Too many families are not saving enough. There are several reasons why this is true, but a significant reason is that they spend too much in one or more areas of their expenses.

There is a natural tendency to look around one’s immediate circle and see that one friend has a larger home, another friend has two newer cars, and a third friend has their children in private school. In reality, none of our friends have all three of these things, but it can feel like they do when we compare ourselves with them.

We all have within us the ability to look at the world around us and compress into our mind’s eye a vision of reality that is not actually based on truth. This phenomenon creates in our mind something similar to what a fish eye lens does to a camera. We end up “seeing” the average family as having much more than they actually do, and when we compare this “reality” to our own we feel we are behind. This thinking leads us to buy more things in order to “catch up”, which then leads us into needless debt. If only it stopped there. In reality, this buying only leads to our friends then feeling behind us, so they too go into more debt to buy those things needed to “catch up” with us. You can see where this leads – and the cycle never ends.

As an example, watch what happens when one of your friends buys an expensive car. Within a year a number of your other friends will do the same thing, even if their old cars were working fine. The problem is that few of those other friends can afford this upgrade.

I know of no way to stop this cycle other than to change our “vision”; and the way to do that is to compare our budget to an actual average family’s budget. When we do this, we will likely find that we spend more than the average family in one or more areas. However, we then need to realize that things will only balance when we spend less in another area. When comparing ourselves to our friends, this is the step that is missing. We don’t see those areas where they have cut back.

So below are the budgets for an average American and Canadian family. Many of the numbers may seem too low because these are averages, and as such do not tell the underlying story. For example, 30% of people rent, so they have lower housing costs. Another group of people have paid off their homes or bought many years ago when prices were lower. As for transportation, many families only have one car, or a growing number have no cars and only use public transportation.

The reality is, though, that when you spend more than the average in one area, something else in your budget will need to be reduced if you are not going to use up the “miscellaneous” part of your budget on servicing a growing debt load – which is becoming more and more the norm.

So, take a look at the numbers below. Likely the income numbers will be too high or too low in comparison to your family’s. If that is true, then focus on the percentages and adjust your actual numbers in each category accordingly.

The important thing is to have money left over after all your expenses, so that you can build the necessary margin in your family’s life to both save for the unexpected expenses that come up and to do those things that are not in your budget – like taking a vacation without going into debt.

The Loan Arranger

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