I came across this interesting Washington Post graphic this morning.

It’s the “average American family’s” financial statement, and gives insight into how much money we make and how we spend. Or does it?

The chances that this looks like anyone’s actual spending is very unlikely since the US millionaires and billionaires I assume the author includes would turn a portrait of the “average” household as I know it into an abstract painting.

I certainly don’t think of household income of $100,000 as average, nor do I believe most folks spend nearly $12,000 on food per year. And who is the average family? Do they have two kids and a dog and a picket fence? Or do they look different? I consider myself average. Do you?

But what the graphic–which is accompanied by a very short story– does do is make the point that economic factors like the growth of our economy and the Federal Reserve’s interest rate decisions impact each and every one of us, which is why I fail to understand people who don’t read the business section because “it isn’t relevant to my life.” Yeah, right.

The graphic also mentions a couple of places where folks who aren’t data shy can comb through the numbers and catch a glimpse of the American consumer.

Go to the Survey of Consumer Financesto find information about expenditures, savings, and debts. Then there’s the Census Bureau, with its endless supply of statistics about income, housing– you name it.

The story also reminds me of a column I wrote a while back about how it makes sense for individuals to think of personal finance like business finance- in terms of revenue, expenses, assets and liabilities. Here are the suggestions I made for a personal quarterly earnings review:

1. Are your earnings on track? Company earnings are used to give investors an indication of what future stock prices could be. Economists use individuals’ earnings to gauge whether consumers are going to be out spending at the mall or looking for jobs. What would you gain from taking inventory of how much bacon you bring home? It can help you determine if you are meeting your salary expectations. If you’re not making as much money as you thought you would by now and don’t even like your job, maybe it’s time to evaluate other options.
2. Do you need to balance the books? Investors pay attention to how much debt a company is shouldering. You should do the same. Debt to pay for college or a home is good; debt to buy your groceries is bad. During your personal mid-year review, write down your debts. Are you on track to pay them off within a time frame you’re comfortable with? Are the interest rates competitive, or is it time to refinance or consolidate loans? Depending on what you see, you might need to take a cue from companies and slash your spending.
3. How is your credit rating? Minnesota consumers can get an annual credit report from each of the major three credit bureaus for free by visiting www.annualcreditreport.com or by calling 1-877-322-8228.
4. Are you adequately protected from risks? Companies worry about protecting themselves from earthquakes, fires, even terrorism. Individuals should be concerned about those things too, but also from raging road hogs, illness, disability and death. The Insurance Information Institute, at www.iii.org, helps you plan your insurance needs by life stage. Even if you have insurance, reevaluate your policies from time to time to see if your rate is still competitive.
5. Do you have too much cash on hand? S&P 500 companies have $634 billion in cash on hand, nearly double the amount they had in 2000. Now is a good time for individuals to have cash available too. That’s because if interest rates rise, then you’d have money ready to put into new investments that pay higher interest.
6. What’s in your crystal ball? A company’s quarterly report always includes a forecast for what management sees down the road. Grab a paper and pen or a blank computer screen and start dreaming. List out your goals - from practical ones like when you want to retire or how to pay for college to more pie-in-the-sky entries such as budgeting for that African safari. Then brainstorm how to make it happen. You won’t have all the answers today, but after your mid-year report, you’ll be on the right track.

This entry was posted on Monday, December 17th, 2007 at 2:16 pm and is filed under economy. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.