How Much Of My Income Should I Spend On Housing?

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    How Much Of My Income Should I Spend On Housing?

    1. I’m sure not having a car helps, Stephanie! I think it’s smart of you to get an apartment further out and live with roommates to save some cash. I can’t imagine paying in the 3K range for rent! What?

    2. It looks like you have a good approach in mind with the combination mindset. I couldn’t imagine paying that much for rent, but I think shows again that it’s relative to a certain extent – especially when you start throwing in things like the opportunities you can derive from the location. The transportation savings alone have to be a big way to save – I know it was for me when I lived in Chicago.

      • Stefanie says:

        I’ve never owned a car so looking up the numbers of average yearly expenses was actually pretty shocking to me. Those are some major savings to put towards housing.

    3. I have total PTSD when it comes to New York housing. The problem for me became the huge trade-off in convenience vs. niceness; I had a beautiful studio in the Bronx for a while for about $750 a month, which was very doable, and close to where I worked, but it was a 90-minute commute to see my friends in Brooklyn — end result, I never saw my friends in Brooklyn. Also, the walls were super thin and after three years I couldn’t take my upstairs neighbor the DJ anymore. (seriously, he really was a professional DJ and he practiced at home. Of course.) So I moved to Brooklyn and spent $$$$$$$$ on sharing a couple of places for the next few years. I don’t know. There’s just no magic bullet, which is why I’m really glad I don’t live there anymore 🙂

      • Stefanie says:

        That’s the trouble with NYC housing, you either pay out the ass or make some serious quality of life trade offs. I think you can probably find some more middle ground if you’re willing to share a bedroom- like with a significant other. Otherwise, it’s tough.

    4. This is a tough question. Housing is obviously a necessity and should always be a top priority. With that being said, there are a lot of “bare minimum” living situations that are cheap but do not provide a high quality of life. I think your total expense approach is best. My wife and I have a lot of student loans that we have to factor into our finances, so simply saying “30% of your gross income” as a guide is a bit misleading. I think it’s more accurate to say 30% of our income after one-offs like student loans makes sense.

      • Stefanie says:

        I think it’s important to realize how quality of life considerations evolve over time too. While I’ve been okay putting up with a lot in the past, I’m ready to pay for the pleasure of not having to deal with some things like long commutes or multiple roomies anymore.

    5. I totally get this of course living in a high rent area. But…so many other costs are really low for me, like utilities, transportation (since I don’t have a commute), clothing (since I can pretty much wear the same thing year round), etc. I do think if the shit ever does hit the fan, I may be forced to move, but for now I do everything I can to stay.

      • Stefanie says:

        Cutting out all my other costs is really what’s kept NYC an option for me. I pay very little for other expenses, like transit, that would be higher elsewhere.

    6. I honestly can’t apply any formulas or percentages where housing is concerned to my clients in NY. It really is a unique living situation in general. What I do is help my clients prioritize what is important to them and build their housing allowance around that to make it work. I have a handful who have 60%+ of their income going to housing; however, it’s important for them to live in the neighborhood where they live (because of work, mass transit, etc) and they make all of their other expenses work, for example, they know they can’t spend much on clothes, entertainment and food, but they are okay with that because their living space comes first. I have others who would rather enjoy what NY has to offer and spend as little time as possible in their home and their rent numbers are significantly less. It’s an individual decision in NY as far as I am concerned because I have seen all sorts of financial combinations work.

      • Stefanie says:

        Yeah, I think looking at housing in the context of all fixed expenses is a must in this area. I have found plenty of other ways to save so that I can prioritize living here.

    7. I feel like the 30 percent rule just doesn’t apply here like the rest of the country…NYC is one of the places where nobody is FORCED to live, we’re all here because the struggle is real but so worth it in many other ways beyond housing…so I think if we just look at it as keeping a lot less stuff in a much smaller place (and maybe having a roomie or two), it doesn’t seem all that bad. Midwest may have bigger and cheaper houses but we have Broadway!;-)

    8. Elroy says:

      It’s not completely scalable. I’ve never looked at % of income. I guess I’m at 18% […]

      Ick on Jersey […]

    9. When I got my first apartment in NYC, I was paying more than 30% of my income and it hurt. I definitely agree with taking a total expense approach. It’s necessary to back in other areas to afford rent. Luckily, most NYers don’t have to worry about car payments.

    10. That’s an actual political party?! My mind is blown. That’s hilarious. Unfortunately, the economics behind lowering rent are super, duper complicated (unless eleven million new condos are built and flood the market, heh).
      I wish you all the best figuring out what works for you.. it’s such a trade off equation, like you’ve mentioned.
      I can warn you that sometimes the toilet paper will be empty if you live with a significant other… that problem seems to plague humanity.

    11. That campaign was pretty awesome!
      Housing in my city is pretty reasonable, so the standard rates sort of still apply.
      I would think your combo method would work. Figure out what oyu make, what your other expenses are, what your other goals are and what’s left can go to rent.

    12. Ben Luthi says:

      I think the best percentage is whatever you can do comfortably without sacrificing your mid- and long-term financial goals. Getting caught in a 12-month lease or, heaven forbid, 30-year mortgage that puts a squeeze on you only exacerbates all your other financial problems.

    13. Michelle says:

      I am very fortunate that my home mortgage is super low. I just purchased a quirky property and it worked out. Cities like: NYC, San Francisco, London, Sydney, etc. have so much to offer but the housing component can tire you out. I think the key is to think creatively and to be realistic about how living in a high rent area affects your other choices.

      • Stefanie says:

        I’ve been fortunate enough to find very low rent options , but the trade offs definitely tire me out. Luckily, none of my other expenses are particularly high so I have a lot of flexibility in the budget.

    14. Those are some crazy rent amounts. When I bought my first house outside of Salt Lake City UT at age 19 in 1978 my mortgage+insurance+taxes was 50% of my take home income and it took a long time for that to improve to the 30%. Then I had to relocate in 1995 to Colorado and was back at 50% again for several years. What you have in NYC is a tough problem to easily solve. Trade offs aren’t as appealing so making more income is the best answer. My hope for you is that whatever you do to make more money may it be something that you enjoy doing so your life doesn’t feel like you are enslaved by your labor to make the NYC rent costs.

    15. Zee says:

      I’ve been thinking a lot about this myself. I’ve been living with 2 other roommates for 8 years now and I’m getting old enough that I’m really just getting tired of having to deal with other people all the time… I mean, I can’t even go pants-less after work, and what kind of life is a life where you can’t go pants-less?

      But rent here (San Francisco) is basically just as insane as over there. Technically I’m in a different situation though, I own my home and have 2 tenants living with me. Over the last 8 years (unfortunately I bought at the absolute worst time 2007) my portion has gone from painfully too high to pretty cheap comparatively these days. But I still don’t want to live with other people. My options seem to be 1) rent out my whole house and find a new place, but the amount that I’m paying now triples… but I live on my own. 2) kick out the roommates and live on my own and my monthly amount probably triples… and I have 2 empty bedrooms which seems like a waste of free income. 3) try to downsize to a smaller house and my monthly payments probably increase 2.5 times….

      I just don’t know if seeing my monthly payments go up to probably 40% of my income is something I’m willing to sacrifice for having my own bathroom/kitchen/refrigerator… But then I think of walking around pants-less and then maybe that 40% isn’t as bad as I once thought.

      I just know the longer I sacrifice now the better off I will be financially. If I really want to retire early this is the shortest path that keeps me in the city I’m in. But there’s quality of life questions along the way that I know I will need to address at some point anyways. (I’m NOT living with roommates the rest of my life, I doubt I have another 5 years in me to be honest).

      • Stefanie says:

        I honestly don’t think I’ll ever be able to afford to live alone. I think getting to the point of moving in with a significant other is the only way to make the cost bearable without tearing my hair out- AND you can go pantslesss in that situation 🙂

      • Jumping in here with a suggestion: if you own the house, could you consider living with nine- or ten-month tenants (say, graduate students — if they could afford it? I don’t know) or other short-term people? If you furnish the rooms, you might be able to sign up with an agency that will hook you up with short-term tenants in town for business or whatever. You might find that a couple of “free” months a year would be enough for you in terms of giving you a break from other people.

    16. It’s a good start if you are considering all these factors before purchasing a home. So many people blindly get approved for a 30 years mortgage, without looking at he overall % of their income.

    17. I used to pay 33% of my income in rent, but then my now fiancee and I moved in together and I cut it down to about 17%. I wish it was lower than that, but that means I have to make more money… better get to it.

    18. I completely agree with your analysis. People ought to look at more than portion going to housing. If you’re in a bigger city like NYC, you don’t need to worry about the costs associated with a car, maintenance, insurance, etc. Those are some major savings, which can be placed into rent. Ideally, there would be greater affordable housing options for more diverse income groups, but that’s not the city you have there. :/

    19. Syed says:

      My sister rents in NYC and I thought she was joking when I saw the apartment and she showed me the rent. But you’re right it is the place to be for many people. I’ve read a range of 25-40% of your take home income should be devoted to housing, but it all varies depending on debt, utilities etc.

    20. I totally get it. Housing in LA and NYC and other cities is expensive. But I’m a big city girl, now living in an “affordable” (at least comparatively speaking) area and I can’t wait to move back to LA and NYC. I do enjoy my lower rent now, especially that I’m self-employed, but I truly miss the happiness factor I had in both big cities. It will be rough to move back, but it’s worth it to me.

    21. Personally I allot 25% of my income. Housing is really vital nowadays and this is to prepare me for marriage life. What is good for me is that I even reach to 30% just to boost my savings for housing.

    22. Great post Stephanie.
      Man. It’s one of the toughest things about being an artist. You’re not making a ton, but you have to be in major urban centres, because that’s where the work is. UGH.
      Until that ‘make-more-money’ train moves in, I guess I’m stuck with delightful roommates, and a landlord who doesn’t seem to mind when I practise.

    23. […] How Much Of My Income Should I Spend On Housing? from The Broke And Beautiful Life […]

    24. […] How Much Of My Income Should I Spend On Housing? by Stefanie O’Connell Stefanie introduces to one of the oldest personal finance rules: keep housing costs to around 1/4 to 1/3 of your monthly budget. That means that if you make $1500, you shouldn’t spend more than $500 per month on rent. But something different happens in big cities. You can begin to save in other areas, as the rent escalates. Stefanie does a fantastic job outlining why you need to look beyond basic rent costs. […]

    25. Amit Talpade says:

      Stephanie, This is a great article. I was surprised to hear about the national car spending. WOW, that is a lot of money. In New York, that saving can go towards housing. But what does a family of five do, buy a car or 5 subway passes. It seems that this saving is worthwhile only if you are single?

      • Stefanie says:

        Ah good point. I can’t imagine everyone in that family of five would need an unlimited subway pass however. I buy a pay per ride and use my bike, so my transit spending is far less than the $112/month.

    26. Greta says:

      I live in Upstate, NY. I’m only 2.5 hours away from NYC and go there often. The rent is A LOT cheaper. The further downstate you go, the more expensive it is. I like the fact that I can go to NYC anytime I want, and not pay the high rent to live there. This is from a person who wanted to live in NYC with a PASSION! I just couldn’t make the dollars work. I currently have a one bedroom apartment that is over 900 sq ft, with H/W floors, and my rent is $835.00 per month. My neighbor is from Harlem and said living in Upstate was the best move she made from a cost of living standpoint. You could NEVER get the deal I have in NYC.

    27. […] our combined $2,000 monthly budget I couldn’t find much more than a tiny studio walk-up facing a brick wall. I pushed the search […]

    28. […] reflecting on housing “rules of thumb” for example, I quickly found myself rejecting traditional recommendations of keeping housing costs […]

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