Personal Finance (Not Investing) • What percentage of spending normally goes to Taxes?

My wife and I were recently reviewing our spending habits for the last year. We generally do this once a year in January/February. We like to keep tabs on spending requirements to help get an idea of what we'll need in retirement as well as to look for any spending that looks "out of line" so that we can make lifestyle adjustments if necessary.

What really stood out to me was how much of our annual spending goes to taxes. Last year it was 38+% (!!!) of our total spending, and by far our number one expense:

1. Tax - 38.7%
2. Education - 16.2%
3. Auto - 10.1%
4. Charity - 7.4%
5. Groceries - 5.7%
6. Utilities - 4.8%
7. Household - 3.9%
8. Dining Out - 2.8%
9. Insurance - 1.5%
10. Medical - 1.3%
11. Gifts Given - 1.2%
12. Vacation - 1.1%
13. Recreation - 1%
14. Home Repair - .9%
15. Entertainment - .8%
16. Clothing - .7%

Note that the above numbers are spending *only*, not a complete picture of cash flow (which would include savings/investing/etc). Our savings rate is roughly 37% of gross income, if that helps provide more context. The "Tax" number includes primarily Federal and State income tax, SS tax, Medicare tax, and Property tax.

Is it normal for taxes to be such a high percentage of total expenses? Or is this even a valid/meaningful question? I suppose as income or property values goes up, so do taxes. And the more frugal a family is with spending, the higher the "tax" percentage of expenses will be.

But it's still somewhat shocking. And it makes me want to investigate more ways to reduce tax burdens. Any ideas?

I guess I could get a lower paying job or quit working altogether (although we're not quite where we need to be to retire yet). That would reduce the taxes. Or I guess we could give more to charitable causes--that should also reduce taxes (while at the same time increasing non-tax spending). So maybe that's the route to go....

Or maybe reducing taxes as a percentage of spending is not a useful goal at all. And the focus should be on reducing taxes as a percentage of income. If I look at that number, overall tax burden as a percentage of income is roughly 28%. Is that normal during the accumulation phase?

Statistics: Posted by WarpSpeed — Fri Feb 02, 2024 10:02 pm — Replies 8 — Views 287

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