A question that not enough of ask is, can I afford my home? Before purchasing your house, you should consider if the mortgage payment is something that you can realistic afford. If you overpay on your mortgage or rent every month, it could leave very little room for other areas of your budget. If you are struggling to make ends meet and are locked into a home that you can hardly afford, it may be time to consider selling your home, even if it is your dream house.
Your housing cost, whether it be your mortgage or rent should cost you no more than 30% of your monthly take home pay. If your rent or mortgage is more than that, you risk the possibility of financial hardship should other expenses in your life crop up.
If you are locked into a mortgage that is eating up almost half of your take home pay you will struggle at the slightest bump in the road. Any hiccup in your income can send not only your budget spiraling out of control but cause you to have to take drastic measures to cut expenses elsewhere.
For us, the best way to think about this is how long it will take us to save enough money in our emergency fund to survive for at least three months if my hubs (the sole income earner) lost his job. If the answer is longer than a year, you could be in trouble if such an event happened. It is a scary thought but before you get yourself in a mess that is more difficult to get out of consider the math.
Here are two formulas to help you to calculate the max monthly payment that your mortgage should be:
Take Home Pay x 0.3 = Max Monthly Mortgage/Rent Payment
Monthly rent/mortgage x 100 = % of your budget dedicated to your home
Monthly take-home pay
Another way to view this thought process is if only 30% of your current take home pay is being used to fund your living space, the other 70% can be used for other things like utilities, fun money, savings, vacations, etc.
The last thing you want to do is to strap yourself so thin every month that you struggle to provide even the basic essentials like groceries or even the non-essentials like “fun” money. Build a budget that works and hold yourself accountable to ensuring that you can afford your home. Do not overpay on your home.
“If you always underpay on rent or your mortgage, you’ll be in a better place to live the rest of your life more richly. On the other hand, if you overspend here, it’s like setting a domino in motion with ramifications throughout your entire budget.” Alexa von Tobel, Financially Fearless *
What are your thoughts? Like the idea of your mortgage or rent payment only being 30% or less of your take home pay?
JOIN THE CHALLENGE!
Money controlling you? I know the feeling. My family has been living this real life on a budget for a long time and I can tell you that there's never a perfect season, but with a few changes you can start to reign in your money issues.
Join the 5-Day Challenge today and start getting your money life in order this week!