Children are so insightful! I asked my eight-year-old soon-to-be step-daughter if she had any questions about money, and her very first question was “what should grown-ups spend money on?”. Isn’t that a great question? Tons of adults I know don’t even know what grown-ups should spend money on!
What should grown-ups spend money on vs. what grown-ups do spend money on
To answer the question “what should grown-ups spend money on”, we first must find out what grown-ups actually spend money on. Sometimes we spend money how we are supposed to, but more often than not we don’t. Grown-ups make mistakes just like you! Who would have thought?
What do Grown Ups Spend money on?
There’s a ton of research that shows what the average grown up American spends their money on, and you can read about it here. But to make it simple, let’s do percentages and put it in a pie chart!
As you can see, grown-ups spend most of their money on their houses, cars, food, and insurance/healthcare.
What Should Grown-Ups Spend Money on?
Do you think people are spending money how they should be? Or do you think they are spending too much money some things? There’s one majorly important item that I don’t even see in the chart! Can you figure out what it is?
Personal savings is the one thing that is very noticeably missing from the chart above, and it’s one of the most important things that grown-ups should be spending money on.
Why are Personal Savings Important?
It’s important for grown-ups to spend money on saving for lots of different reasons! First, emergencies happen. Cars break down, pets get sick, people have to do to the doctor. It’s important to have money saved up in case these things happen, so we can take care of them right away.
Second, most grown-ups don’t want to work forever. It’s important to save money so that we don’t have to. If you start making saving a habit now, you won’t have to work forever! You could get on the early retirement train! I wish I had started when I was a kid, I could be done working by now. But it’s not too late for you – start saving as soon as possible so you don’t have to spend your entire life working.
How can we Fix it?
So how can we fix it so that grown ups spend money on what they should be spending money on? We need to figure out what grown ups are spending too much money on.
What do Grown-Ups Spend too much money on?
Grown ups spend way too much money on cars. Instead of buying a brand-new car every few years, grown-ups should buy used cars and keep them longer. A new car is just a pride thing, most of us don’t really need it. Grown ups shouldn’t spend more than 10% of their income on their cars.
Grown ups also spend too much money on housing. We shouldn’t spend more than 30% of our income there, but we are spending 33%! That’s harder to bring down, but there are options. You could get a roommate, chose a home further away from the city, or chose a smaller home.
We should all also cut back on entertainment, clothing, and alcohol and cigarettes. If we all cut back just a little bit on these things, we could easily afford to put 15% into savings!
After cutting these costs, the chart should look more like this:
This final chart shows what grown ups should spend money on. I know it’s not always realistic for every situation, but it’s a great model for what you should strive for!
Good Luck on your quest to spend money correctly!
Melanie launched Partners in Fire in 2017 to document her quest for financial independence with a mix of finance, fun, and solving the world’s problems. She’s self educated in personal finance and passionate about fighting systematic problems that prevent others from achieving their own financial goals. She also loves travel, anthropology, gaming and her cats.