Housing is usually the biggest monthly expense in our lives. It is going to be a big chunk of your salary. Managing this part of your major repetitive expense better will put you much further ahead in your financial goals than anything else like cutting down your beloved barista drinks, or not getting that ice cream because it was not on sale.
Monthly expense Rules – If you are hoping to manage your personal finances better, first things first I would recommend getting this free monthly finances template. Write down your fixed and variable costs for every month. I talk about this in detail in this previous blog post.
Whatever your numbers look like, general rule of thumb is for your monthly housing expenses to be 30% or lower of your Net monthly income. Especially in times like these (COVID-19 era), where jobs security and business incomes are so uncertain, it is always good to have lowest possible fixed expenses. This will give you some buffer to save up for emergencies. If you already have a 3 month emergency money set aside, may be dial up your money dial for things you love, or save for the future.
If you are renting – Look for units or houses that fit your needs but within the 30% range of you monthly income. If it is more than that then consider getting a flatmate to share the costs. Hopefully, you will have a good landlord who will cover your repairs and maintenance. I would go as far a including utilities as a part of your monthly budget and not go more than 35% of your income.
Owning your own house – Before we bought our house, we set a hard (absolutely not negotiable) maximum cost. We didn’t look at houses even $5000 over that total cost. This was something that we are going to be paying for years to come. There will always be a house that looked better, was bigger, had the kitchen island we always wanted. Well, at the current income levels we thought that budget was perfectly aligned with what we wanted and found a beautiful home for us.
Phantom costs – When people buy houses they always tell us what the cost of the house is when they bought it. They never include heaps of phantom costs that come with it, including interest, taxes, legal fees, inspection costs, a bunch of fees with mortgage registration and application, stamp duty, rates or body corp fees, insurance. These can be add up to be quite a lot, make sure you have all these saved up for in your house deposit. Another one is small renovations. We all want to make the house our own as soon as we move in. Adding cabinets, painting etc. This will actually add to your costs and may not add to the value of the house.
And we haven’t even touched on house maintenance, which is a constant ongoing variable expense. Bottom line is don’t push your monthly payments so high that if something else comes up there is noway you can afford that.
If your mortgage is higher than the 30% range, consider downsizing, getting a housemate or you will constantly feel guilty about spending on coffees every morning. Always live within your means.
Disclaimer – I am not financial adviser and I recommend you consult with a financial professional before making any serious financial decisions. This blog is for informational and educational purposes only.