When you hear the term “American Dream,” what do you think of?

Almost subconsciously, you picture the house, the yard, the SUV, the family and the dog.  We have been conditioned to think this way.

This conditioning instills in us a sense of failure if certain life milestones are not met.

Having met these milestones, we form an emotional attachment with our property.  We build memories in and with our things and this emotional equity cannot be quantified.  

It is quite difficult to maintain an objective mindset when it comes to our relationship with our property.  

Homeownership and the “American Dream” have become synonymous but at what cost?  Is it still a feasible dream?

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Is it worth it to spend $1 out of every $2 you earn on housing and transportation and is it sustainable.  For some the answer will be yes and for others no.

The Atlantic recently published an article detailing America’s weird, enduring love affair with cars and houses.  

The stats compiled from the Labor Statistics Bureau indicate that American’s spend nearly 50% of their income on housing and transportation.  

This number seems to remain constant across all financial stratum.

As we earn more, while other expenses may remain constant, our spending on housing and transportation increase.  

For some, this level of spending is sustainable and worth it.  For others struggling with credit card debt, medical bills or worse, student loans, it can be problematic.

The Bankruptcy Budget

After reading this article I did a very unscientific study of some recent bankruptcy cases I handled.  I just wanted to see if the bankruptcy filer was inflating this statistic.

The answer is yes.

I quickly looked at five random cases I have handled where the debtor(s) owned a home.  Of the five, only one family was spending less than 50% of their income on housing and transportation.  The other four were actually spending more than 60% with one individual spending close to 80% of her total income on housing and transportation.

Clearly 80% is not sustainable.

This type of budgeting leaves no room for the unpredictable.  

Spending at this rate creates a snowball.  A medical emergency or home repairs causes the snowball to build momentum and grow.  The unthinkable sudden loss of employment creates a full blown avalanche.

With no nest egg to fall back on, we fall into crisis and sometimes bankruptcy is the only viable escape hatch.  Unfortunately, this type of budgeting usually leads to worse outcomes than bankruptcy.  

Keeping up with the Joneses

Forget about the Joneses.  Separate yourself from our cultural obsession with our cars and our houses.

Take a step back and take an objective look at your budget.  Separate the emotions from the finances and think about what is truly healthy and smart for yourself and your family.

Earn more, spend less, buy used and rent if it makes financial sense.  Do it with pride and dignity.  

Image courtesy of Seattle Municipal Archives (Flickr).