Personal Finance Tip of the Week, By Financial Fundamentals, LLC of Watertown

​Let’s face it - we all like to compare favorably to others. Nobody enjoys being below-average. We all want to better-than-average, whether it relates to grades in school, performance reviews at work, gadgets we own, or the car we drive.

Sometimes our urge to compare favorably can be financially counterproductive. For example, some of us try to “keep up with the Joneses” - buying a new car when our neighbors do, or the same clothing brands their kids wear. But appearances can be deceptive. What if the Joneses are sinking in debt to finance their lifestyle? You may jeopardize your own financial future by following their path.

But you can use this natural urge to compare to your advantage. Specifically, you can compare your monthly expenses to the amounts that other people spend. This can allow you identify areas where you are below-average (overspending) and motivate you to become above-average over time.

One way of doing this is to form a small support group of friends who want to work on their budgets together. You can each use a standard budgeting template or tool to create your budget, and then compare notes afterward.

Another way is to use an online budgeting tool like Mint.com. Within major spending categories, Mint will show you how your spending compares to that of other users.

A final way is to use consumer expenditure (CEX) data published by the Bureau of Labor Statistics (BLS). The BLS surveys thousands of households and collects very detailed spending information from them.

CEX surveys allow you to peer into the financial lives of people like you. For instance, you can learn that households in the Northeast earning between $50,000-$70,000 spend:

• $735/month on transportation, representing 18% of their total monthly spending.
• $536/month on food, including groceries and restaurants (13% of total spending).
• $214/month on entertainment (5% of total spending).
• $134/month on clothing (3% of total spending).
• $49/month on personal care products and services (1% of their total monthly spending).

These results probably get you thinking about you compare. Are you spending a lot more on food, clothing, or personal care? Or a lot less on transportation or entertainment?

This is why I like to use spending comparisons in our Successful Budgeting and Saving program. It naturally sparks curiosity and a desire to compare more favorably. I use CEX results like those shown above, but for more categories, so you can make comparisons across your entire budget.

Regardless of the approach you choose, the key point is to be sure that the comparisons you use to drive your spending decisions are healthy ones, not counterproductive to your financial goals and dreams.

Thanks for reading! You can learn more at http://www.Facebook.com/FFundamentals.

Stephen Barkhuff, CFP(R), CFA, MBA is the founder and president of Financial Fundamentals, LLC, based in Watertown, MA. Financial Fundamentals helps couples and singles with modest incomes take control of their financial future. You can reach him at mailto:SBarkhuff@FFundamentals.com.