Albert Einstein once said that the most powerful force in the universe was compound interest. Anyone who wants to retire comfortably — or early — knows that the key is using compound interest to your advantage.
No one is in a better position to harness this force than those who have just started earning a regular salary. But popular wisdom tells you that it is just this demographic that has a tough time saving for retirement. Salaries are typically lower, and student loans have ballooned lately.
But is this really the case? Using information from the Bureau of Labor Statistics’ (BLS) Consumer Expenditure Survey for 2014, we’ll see how — done prudently — the average American is very capable of laying a solid foundation for a nest egg.
A quick word on our numbers
Technically, the data isn’t solely for those “just out of college”: it includes all households where the reference person is between 25 and 34. Of these folks, 71% have attended college.
The household typically includes two adults and one child under the age of 18. On average, there are between one and two cars in the household, and there’s an even split between single- and dual-income households.
Now that we have that out of the way, on to our numbers!
The average household income for this group is $54,622 after taxes — or $4,552 per month. Here’s how that paycheck gets divvied up across the nation.
Housing ($1,450 per month)
Among households in this age group, 61% are renting. The average rent/mortgage check is $894 per month. Obviously, this figure will vary widely based on location. The rest of the balance of housing money is devoted to utilities, household supplies, furniture, and appliances.
Money left over=$3,102
Transportation ($742 per month)
This includes monthly payments for the purchase of new/used cars, which runs roughly $296 per month. Last year, an average of $204 per month was spent on gasoline — though you can bet that this figure will be lower when 2015’s numbers are published. The rest is used on maintenance, insurance, and “other vehicle expenses.”
Money left over=$2,360
Health care ($222 per month)
Here’s where it really pays to be young. Healthcare spending is one of the only categories that consistently inches upward throughout life — even after you’ve retired. Of this total, about $160 per month is used to cover insurance premiums, which likely means that employers are chipping in a significant percentage of the total cost of coverage.
Money left over=$2,138
SOURCE: Brian Stoffel
The Motley Fool