DEFINITIONS OF BEST EXPENSES

Housing and Utilities

BEST housing expenses are values reported in the “Final FY 2014 Fair Market Rent Documentation System” produced by the US Department of Housing and Urban Development (HUD). HUD reports Fair Market Rents (FMRs) by county and number of bedrooms. These values reflect the 40th percentile of rent costs in an area. FMRs are separated into rent and utility values using expense ratios created by HUD.

Food

BEST food costs are taken from the 2014 Official USDA Food Plans: Cost of Food and Home at Hour Levels using data from the USDA Low-Cost Food Plan, which presents an age-specific diet consisting entirely of foods prepared and eaten at home. Where possible, food prices are adjusted to reflect local variation in prices using ACCRA Cost of Living Index data

Transportation

BEST transportation costs are generally calculated assuming ownership of a small sedan. In two-worker families, the calculation assumes ownership of two cars. Expenses include fuel, maintenance, license and registration fees, depreciation, finance charges and vehicle taxes. These costs are averaged over the first five years of the car’s life. Maintenance, depreciation, finance and license and registration costs are obtained from the American Automobile Association’s annual report, “Your Driving Costs: 2014 Edition.” Gasoline prices are local prices, obtained from the US Department of Energy’s "US Retail Historical Gasoline Prices." Average mileage by city size is obtained from the US Department of Transportation’s "Online Table Designer." Auto insurance rates are collected at the zip code level for each county in each state through the National Association of Insurance Commissioner’s report "Auto Insurance: Average Expenditures for Auto Insurance by State 2007-2011." In select metropolitan areas with highly-developed public transit systems, the BEST assumes the cost of public transit.

Child Care

BEST child care expenses are age-specific market rates taken from state market rate surveys. Monthly expenses are the 75th percentile of all care rates. Licensed family care (care provided in the care provider’s home) rates are used for infants and toddlers in most states. Licensed care center rates are used for preschoolers and schoolchildren.

Personal and Household Items

BEST personal and household items expenses include clothing, housekeeping supplies, personal care products, a landline telephone, and minimal life insurance and bank fees. The expense is 27% of a family’s housing, utility and food expenses. This ratio is based on renters’ average expenditures, taken from the US Bureau of Labor Statistics’ 2007 Consumer Expenditure Survey.

Health Care

BEST health care costs are health insurance premiums and out-of-pocket costs. Health care premiums for workers with employer-sponsored health insurance (workers who participate in health insurance offered by their employers, who pay part of the insurance premium) are average premiums, by state, for individual, employee-plus-one or family coverage as found in the US Department of Health and Human Services’ Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey, "Table II: USA, Private Sector Data by Firm Size, 2012." Out-of-pocket expenses are average expenses by age group from the US Department of Health and Human Services, Center for Financing, Access and Cost Trends, Agency for Healthcare Research and Quality: Medical Expenditure Panel Survey, 2011.

Workers without employment-based benefits: BEST non-employer sponsored health insurance premiums are those for the least expensive plans which approximate typical employer-sponsored plans. Expenses are based on data from the US Department of Health and Human Services’ Medical Expenditure Panel Survey (MEPS). These rates are obtained at the zip code level, by state. Out-of-pocket expenses are MEPS average expenses.

Taxes and Tax Credits

Federal payroll taxes and federal, state and local income taxes are calculated for each family type based on the family’s BEST income requirements using Revenue Procedure 2013-35 from the IRS. Sales taxes are calculated based on personal and household item spending. Tax credits calculated include: 1) federal EITC; 2) federal child tax credit; 3) federal child and dependent care credit; 4) applicable state credits.

Emergency Savings

BEST emergency savings is the amount of savings needed to meet basic needs during a “typical” period of unemployment, defined as the median term of unemployment, 8.9 weeks, during the most recent complete business cycle (Bureau of Labor Statistics. "Table 30: Unemployed Total and Full-Time Workers by Duration of Employment"). Because changing housing, transportation, child care arrangements, etc., are highly destabilizing and difficult to achieve in the short term, a BEST family saves enough to replace their entire current BEST income. The BEST assumes that families with access to unemployment insurance will receive the state average in wage replacement from their UI benefits, up to the state maximum UI payment. Unemployment Insurance data is obtained from the US Department of Labor’s 2014 Unemployment Insurance Data Summary and Comparison of State Unemployment Laws: Monetary Entitlement.

Workers without employment-based benefits: Workers without access to Unemployment Insurance must have higher emergency savings to cover a spell of unemployment; UI benefits will not replace any of their lost wages.

Retirement Savings

BEST retirement savings is the amount of savings, less average Social Security benefits, that workers need at time of retirement to remain economically secure throughout an average retirement period. Workers with access to employment-based retirement benefits are assumed to save into a 401(k) and receive the national average employer match of 66.06 cents per dollar.

Workers without employment-based benefits: Workers without access to 401(k) plans save into Individual Retirement Accounts.

Education Savings

BEST education savings is the monthly saving amount needed to finance a child’s post-secondary education without incurring debt. The BEST assumes that parents save consistently for 17 years, and that the child lives at home and attends community college in their county of residence, or a neighboring county, for the first two years, transfers to a public, in-state university for a bachelor’s degree, and works during the summers. Tuition and fees for community colleges are obtained for each institution in a state. Tuition and fees for 4-year colleges are obtained from the National Center for Education Statistics’ Digest of Education Statistics, 2013. Transportation and book costs are obtained from the College Board’s Trends in College Pricing, 2013.

Homeownership Savings

Homeownership savings is the monthly savings amount needed to pay a 20% down payment and closings costs on a home at the 25th percentile of all home prices, by number of bedrooms, in each county. Use of a 25th percentile home price and 20% down payment reduce the risk of financial loses for home buyers. For savings requirements of those who put down smaller down payment or participate in homebuyer assistance programs, see The Basic Economic Security Tables: United States Methodology and Supplemental Data or the BEST report for your state.

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