poor financial decisions that people are making.

Yeah. Well, it starts at home.

Yeah. Starts at home.

You've got to have good direction from there. You need to get some kind of education. I think education really helps people get on the right track. Now, choice of school is a different matter, right? Because some schools are not teaching you the things that you really need to know that are going to get you through life. Others, I think, are emphatic with teaching you the right things that are going to give you lessons that you won't unlearn, right? Which is great.

But, Spell, I just take all this back to the benchmark and knowing where you are relative to that because, just, if you're under the benchmark, it doesn't mean that you need to suddenly come up to the benchmark. Stay below it.

Yeah.

You don't have to spend more. And just because people around you are spending above the benchmark, that doesn't mean you need to spend more either.

That's right.

Right. Live your life, run your race, know what you're running towards, fix your goals, and stay focused on them.

Let me answer the second part of your question, and you just nailed it. If you're not at these benchmarks, a lot of these benchmarks are expenses. If you're below them, kudos to you. It's awesome.

Great. Yeah. Great.

It means you have more in the coffers to save or allocate elsewhere to help you build a better future.

For sure.

The light bulb moment for me, you asked me to segment this from my upbringing. I've been at this firm for a little over three and a half years and I've seen what our most successful clients have done. And it's not just the amount of money that they make because some of our clients don't make hundreds of thousands of dollars, but guess what? They have millions of dollars banked. And it's because they had discipline and they understood sacrifice. And I think that has left an impression on me, a mark on me.

I think the sooner our listeners can get into understanding the benchmark, and if you don't know what the benchmark is and you need help with that, reach out to us. Put a comment in below the video. Let us know what you're struggling with and we'll send you benchmarks. We'll answer the question. We'll let you know what that needs to look like. And then you can have these averages and then you can begin to benchmark yourself. You don't need us to do that.

No.

But benchmark yourself and then set goals because if you're not, if you're above those averages, you might have to make some changes to your spending. But then set goals. Where should you be by what stage of life to know you're on track? Once you get there, then you're going to feel much better. But you've got to make decisions now to do it.

And for the listeners out there who are on track, I just say congratulations to you. And by the way, Spell, this is another show, but a lot of times people get confused and they think, well, if I'm not making 200,000 or more a year, I'm never going to be successful. Let me tell you something. It doesn't matter what you make. It matters what you keep.

That's right.

And so depending on where you are in earnings, you might make a 100, you might make 50, you might make 500,000. I know people that make 500,000 a year and they live paycheck to paycheck, which is shocking. I don't just look at someone making that kind of money and say, "Boy, they're going to be successful. I want them as a client." I look at the person who understands how to keep money. And the ones that can keep are the ones that are going to develop and they're going to become wealthy.

So, there you have it. A lot to unpack. Biggest expense for almost anyone is housing. Make sure that you're not buying too much house or that you're not in too much house. If that home is rising in price, it looks great on your balance sheet. But if all the expenses that go along with it are going up at a rapid pace, that could be setting you up for failure. Watch that. And then get those other expenses in order. Make sure you consider required versus desired.

True.

And control those taxes. Now, drop a comment. Let us know where you're struggling or let us know where you're successful. We love hearing about the success stories. We also want to hear about the people that feel a little bit behind. We can offer you some ideas. We can share things with you that will help you get on track.

Thank you so much for watching. We greatly appreciate it and we'll see you next time on We're Talking Money.