Are Cars And Houses Costing You Your Retirement?


Cars, And Houses, And Gadgets… Oh My!

Last night we were talking about how most of the people we know, and seemingly the rest of the population around us, CONSTANTLY are in debt for their houses and cars. Worse yet, they seem to perpetuate this process by swapping them out for newer ones all the time. This conversation started after another Facebook post we saw of someone upgrading their house for a new one, 3 or so years into their last new house purchase. They are a family of 3 (one child). Their posting eluded to their desire to yet again “upgrade” their house for a house with 4 bedrooms! Our question…. WHY would you not try to plan your life a little ahead of time if you know you might want that monstrosity of a house in the future? Is the art of adapting your household to meet your needs lost on the American population now? And most importantly… WHO THE HELL wants to move that often?

All these questions naturally led into a discussion for us in our $100,000/1200 square foot house, of how the hell are people justifying spending that percentage of their income on their houses and cars. Do they not recognize they are adding bars to their proverbial jail cells?

We have good income, and we cannot possibly justify spending that money every year on cars and housing, so, how can they? We are pretty sure this family fits the bill for the “average” American household. One of them is a CNA and the other works at a car dealership. We looked at the average American household’s median income and it turns out its $51,759. That is a monthly income of $4,313.25 before taxes (we’ll get to that later)

Let’s revisit some numbers and expenses we previously explored, and build on them so we can get an inside look at what the “average American household” spends. For the purposes of this blog, we used the median as a figure.

The Cost Of A House

$188,900, that is the median cost of current home sales, the latest reports also indicate that 4.32% is the average mortgage rate on a 30 year loan. $1,295.84 per month would be the mortgage payment. (including very small property tax and insurance payments) If you remember from our blog Compounding Interest- Friend Or Foe, the cost of this house is actually double, costing you about twice the sticker price because of the interest if you take 30 years to pay for it.

The Cost Of A Car

Do you know any families with less than 2 cars sitting in the driveway? We don’t. We know a few that used to have a single car, but they have since given in to the need for two cars. Sadly, we fit into this category too, but given our rural living situation, on-call work status, and overlapping work schedules, it wouldn’t work out often enough for us to pull off being a single car family… FOR NOW

It turns out we aren’t alone; the average household has 1.8 drivers (age 15 and older) and 1.9 cars sitting in the driveway. So, we have slightly more cars than we do drivers. Everyone knows a few families with 3 or more cars between two people, and that is what makes this be the case. 95% of Americans own a car, and 85% report commuting to and from work with a personal vehicle. Naturally, these numbers translate to an awful lot of car loans sitting on top of driveway loans, aka mortgages.

The cost of the average car? $33,560! Wow! In 2015 that is what the median cost of American car sales rose to. Comparatively, the median cost was $27,950 in 2010. Apparently, Americans want more and more expensive cars, because that change in price is WAY more than adjusting for the cost of inflation.

8.56% is the average rate for borrowing for a used car, and 4.46% is the average rate for a new car. Let’s assume our “average American household” couldn’t resist those enticing new car commercials, and went for those “great deals” and now has TWO new cars sitting in that driveway they don’t own. At least they got the 4.46% rate! Each of those cars on a 5 year loan has a $625.05 payment (We assumed they put nothing down, and NO sales tax) That’s $1,250.10 a month payments for 5 years. Likely more or less the payment they will always pay since most Americans can’t stand driving an “old” car. Then again, maybe they will give up on the idea of owning their car while it has no car payment, and do the “cheaper” option of leasing a car for the rest of their life… Neither are great options, but seem to be the standard two options Americans feel like they have.

The Cost Of Life

Let’s quickly list some other average expenses per household so we can later see whats left over.

  • $7,068 per year on electricity, heating, water, sewer, septic, trash removal, phone services, internet etc.
  • $3,000 a year on gasoline per household
  • $900 per year per household on car insurance
  • $7,432 in personal taxes per household per year (Not including property tax, medicare, social security etc., but rather what the federal and state taxes are on average)
  • $6,602 each year on food. (The average household only spends 60% of this at home, the rest is consumed out and about) Some reports show that households earning $15,000 per year (our poorest population) still spend about $3,500 a year on food. Households earning more than $70,000 spend around $10,000 per year. Of course this number varies greatly depending on habits.
  • $4,365 is what the average American spent in 2013 on healthcare related expenses including health insurance premiums.
  • $2,564 is spent on entertainment. (cable TV, Netflix, sporting events, going to the movies etc.)
  • $37,172 is the average student loan debt (the most accurate figure we could find and updated since a previous blog) and lets give them a 6% interest rate, assuming they will take 20 years to pay off this loan. That’s a payment of $266.31 monthly. $3,195.72 annually. And lets assume both adults in the household have the same loans, that’s $6,391.44 annually.

Whew… We think we touched upon the biggest expenses, but are sure there are a lot more that we are not thinking of.

So, what do all those expenses add up to? Let’s first start by taking away the taxes from that median income figure of $51,759… $44,327, that’s what is left over to actually spend (again, a rough figure since we are not accounting for Medicare, social security etc. and assuming they are not savvy at tax avoidance strategies)

$7,068 + $3,000 +$900 + $6,602+ $4,365 + $2,564 + $6,391


Not too shabby! They still have $13,437 left over… Oh wait, now those pesky cars and that house need to be added…

$15,001 a year for their cars and $15,550 a year for their house… Oh oh… That puts them at a net negative of $17,114… How is that even possible?

$13,437 – $15,001 – $15,550

=  -$17,144

Paycheck To Paycheck Lifestyle

The point we are trying to make here is that something HAS to give… We just aren’t entirely sure that the average American does much of that. Our observations are that people make concessions in their finances in order to get near the break-even point for the year “paycheck to paycheck” and then, just when they are on the cusp of getting out of that horrible pattern and having $10,000 or more a year to reinvest in themselves, WHAM the need for another bedroom, or the latest car, or the latest gadget sucks them right into that hole again, never ever getting away from having that interest and payment monkey on their back.

If you find us having a car payment more than is absolutely necessary, or saying things like “I don’t know, I think we could use a little more space” and considering a housing “upgrade” feel free to punch us in the face… that’s the stuff that poor people are made of, and we have no intention of being poor… Just unemployed.

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