Holy Smokes! Some People Spend 25% of Their Income on What?!

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25% of income goes to cigarettes?!As far as money-draining (and life-shortening) habits go, smoking is a popular example of one to give up. Now there's a new report that makes an even more dramatic financial case for quitting: In New York State, which levies some hefty taxes on tobacco, low-income smokers are spending roughly one-quarter of their income on cigarettes.

If you're feeling relieved that you live in one of America's 49 other states, don't rest so easy. The national average is about 14% of smokers' incomes spent on cigarettes -- that's about one-seventh of total income, and still a whopping percentage.

Even if you don't smoke, keep reading -- because these shocking statistics can help all of us rethink and improve our spending habits.

How Much We Shell Out for Smokes

Let's get a little more precise now. In New York State, the average cost of a pack of cigarettes recently was $10.14, the highest in the nation. The lowest average price per pack was $4.02, in Missouri. Nineteen states -- plus the District of Columbia -- sported average prices above $6.

New York is certainly not alone in taxing cigarettes heavily. The total taxes per pack in New York average about $4.74, and 17 states (including D.C.) levy taxes of $2 or more. (Remember that these are average numbers. In some spots in New York, cigarettes can cost more than $12 a pack!)

A little simple math shows us that a one-pack-a-day habit in New York can cost $3,701 a year. Those who smoke two packs a day are coughing up more than $7,000 annually. Even if you only pay $6 per pack, that amounts to more than $2,000 per year for a daily pack.

Here's the biggest problem with these numbers: Taxes and the price of tobacco have clearly been rising in recent years -- yet the typical household's income has not. In fact, according to a recent report from the U.S. Census Bureau, the median household income slipped 1.5% between 2010 and 2011, and remained lower than (inflation-adjusted) 1989 levels. Thus, the cost of cigarettes has been taking up a bigger and bigger slice of the typical household's budgetary pie in recent years. Ouch.

How Much Should Smokers Spend?

It can be helpful to look at the big picture, to see how much average Americans spend on major budgetary categories -- and how much they're advised to spend on them.

The Bureau of Labor Statistics can help with that. Here are some interesting stats, revealing the percentage of after-tax income the average household in America spends on various categories, as of 2010:

27% Housing (including mortgage, rent, utilities, furnishings, and upkeep)
13% Transportation
10% Food
5% Health care
4% Entertainment
3% Clothing
1% Alcohol
1% Tobacco

(The tobacco percentage is low because it's averaged across smokers and nonsmokers alike.)

It's very valuable for us to keep tabs on our own spending, to see how much of our hard-earned assets we're devoting to various items. It's also good to compare that data to an ideal -- to how we should be spending our money.

Spending Guidelines From the Experts

The 50-30-20 Rule:
This has been advocated by, among others, Elizabeth Warren, Harvard professor, creator of the new and vital Consumer Financial Protection Bureau, and Senate candidate in Massachusetts. It suggests that you take your after-tax income and devote no more than 50% of it to your "needs" -- such as food, housing, transportation, medications, insurance, and so on. Then spend no more than 30% on your "wants" -- which would include items such as most clothing, cable television, entertainment, eating at restaurants, travel, etc. Finally, devote at least 20% of your after-tax income to your financial security, by paying off debts, maintaining an emergency fund, and contributing aggressively to retirement savings.

The '60% Solution': This comes from author Richard Jenkins, who suggests you devote up to 60% of your income to "committed expenses" (such as housing, food, car payments, utilities, and the like). Then spend 10% on fun (eating at restaurants, hobbies, concerts, and so on), 10% on irregular expenses (vacations, unexpected repairs, and big-ticket purchases such as appliances), 10% on your retirement savings, and 10% on paying down debt, saving long-term for big purchases such as cars or home remodeling, or adding to your long-term savings and investments.

Cut Everything in Half: Suze Orman offers an even bigger challenge: Try to live on just 50% of your income, at least for six months, while banking or investing the other 50%. During this period, you'll figure out how much you really do need to live on, and which expenses you might be able to cut back on. You'll also learn how you'll be able to manage if you or your partner loses your job for a while.

If we want to position ourselves for the greatest financial security, we need to know how much we're spending on various items and we need to make sure the sums are sensible. Spending a quarter of your income on cigarettes is a recipe for disaster, and even spending less than that can wreak havoc with your financial future.

Don't let your dreams of a comfortable retirement go up in smoke -- or in lottery tickets, or lavish vacations.



Motley Fool contributor Selena Maranjian holds no position in any company mentioned. For more on securing a comfortable retirement, click here.

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Bill Smith

Interesting, no amounts were given for communications like cell phones and internet connectivity, it accounts for a sizable amount in my household.

September 26 2012 at 9:45 PM Report abuse rate up rate down Reply
boston20h

Smoking leads to premature aging?
I am one of those "older" persons [79 y/o] AND a smoker for 50+ years.
When people see me they refuse to believe my age & think that I am 20 years younger.
Using gmydogbud's criteria below that smoking makes a person prematurely age is innacurate...there are just too many other factors like genetics, eating habits, exposure to sun, etc.
Also I have never been hospitalized for COPD, asthma or any other respiratory problems. The nearest I have been to hospitals is as a visitor.

September 25 2012 at 2:19 AM Report abuse rate up rate down Reply
boston20h

I am one of those "older" persons [79 y/o] AND a smoker for 50+ years.
When people see me they refuse to believe my age & think that I am 20 years younger.
Using gmydogbud's criteria below that smoking makes a person prematurely age is innacurate...there are just too many other factors like genetics, eating habits, exposure to sun, etc.
Also I have never been hospitalized for COPD, asthma or any other respiratory problems. The nearest I have been to hospitals is as a visitor.

September 25 2012 at 2:05 AM Report abuse rate up rate down Reply
gmydogbud

Saw an older person the other day at the store who walked slowly and with a cane buying 2 packs of smokes and then they want to know why they look so bad and age so fast.

September 24 2012 at 7:06 PM Report abuse -1 rate up rate down Reply
gmydogbud

Saw an older person the other day at the store who walked slowly and with a cane buying 2 packs of smokes and then they want to know why they look so bad and age so fast.

September 24 2012 at 7:06 PM Report abuse +1 rate up rate down Reply
Harry

Much of the tax money collected from tobacco sales goes to pay for the medical expenses incurred by the poor. Expenses that wouldn't be there if those same people quit smoking and became healthier and more productive citizens.

September 24 2012 at 6:49 PM Report abuse rate up rate down Reply
Harry

Much of the tax money collected from tobacco sales goes to pay for the medical expenses incurred by the poor. Expenses that wouldn't be there if those same people quit smoking and became healthier and more productive citizens.

September 24 2012 at 6:49 PM Report abuse rate up rate down Reply
rollysmokesaz

STOP THOSE ROLLING MACHINES

The "cash hungry politicians" just put all of the RYO (roll your own cigarette stores out of business) thus "Big Tobacco" is the only option for people to buy .....social engineering at its best! Wait a few years and Sodas as well as food will be taxed to finance all sort of other things. Who do you think is really behind the ban on Medical Marijuana? Could it be Big Pharma? Big Brother has bought and sold this country to death. Time to get Money out of Politics...oops too late.

Why is it legal for Obama to make and sell "Obama Beer" yet I can't roll my own cigarettes? Remember his quote "We don't make decisions about who wins or looses in business" sure seems like a strange coincidence?

See the addendum to the recent "Transportation Bill" for details. Oh by the way what does RYO cigarettes have to do with transportation? Who cares about the 50,000 people he just put out of business that sell a perfectly legal product?

September 24 2012 at 5:30 PM Report abuse rate up rate down Reply
rollysmokesaz

STOP THOSE ROLLING MACHINES

The "cash hungry politicians" just put all of the RYO (roll your own cigarette stores out of business) thus "Big Tobacco" is the only option for people to buy .....social engineering at its best! Wait a few years and Sodas as well as food will be taxed to finance all sort of other things. Who do you think is really behind the ban on Medical Marijuana? Could it be Big Pharma? Big Brother has bought and sold this country to death. Time to get Money out of Politics...oops too late.

Why is it legal for Obama to make and sell "Obama Beer" yet I can't roll my own cigarettes? Remember his quote "We don't make decisions about who wins or looses in business" sure seems like a strange coincidence?

See the addendum to the recent "Transportation Bill" for details. Oh by the way what does RYO cigarettes have to do with transportation? Who cares about the 50,000 people he just put out of business that sell a perfectly legal product?

September 24 2012 at 5:29 PM Report abuse rate up rate down Reply
rollysmokesaz

STOP THOSE ROLLING MACHINES

The "cash hungry politicians" just put all of the RYO (roll your own cigarette stores out of business) thus "Big Tobacco" is the ony option for people to buy from.....social engineering at its best! Wait a few years and Sodas as well as food will be taxed to finance all sort of other things. Who do you think is really behind the ban on Medical Marijuana? Could it be Big Pharma? Big Brother has bought and sold this country to death. Time to get Money out of Politics...oops too late.

Why is it legal for Obama to make and sell "Obama Beer" yet I can't roll my own cigarettes? Remeber his quote "We don't make decisions about who wins or looses in business" sure sems like a strange coincidence?

See the adendum to the recent "Transportation Bill" for details. Oh by the way what does RYO cigarettes have to do with transportation? Who cares about the 50,000 people he just put out of business that sell a perfectly legal product?

September 24 2012 at 5:21 PM Report abuse rate up rate down Reply