The cost of housing is generally the largest expense for most individuals. Spending too much on this expenditure can wreak havoc on your monthly budget. Keeping yourself within the recommended parameters of housing spending can put yourself in a position to achieve financial security. Here is what you need to know about how much of your income you should be spending on housing.
How to determine your housing budget?
Most financial experts recommend that you spend 30% of your gross monthly income on housing costs. Gross monthly income is the amount before taxes are taken out. To find this number, simply multiply your gross monthly income by 0.3 or divide your annual income by 40. For example, if your gross monthly income is $5000, you should aim for a housing budget of no more than $1500.
Considering a high debt load
The 30% figure is a general estimation that does not take into consideration the constraints of carrying a high debt load. If you are just graduating from college and are carrying student loan debt or if you currently have a high amount of credit card debt, you are going to want to re-consider the 30% rule. A good goal to shoot for is to make sure that no more than 43% of your gross monthly income is going toward housing costs plus debt payoff. Exceeding this percentage will make it difficult for you to meet all of your other financial obligations and live comfortably.
How to make this budget work?
It may be challenging to meet this housing cost maximum if you live in an area with a high cost of living. Getting a roommate will help if you cannot afford a place on your own. You should also be sure to ask the landlord about the possibility of utility costs being included in the rental. If this is the case, you may be able to afford more on the monthly rent. Choosing a place that is located near public transportation hubs may help you save money on a car so that you can spend more on your home.
It is important to understand that a monthly housing budget is not a one size fits all rule. Playing around with the specific numbers for your situation will give you a better idea about what you can comfortably afford.
