dear sir dave
Is there flexibility in the rule of not spending more than 25% of your take home pay on rent or monthly mortgage payments? I live in downtown Washington DC and it’s pretty hard to do that here I feel. I earn about $90,000 a year, but my monthly rent is just over $2,000. Rent is my biggest expense so far, and I don’t spend much on other things, so I can still save a little and spend it on other things. What are your thoughts on this approach?
Certainly, I advise people not to spend more than 25% of their take home income on housing. Mathematics still works in every city and state in the country. Just because you live in Washington DC doesn’t mean you’ll pass math. Even if Congress and many others thought you passed math.
But there’s nothing magical about 25%. The purpose behind it is that they don’t want you to be a housepoor. If you can still save and invest because you keep other financial aspects of your lifestyle so low, you’ll be fine. Most people’s problems start with the high cost of housing, which puts considerable pressure on the family budget. You run out of money to save for your next car, and that car ends up in debt. The same thing happens with Christmas and holidays and everything else. They don’t have enough extra money to save for a living as huge chunks of their income go out each month in rent and housing payments.
Well, you told me that your situation works out for you because you are on a tight budget and live a very frugal lifestyle with your choices. cool. I’m not mad at you for that. But the problem is, all the money you spend on rent is gone. And the more money you burn, the less money you have left to spend on other things.
I’m not exactly sure how to adjust it for your situation. You might move out of town to commute, or you might add a roommate to the equation. Or maybe you’re good enough for where you are and that’s the way you want to live. It’s okay too. But my reason behind the 25% figure, which is really more of a guideline than a rule, is to avoid being a house poor. I want to be able to save, invest, and donate generously. Besides, I would like to have my own house someday.
And it’s impossible if all you earn goes to high payouts.
Dave Ramsey is CEO of Ramsey Solutions. He has authored several best-selling books, including ‘The Total Money Makeover’. The Ramsey Show is heard by over 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web: daveramsey.com and on Twitter @Dave Ramsey.
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