Over the past few months, I've occasionally used the “Ask the Readers” feature at Get Rich Slowly to poll people about their budgets and spending habits. So far, I've asked folks to share their spending on food, clothes, gifts, and health insurance. Now I want to look at a bigger item in your budget — probably the biggest. Let's talk about how much you spend on housing.
More than other expenses, your housing costs are influenced by where you live. Some parts of the country — and some parts of the world — are much cheaper to buy a home or to rent an apartment. It's cheaper to live in Boise, Idaho, for instance, than to live in New York City. Generally, however, there are reasons for these price disparities. Most people are willing to pay more to live in New York than in Boise, and that drives prices higher. It's a trade-off.
I'm a firm believer in the Balanced Money Formula, which says that if you pay too much for housing, you'll have less to spend on other wants and needs, and you'll always feel pinched, as if you can't afford anything. On the other hand, if you limit your housing expense to below 25% of your take-home pay, you should have lots of breathing room.
For my own part, I pay a little more than I ought to for housing. After a few years of spending $0 per month (because we paid off the mortgage after selling the blog), I'm now paying $950 for my apartment in Portland. That's 36% of my take-home pay, and a fine example of not practicing what I preach. But I'm able to get away with this because:
- I'm still saving more than 20% of my income.
- I have ample emergency savings.
- The rest of my spending on needs is low.
- My spending on wants is extremely low, and my relatively high housing expense doesn't make me feel pinched.
As I mentioned before, this $950/month figure seemed high to me until I started comparing notes with other Portland renters. Yes, there are places that cost less, but they all involve compromises I'm unwilling to make right now. (The biggest compromise? Location. I want to be able to walk almost everywhere, and I can do that from this apartment. That'll help me save money on auto expenses, which balances things a little.)
What about you? Where do you live and how much do you pay on housing? What percentage of your budget does this represent? Does your housing payment cramp other parts of your life? Or have you intentionally kept it low so that you can afford to spend on other things? If you were to start over again from scratch, what sorts of housing choices would you make? Would you rent? Would you buy? Would you move to another part of the country (or the world)?