Your home might be your castle, but is your castle bleeding your wallet dry? Deciding how much house or apartment you can afford isn’t as easy as looking at your monthly mortgage or rent payment. Square footage and the age of the dwelling can severely impact other associated house expenses like utilities, insurances, and maintenance, not to mention the added commute times and increases in gas expenditures if you moved to the ‘burbs to grab a nab a bigger home. So, how much should you be spending on la casa and what do you do if you bit off more than your budget can accommodate?
Is Your House Controlling Your Budget?
Housing expenses are notoriously intertwined and inflexible. The more money you spend on housing and housing related expenses, the less flexibility ou have in your overall budget. Housing expenses typically follow the rule the bigger the house the bigger the bills.
Let’s get down to knowing exactly what you can afford to buy. This budgetista recommends that you allocate between 30-35% of your net income (read: take-home pay) on housing related expenses.
Examples of housing related expenses include mortgage/rent, homeowner’s/renter’s insurance, private mortgage insurance, property taxes, homeowner’s association/condo fees, utility bills (not cable/satellite, phone, or internet), maintenance, repairs, security monitoring
Once you add up all of your housing expenses, you’ll need to calculate how much of yournet income is used to cover your housing expenses each month.
(Monthly Housing Expense Total / Net Income) x 100 = Percent of your monthly budget spend on housing expenses.
If you’re spending under 35% of your income on housing, que bueno! If not, you have got to start considering some alternatives to bring your housing expenses to a more manageable level.
Why You Should Consider Downsizing Your Home
Let’s be honest. We live in a society that says that bigger is better and that how much you appear to own is how you measure how much you’re worth. We all know it’s a big horse and pony show, but who’s really getting hurt by this thinking? Bingo. You are.
When it comes homes, bigger isn’t always better. You know what a bigger house means? Higher utility bills. And more time spent cleaning and maintaining…think about what happens when you move from an apartment to a home with a yard? Yard work. Grass doesn’t cut itself and landscaping doesn’t come cheap.
And have you ever noticed what happens when you move from a smaller space into a larger space? All of a sudden you’ve got all this blank space and nothing to fill it with, prompting you to hit the stores to fill the empty spaces.
When it comes to how you spend your money, you are the final arbiter of your finances. That’s why we call them personal finances. They’re yours and it’s personal.
How To Reduce Your Housing Expenses
Okay. Your current living situation is a burden. Your mortgage or rent is a weight around your neck and it’s stressing you out. What do you do?
You put every single money saving option on the table, without judgement, so you can make the best decision for you and your family.
Remember, you have a choice in ever consumer decision you make and that a sacrifice in the short term can mean big rewards in the long-run.
Here are some starter ideas to get your brainstorm going:
How To Save Money As A Homeowner
- Refinance your mortgage. Do you qualify for the Making Home Affordable Program (Deadline extended to December 2013)?
- Have your home reassessed for property valuation? The Wall Street Journal reported that 50% of homeowners are overpaying on property taxes.
- Do you have more than 20% equity in your home? You might qualify to cancel your private mortgage insurance (PMI)
- Got an extra room in your house? Rent it out! College students are always looking for affordable accommodations.
- Downsize your home by selling your current home and buying a smaller home.
- Sell your home and return to renting
How To Save Money If You Rent
- Lease almost up? Start shopping for a new and cheaper place to live!
- Negotiate with your landlord to reduce your rent or to avoid an increase in rent when your lease is up for renewal.
- Bring on a roommate.
- Move in with family