I’m taking a new job in a new city in September. With that, comes a new paycheck. In a week I’ll go check out housing options and hopefully sign a lease on an apartment, but in the meantime I need to figure out my budget.
So I’ve been researching how much I should spend on housing, and here’s what I’ve found.
Every site I found says you should spend 30%-35% of your after-tax income on housing.
How do you figure out after-tax income? I used this calculator, which can apply your state’s income tax in additional to the federal tax.
And I’ve discovered I can spend a little over $1000 a month on rent, including utilities and other house-related expenses. Which isn’t too bad in the city I’m moving to — especially since I’m planning on getting a studio.
But what if I were moving to New York, where the housing prices are ridiculously expensive? I would bet that it’s hard for people to follow the 30% rule there. If you’re a New Yorker, share your thoughts on this.
Anyway, is your housing expenditure in line with the 30% rule? Budgeting is always about making choices, prioritizing your desires. Would you spend more on housing to get a nicer place and less on entertainment and going-out expenses, or are you the opposite? If forced to choose, I’d probably spend more on housing, because a comfortable place to live has always been very important to me. But who wants to choose?
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I’ve heard that number before, and it doesn’t make much sense to me. I went from LA to DC to North Carolina, and there’s no way you could get a liveable place for 30% of your income in the first two cities. Now, in NC it’s easier, but I decided that my home is like my safety net after a long day, and I’d rather pay more for a nice place I love coming home to. But, I don’t like going out often, while a friend of mine hates her apartment but is hardly ever there, so it doesn’t matter. To each her own!
Yeah, I think how important having a nice place is to you plays a big role in the equation. I’ve always spent money on making my apartments nice and cozy (even in college!), when some of my friends couldn’t care less whether their places looked like the dorms we lived in freshman year. It seems we’re similar in that respect — my home is my safe haven.
But that means that, ideally, we’d be spending less on other things. Not sure if I’ve been the best budgeter in the past, but I’m working on that for the future!
I agree completely. I’m currently living outside the city where I work but am planning on moving downtown once I save some money. Like all cities, there are better parts than others, and in my opinion I would much rather spend the money on a nice place where I feel SAFE (most importantly) versus skimping on living expenses and not feeling completely comfortable at home. I’ve always been a homebody so having a warm, cozy (and chic!) place to go home to is top priority.
I’d spend 30% or less on an apartment (basically the least you can to be reasonably close to work and in a safe area). But I’d spend 35% or more on a house. Your rent will rise, your mortgage payment won’t. So if you stay in your house and get raises, the proportion you’ll pay in relation to your income will drop over time. So a mortgage payment that’s 35% of your income today will be a smaller percentage as your income increases. It’s cheaper in the long run to buy a more expensive home and stay in it than to buy a less expensive home that you have to turn around and sell, then buy a bigger house. I wish I’d spent more on my house. But this only works if you’re going to stay in the house for years. If you’re not in for five years, get an apartment.
I’ve been seeing this 30% number recently and I think it’s absurd to generalize the amount you should budget for rent, if you don’t take in the factor of the area of the country you live in. I live in Washington, DC — no way when I first started working would I have been able to only spend 30% on rent and utilities, I’m still not spending that low. I did a quick calculator math of my current mortgage, condo fees, and utilities, and I’m spending 45% of my disposable income. It’s what I’m willing to spend though in order to live in a safe area and have the amenities that I want. I know the same goes for other high rent/high cost areas, such as NYC or Boston. As long as you are living within your means — and able to do what you want to, when you want to — then I think you can spend what you wish.
I think Al is right – without going completely overboard and spending say 75% on your rent/mortgage alone, the percentage you spend will depend on how you live your life and what you’re comfortable with. Maybe you like to entertain at home a lot, and having people over often will then lead you to spend more on housing. On the other hand if you’re never home, say you travel for work, you are comfortable spending a smaller percentage of your income.
Personally I will be spending close to 50% on housing and utilities, but, I am willing to do that because of the location and building – it just means I have to spend less on other things.
The 30% figure would perhaps be an ideal, but it is not always realistic. I have recently moved to Sydney and chose the pay more in rent so that I could have an inner city lifestyle whilst getting to know my new city. If it means I spend less money and time on transport then I am happy to pay more.
I live in NYC. This is not possible – unless you want to live somewhere really undesirable. Or out of Manhattan. Rent is expensive and the city tax is a secret killer. But it’s a nice idea, haha!
When I lived in NYC, I was spending 35% of my income on rent alone (not including electric, water, etc.), and that was even living in Queens and splitting an old apartment with two other roommates! And I probably made an actual OK salary by NYC entry-level standards (around $38K). To live in Manhattan it would probably take over 50%!
So I would say yes, it’s very hard to keep it at 30% in NYC without living hours away or compromising your safety or living in bunk beds with 10 other people!