Welcome back to the Back to School for Money series. Today, we will talk about one of the largest expenses for most people, housing.
If you are trying to decide how much rent or mortgage payment you can afford, the general rule of thumb is to spend no more than 30% of your net income on housing (rent/mortgage). So, if you are bringing home $4,000/month, your rent or mortgage should not exceed $1,200/month.
Couple that with the 50/30/20 budgeting method we discussed last week, and you have something like this for a $4,000/month earner:
$1,200 on rent
$800 on food, utilities, cell phone, insurance, transportation, medical, and other NEEDS
$1,200 on fun stuff (eating out, hobbies, travel)
$800 to savings (emergency fund, retirement, college)
Clearly, if you live in a more expensive area, your 30% on housing may be higher, but you need to plan to take the extra from the 30% fun budget, NOT the savings category.
Also, think of the 30% on housing as the HIGH end, and if you can go lower, you’ll have more breathing room for the wants and needs categories.
Stay tuned for more financial basics next week.