Probably the largest expense that you face is housing. Your primary residence is often the largest single purchase for most people.
If we can change the largest cost, how quick can you reach your personal financial goals?
A lot faster than if we saved the daily latte, right?
So working from the 80/20 rule, we are looking for 80% of the effects from 20% of the causes. So let’s attack that biggest expense: housing!
Here are our tips to reduce housing costs and get big results in your personal finances!
Now, first things first: Should You Rent or Buy Your Home? If you buy, housing can dramatically increase your net worth over time. But there are some pitfalls to owning. I take a look at what you should consider when you are looking to rent or buy your home.
For Home Owners
Over at Financial Samurai, Sam recommends keeping your housing costs to 10% of your gross income to reach financial independence. Banks will typically lend up to about 40% debt-to-income ratio, but that includes all your debt and not just housing (student loans, cars, credit cards, etc). With higher debt loads, you are also looking at higher interest rates, driving your costs even higher.
If you are buying your home, it is important to avoid private mortgage insurance or PMI, which can add $85-200 a month to many mortgages. Find out why you need to avoid and how to get rid of PMI and stop paying to protect the bank! You can reduce housing costs easily by getting rid of PMI and that $85-200 a month!
Meanwhile, you also need a home maintenance budget to protect your home’s value and your finances. Every home needs maintenance and you should plan accordingly. Don’t forget a maintenance budget for your rental properties too!
If you don’t decide that buying a house is right for you, well, you aren’t the only one. About 35% of the U.S. population lives in a renter-occupied household. Generally, guidelines recommend that you don’t spend more than 30% of your gross income on rent.