How Much of My Monthly Income
Should I Spend On Housing?

This is a great question!

I get asked a lot about how much money we should be saving and what to invest in, but questions about the cost of housing are pretty new.

Given the rising cost of rent and the increase in mortgage rates over the last couple of years, it makes sense. We all need somewhere to live and with wages not keeping up with inflation, lots of people are tightening their belts to stay afloat.

Conventional wisdom says that your housing costs – whether it’s rent or a mortgage – should be no more than 30% of your income. Anything more than that is considered “house poor” and could lead to financial trouble.

I disagree with conventional wisdom. 

The 30% Rule for Housing is Wrong

Even though it’s tough for lots of people to hit that 30% benchmark these days – lots of families spend 40-50%+ on housing each month, the goal should be less than 30%.

Here’s why:

Most people calculate what they can afford to spend on housing based on their gross income rather than their take home pay. That’s a huge problem.

That calculation leads them to spend more than they can truly afford.

How Much You Should Really Spend on Housing

In order to ensure financial stability and build wealth, you should spend no more than 25% of your net income (your take home pay) on housing.

I know what you’re thinking –

“Jeez Lena! I make $40 grand a year. My take home pay is $2,200 a month. Are you saying that my rent or mortgage should be $550 a month?! That’s impossible!”

Yes, that’s what I’m saying, and in most parts of the country, you’re right.

How to Avoid Being House Poor

Spending 25% of your take-home pay housing is the goal to ensure financial security, and make certain that you and your family aren’t house poor. It will be virtually impossible for most Americans to hit that target at the start of your wealth  journey.

Set it as a goal and build a wealth system that gets you there. Doing so will decrease your stress and allow you to enjoy your home rather than worry about paying the bills.

If you’re serious about getting your housing costs under control you have few choices:

• Practice housing arbitrage. Maintain your current salary and move to an area with a lower cost of living (LCOL) or house hack.
• Drastically reduce all other spending. Commit to house poverty for 5-10 years, grow your savings & hope that your landlord doesn’t raise rent (ha!) or the house needs no repairs, or
• Significantly increase your income. By doing so, you’ll increase the dollar value of your housing percentage max and increase what you can afford. 25% of 40,000 is a lot less than 25% of $120,000.

For most of us, housing is our single largest monthly expense. If you make the decision to control your spending in this area, you can transform your financial future in less than five years.

You can do this!