You know your blog is new when you keep the spam comments just so you have comments. 🙂
As I mentioned in a previous post, http://www.crown.org has some great tools for people starting a budget, or learning about a budget. I am going to reference some of thier information. I have found it makes me feel like I have more leniancy in my budget, and I hate feeling confined by money.
As I linked to previously here is the page with their percentage guides. Now, these don’t have to be strictly followed but they give a great outline and plan for where you money should be going and how much should be where.
I will be referencing the family of 2 (married couple) file as that is the closest to our family. We actually have a family of three, but the third is still quite tiny.
One thing that is important to keep in mind is taxes. No matter what your income, and even if you qualify for an Earned Income Credit at tax time, the government will take thier share out of your check everytime you get paid. Its sort of humbling to know that 21.2% of my income can be expected to go to taxes (I am using the 45,000 category’s percentages as that is the closest to what we make as a family.)
Now back to the home. How much should you be spending?
Financial planners will tell you 30% or 36%. Usually the 36% number is based on your gross pay and includes monthly mortgage payment and all other debt. So if you have a car payment and a house payment they shouldn’t total more than 36% of your gross pay. So if you make $45,000/year only 1350 should be going towards ALL debt a month. Also keep in mind, your monthly payment for your mortgage may include money for taxes and insurance.
We were smart and bought the smallest home we could find that had the few things we required (3 bedrooms being the most important to us). That and the fact that we actually made a down payment means we can keep our home costs to 30% of our take home pay. I am not including any other debt, but I am including utilities. Sadly enough, many people cannot even say this.
If you are renting, and you are spending more than 30% of your take home on your apartment, it might be time to consider finding a different place to live when your lease runs up. Now, if you live in a high housing cost area,NYC or California for example, crown.org says you can allocate closer to 50% toward housing. Keep in mind that you will have a lot less to spend on other things. Also, its hard to survive at 50% if you have car loans, credit card balances, or a layoff. Also, many larger cities have higher city and county taxes. If 28% of your gross pay is 50% of your take home, you still might be in trouble.
Moral of the story, even with the drop in home values, housing is expensive. If you have been laid off, and are considering making a move for work, look into moving to a place with lower cost of living. While we survived living on one uneducated $23,000 income last year we were not able to afford many things just because so much of our income at the time went toward our house payment. Granted, we were lucky and our mortgage was less than $600/month including taxes and insurance (equal to rental prices for smaller apartment in the area). If we had not had more income the previous year when we bought our home, there is no way we would have been able to come up with a down payment. We also wouldn’t have been able to make it on just $23,000 once the baby started eating solid food. Case in point: living with that much of our income toward housing was temporary. While we are still uneducated, we are making nearly twice what we did. That means that we can actually make investments.
How much of your income do you spend on housing? Do you think it should be less? More?