Should I change my W-4 to make ends meet?

I’m looking for a personal budget for young adults. Is there a “pie chart” that shows percentages for the daily life expenses that still allows retirement saving?
— Karen, Terrebonne, Oregon

Congratulations: Just using the word “budget” is the first big step in getting expenses under control.

Getting serious about budgeting also assumes that you know where your money is going. If your money management consists of trying to cut back on how much you take out of the ATM machine each visit, try using a credit card so you’ll have a record of where your money’s going. Better still: Keep a detailed log for a month and then break down your spending by categories. Some people are surprised to learn just how much their actual spending habits differ from their budget.

Everyone’s different, so it’s hard to describe a “typical” budget. For one thing, the cost of living varies greatly from one part of the country to another. And each household is different: Some twenty-somethings are still working part-time and going to college, others are getting married and settling down to start a family. But it might help to look at where the “average” U.S. consumer in that age group spends their paycheck. The Bureau of Labor Statistics keeps detailed data on how we spend our money, broken down by age, income, education, region, you name it.

So let’s look at the Under 25s. About 20 percent of this group owns a home, the rest are renters. Seventy percent own or lease a car. The typical Under 25 “consumer unit” consisted of two people and earned $28,535 after taxes.

The biggest bill ($494 a month) goes to housing, which works out to about 21 percent of after-tax income. This is also the biggest wildcard in your budget, depending on where you live. Apartment dwellers in high-cost cities will likely devote a bigger percentage of their budget to housing. You can also expect to pay more for utilities if you live in a cold weather state.

Transportation is the next biggest expense ($472 a month) which eats up another 20 percent of your paycheck. That includes the cost of buying a car, keeping it repaired and filling it with gas. Gas prices have gone up since the 2006 data was collected; two years ago gasoline accounted for about 6 percent of the Under 25s budget.

Food eats up another 14 percent of our typical budget; about half ($162 a month) went to groceries and the other half ($164 a month) went for dining out. Figure another 3 percent ($63 a month) for alcohol and tobacco.

The next biggest category is “personal insurance and pensions” ($191 a month), or 8 percent of spending. But that’s a little misleading because it includes your contributions to Social Security, which most people think of as part of their taxes. Still, consider that part of your retirement savings.

After that, the bills start to lighten up a little. About 6 percent ($148 a month) goes for utilities, including $60 a month for the phone bill. Clothing accounts for 5 percent ($122 a month); so does entertainment ($112 a month) and education ($109 a month), which include books and magazines. Home furnishings and appliances ($82 a month) makes up 3 percent; so does health care costs ($59 percent.) Other household costs ($56 a month) and contributions ($53 a month) take up 2 percent each. Personal care products and services ($29 a month) and miscellaneous ($32) each account for 1 percent of the budget.

Alas, the tables don’t break out a category called “saving for retirement,” but the total spending for this age group comes to $28,181 a year. Based on after tax income of $28,535, our typical Under 25er is saving a whopping $354 a year — or just $29.50 a month.

Most folks under 25 aren’t thinking about retirement — which is too bad, because if you put your savings to work 40 years before you retire, you’ll get a much bigger bang for your buck. Assuming a 7 percent rate of return, your $345 a year would turn into $73,323 in 40 years.

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