The city you live in largely dictates how much of your monthly income goes to rent. If you’re living in big cities like New York or San Francisco, you’ll end up parting with more money for less square footage than a person living in a rural town. Those trying to determine how much is okay to spend, just as there is a general rule when it comes to saving, there’s one for housing as well.
Financial experts advise that you ought to only spend 30 percent of your salary on housing. That percentage includes utilities and everything that pertains to keep the rental apartment or house operating at optimum. If you’ve taken out a mortgage, the same rate applies, including taxes and utilities as well. Remember that you’re also advised to save 30 percent of your salary. The remaining 40 percent should be enough for upkeep and other costs such as transport, leisure and other out of the box activities like seeing a cosmetic consultant Canada holds in high regard when trying to launch a product line.
It is not just those versed with finances and housing that advice this. The government also has a standard in place. They note that anyone using more than the stipulated percentage is burdened with regards to their finances. Therefore, if your home cost more than 50 percent of your monthly income, then you’re likely struggling to keep up payments in other areas of your life.
However, that’s not necessarily the case. That is because, as mentioned, it depends on where you live. Some people can pay higher than the recommended amount and still managed to make savings, and live a comfortable debt-free life. You, therefore, have to consider what other demands you have before settling on how much you can pay rent or a mortgage. Make a budget or meet with a financial adviser so that you can make sound decisions that won’t harm your future.
The rule that mortgage lender use is the 28/36 rule where, where spending shouldn’t be more than 28 percent of the monthly gross income. The 36 percent factors in all the debt you have, the housing loan included. Not meeting these requirements means paying higher interest rates as the lender considers you a risk. That is if they chose to give you the loan in the first place.
Therefore, you need to come up with a solid financial plan before you choose to commit to rent or purchase a house. If you’ve already made the commitment and you’re struggling to make ends meet, then it’s an indication that you need to go back to the drawing board.