What does it mean to be living the “American Dream?” I hear this term thrown around from time to time and think it is quite clever.
The college education, the high paying job, the family, the house, the yard, the SUV…
We are conditioned from an early age to live this dream and in order to fulfill it, we must be quality consumers.
This conditioning instills in us a sense of failure if certain life milestones are not met.
Having achieved these milestones, we form an emotional attachment to our property. We worked hard to earn that money, we spent that money and nothing is coming between us and that object of our desire.
Home-ownership has become synonymous with the American Dream mindset but how far have we fallen down the rabbit hole. I have seen too many people living the dream and sacrificing reality.
Is it sustainable to spend $1 out of every $2 you earn on housing and transportation?
The Atlantic published an article detailing America’s weird, enduring love affair with cars and houses.
The stats compiled from the Labor Statistics Bureau indicate that Americans spend nearly 50% of their income on housing and transportation.
This number seems to remain constant regardless of financial class.
According to statistics, as we earn more, our spending on housing and transportation increases.
For some, this level of spending is sustainable and worth it. For others struggling with credit card debt, medical bills or worse, student loans, it can be problematic.
The Bankruptcy Budget
After reading this article I did a very unscientific study of some bankruptcy cases I have handled. I just wanted to see if the bankruptcy filer was inflating this statistic.
The answer is yes.
I quickly looked at five random cases I have handled where the debtor(s) owned a home. Of the five, only one family was spending less than 50% of their income on housing and transportation. The other four were actually spending more than 60% with one individual spending close to 80% of her total income on housing and transportation.
Clearly 80% is not sustainable.
This type of budgeting leaves no room for the stuff that happens in life.
Spending at this rate creates a domino effect. A medical emergency or unforeseen home repairs can cause the dominoes to build momentum and topple. The sudden loss of employment creates a complete crash.
With no nest egg to fall back on, we fall into crisis and sometimes bankruptcy is the only viable solution. Unfortunately, this type of budgeting usually leads to worse outcomes than bankruptcy.
Keeping up with the JONES
This is another American cliche. Forget about Mr. and Mrs. Jones. Separate yourself from the cultural obsession with our cars and our houses.
Strive to be a poor consumer!
Take a step back and take an objective look at your budget. Separate the emotions from the finances and think about what is truly healthy and smart for yourself and your family.
Earn more, spend less, buy used and rent if it makes financial sense. Do it with pride and dignity.