The Working Backwards Series?
The Working Backwards Series takes a look at budgeting in each spending category from the standpoint of “how much can I afford given our income, lifestyle and choices?” In this case, we are talking about a family of four living in Austin, Texas, working toward living in financial freedom, and making $74,000 a year (the average household income in Austin).
What are we trying to accomplish? We want to show what a balanced, sustainable budget looks like, and one way to do that is to “back into” the dollar amount for each budget category given life choices: Raising two children in a two income home.
While we understand we can spend more in categories that mean a lot to us, and each family is different, we want to set expectations that the discipline of a balanced budget, (spending and saving less than we make), requires conscious decisions, sacrifices and tradeoffs to meet our long term goals and desires that include financial freedom.
To see more from the Working Backwards Series, read this previous Working Backward Series post: Working Backwards Series: How Much Auto Can I Afford?
Topic For This Post: Clothing & Shoes
Let’s get right to it: How much clothing can we afford in our budget? While some people want to live “large” and enjoy the latest fashions, some others find clothing frivolous and minimize it. In either case, it is worth the effort for each person or family to think through their clothing spending or risk the issue of significantly overspending.
Let’s start with a couple assumptions. Let’s assume you have an Emergency Fund already in place and that you are saving 15% of your net spendable budget (NSB, total income minus taxes and charitable donations). Let’s also assume you are living on a balanced budget (spending less than you earn) and earn about $74,000 a year. In this scenario, most families can afford up to about 5% of their NSB to go towards clothing and shoes.
What Does That Look Like – The Math
A $74,000/year household income equates to roughly $54,750/year after taxes and charitable donations, or $4,563/month. At 5% of our budget going to debt payments and elimination, that’s roughly $228/month for clothing or, $2,737/year. That is not very much when you figure that amount must cover the entire family! Let’s take a look at our budget to see if we can meet our balanced budget objective:
Budget (% of Net Spendable Budget by category)
Housing (All Expenses) 30%
Debt Service 5%
Total: 100% of Net Spendable Budget (NSB)
So from a budgeting standpoint, we can make a balanced budget with 5% of Net Spendable Budget going toward clothing, without jeopardizing important budget items like housing, autos, food or savings.
What Does This Mean For Our Budgets?
The point is that a balanced budget for a family of four on an average household income and with many essential budget categories like housing, auto, food, children’s needs, etc, does not have much room for purchasing clothes and shoes. Plain and simple. While most of American families spend far more than $228/month on clothing , most of us can’t afford it. Ouch. But true. We certainly can’t afford overspending on several budget categories in addition to clothing. Yet most of us are trying to do just that. And I believe that is one of the major reasons we have more than 75% of households in America living paycheck to paycheck with no savings for emergencies, retirement, college (for the kids) or any money for dreams like vacations or special events (think weddings or cars).
What’s The Solution
There are really only a handful of acceptable actions to keep us within our clothing budget: 1) Take advantage of discounts, coupons, sales and off-season specials to keep your clothing spending down 2) Purchase clothing at discount stores like TJ Maxx or Ross Stores. 3) Buy used clothing at thrift stores or consignment shops 4) If you do need to purchase high fashion clothing, which can be expensive, you’re going to have to show discipline in limiting your purchases.
Living in financial freedom does not allow for large clothing spending that drains our bank accounts and ruin our budgets. At least not for a family of four. We found here today that a family of four can only handle about $228/month for clothing and shoes each month.
While many times we go to the credit card to stretch our spending, going into debt for clothing is not the answer. Fight to be credit card debt free. Use cash or a debit card. Some have the discipline to use their credit card and immediately pay it off, essentially making it like a debit card. Work hard to be patient and only spend money that you have instead of using the credit card company’s money. The temporary enjoyment of buying clothing with credit is short lived compared to the lengthy process of paying off the debt. If you must use your credit card and develop a balance in your account. Strive to pay it off quickly so that the exception (credit card debt) does not become the rule. Financial freedom is not easy, but it is worth it!