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

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.

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