Excessive housing spending is a trap many older millennials fall into.
Housing is a typical American’s biggest monthly expense – but it’s a cost that needs to be brought under control. As a general rule, it’s a good idea to keep housing costs at 30% or less of your take-home pay. This should, in theory, free up enough money for other expenses and prevent debt from being taken into account.
For tenants, this 30% is fairly straightforward to calculate – it’s the cost of rent. For homeowners, this 30% includes a monthly mortgage payment, property taxes and home insurance.
But older millennials may struggle to meet these guidelines. According to a recent poll conducted by The Harris Poll on behalf of CNBC Make It, the average older millennial (aged 33 to 40) spends a median amount of $ 1,200 per month on housing costs. But workers in this age group make home only about $ 3,200 per month. This means that the typical older millennial spends more than the recommended 30% of their income on housing – and thus risks serious debt.
Are you spending too much on housing?
Let’s be clear: in some markets (like New York and San Francisco), it’s virtually impossible to keep housing costs at 30% or less of your income. But in many parts of the country it is feasible, and if you live in one of these areas, it would be wise to stick to the 30% rule.
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If you spend too much on housing month after month, you risk falling behind on other financial goals, like saving for retirement. You could also put yourself at risk of accumulating debt if you have to charge other expenses on a credit card.
This is why you may need to reconsider your housing situation if you are spending well above the recommended 30% of your income. If you are a tenant, you may want to consider downsizing or relocating quarters after your lease expires. Although you will spend the money to transport your things from house to house, you may be able to do it relatively cheaply, especially if you don’t have a ton of furniture and have a few friends with vans who can help you.
If you’re a homeowner, getting rid of your housing costs is much more complicated. One option may be to appeal your property taxes if you feel your home is overvalued. Each year, you will receive an appraisal notice indicating the value of your property. Your property tax bill is calculated by taking the assessed value of your home and multiplying it by your local tax rate. If you can reduce this contribution, your tax bill should go down. You can also try to shop around for a better home insurance deal.
Finally, you can see if refinancing your mortgage will save you money. If you can lower the interest rate on your home loan by a decent amount, it could result in smaller monthly payments and more money to cover your other bills.
If you are currently in the market to buy a home, you have a great opportunity to avoid falling into the trap that many older millennials have fallen into. allow themselves without exceeding this 30% threshold. While there are a few exceptions to the 30% rule, for the most part it’s a good guide to follow. If you can keep your housing costs low from the start, you can avoid some of the financial problems that many of your peers have likely faced.