Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Not my experience at all!
My kids, and their friends, are very actively saving for retirement (as they have zero faith that SS will be around for them).
Then they are confused about social security I guess. Because its not going anywhere.
I was living in a studio apartment in Los Angeles. The utilities were paid. In fact, when I was apartment hunting I found that most studio apartments had utilities paid.
Well, not everyone can or wants to cramp into a studio:>)
I pay around 28% of my income (after taxes) and I'm debating reducing it by renting a cheaper place next year. HOWEVER, I live in a very convenient area, right next to all the shopping I need, all within a few miles, and work is around 6 miles away, very easy commute. The complex is fairly expensive for the area so we generally have all working professionals living here, no hood rats. The complex takes care of everything greatly. For these reasons moving to a cheaper place, even saving 100 bucks a month on rent might not even be worth it if it adds additional commute times from work/entertainment/everyday shopping (convenience), low crime, etc.
If you live in a large city you can easily save money if you rent a room, plenty of people rent out rooms. You will be living with someone else but it will free up extra cash for savings, entertainment, travel, whatever.
Speaking as a landlord, I assure you that my tenants who are paying 1/3 their take home in rent are all struggling with their finances. I am getting the rent, but life is full of unexpected expenses and those wild bills hit everyone at some time or another.
It is not a kindness for me to rent a place to someone who is going to be uncomfortably financially pinched by the rent amount.
I can not let the tenant decide whether or not he can pay the rent, because I always get a few people with $800 a month in income attempting to rent a $600 a month rental. I will also get a person with $400 a month income attempting to rent that $600 a month rental. Those people assure me that they can make it work for them.
It is much easier for me to say "sorry, 3 times the rent required" than it is to say "Sorry, but you are a complete idiot and I don't rent to idiots"
Anytime someone asks how much rent they can afford on their income, the answer is always no more than 1/3 of your earnings. I can see why landlords would have this basic metric, but why is this faulty logic opined by everyone else?
Take for instance someone making 24k a year. That's 2k a month. Lets say they are also a student and get a tax credit. So, there's not much tax liability other than payroll taxes. It's complicated to find someone's actual tax liability so for the sake of argument we'll just knock down their monthly pay to $1900
At 24k using the standard 1/3 metric this person would only be allowed to find an apartment for no more than $660. That's a difficult rent budget but can be done in most cities. You just won't be living in the nice part of town(if you get your own place).
So here's the budget. I'm just going to input what I normally spend per month(except for rent)
$1900
-650 Rent
- 60 Auto Insurance
-35 Cell Phone
-250 Food
-40 Internet
-50 Gas
-15 toiletries
-100 entertainment
That leaves me with $700. I could up my entertainment budget and still have plenty left over for an emergency.
The 1/3 metric gets even more silly as income rises.
Landlords have a 1/3 of gross income limit for a reason. It's based on their experience. When people end up paying more than that, they inevitably end up having trouble paying the rent, which is a headache for landlord and tenant alike.
You make the mistake of only including monthly expenses. This is how people get into trouble financially.
What about saving for your next car? Medical insurance and co-pays? Saving for retirement? Emergency fund savings? Car repairs? $50 for gas is low for most people as well.
You can say the 1/3 metric for higher income folks is less relevant, and perhaps it is, but I would guess that higher income folks tend to spend less on rent as a % of their income than lower income folks.
I know a lot of twenty-somethings and none of them are saving for retirement at that age. Most people live paycheck to paycheck.
Eh, right. And you think this is a good way to live? I guarantee you, it's not. It just ends up creating a lot of stress. You don't feel that stress so much in your 20s, but you do as you get older. If you don't develop good savings habits in your 20s, it gets harder to do so as you get older. You should talk to my 58 year old friend who never developed a good savings ethic. Now he has to work for jerk bosses (because those are the only jobs he can find that pay decent) and says he'll have to work until age 70. I think that's very unrealistic on his part. Even though he makes around 50K per year, he insists he can't save anything.
Quote:
Originally Posted by Aldous9
My car is fully paid and requires minimal maintenance. I change my own oil but I guess you could budget some of car maintenance.
This will not be the case forever. Your car will eventually require maintenance and repairs. It will eventually die. If you don't have the cash saved for a new one, then you'll end up stuck with car payments. This is how people end up stressed out and living payday to payday and or getting further in debt.
Quote:
Originally Posted by Aldous9
In California someone who is making 25k (if they are not covered through their employer) will qualify for Medi-Cal or if not a government subsidy to purchase health care.
I'm not sure, but I don't think all the costs are covered. To the best of my knowledge, you still have to pay something for it.
Two other BIG things not factored in that no one has mentioned: Unemployment! You simply can't count on a steady job these days, and that's not gonna change anytime soon.
The other? Rent increases! My rent has increased faster than my income. It's a good thing my rent was 20% of my gross when I first moved in. If you live in the Los Angeles area, there's a pretty high probability that your rent will outpace your income. They never build enough housing there to keep up with demand (same as in my area, the SF Bay Area), which means rents increase faster than incomes for most folks. There will always be someone who makes more money who can outbid you for an apartment/house.
In short, you can't live your life as if: your car will never break down, you'll never get sick, you'll never lose your job, etc. and expect to have financial security.
Last edited by mysticaltyger; 01-25-2014 at 12:12 PM..
Speaking as a landlord, I assure you that my tenants who are paying 1/3 their take home in rent are all struggling with their finances. I am getting the rent, but life is full of unexpected expenses and those wild bills hit everyone at some time or another.
It is not a kindness for me to rent a place to someone who is going to be uncomfortably financially pinched by the rent amount.
I can not let the tenant decide whether or not he can pay the rent, because I always get a few people with $800 a month in income attempting to rent a $600 a month rental. I will also get a person with $400 a month income attempting to rent that $600 a month rental. Those people assure me that they can make it work for them.
It is much easier for me to say "sorry, 3 times the rent required" than it is to say "Sorry, but you are a complete idiot and I don't rent to idiots"
Well, I know where you're coming from. There are certainly some dopes out there.
I'm a teacher and make 38k a year. According to the 1/3 metric I could only be rented an apartment for $1044 a month. Now, good luck finding a one bedroom in LA for that that's not in a bad area for that. I could easily afford $1500 rent. And that's with putting money into savings and having money to go on vacation every year (I just spent a month in Scotland).
I used someone at a lower end of the wage scale to make a point that even at that wage the 1/3 metric doesn't make sense. And in fact, 25k a year isn't even on the lower end wage scale. I know some teachers that start off making that.
I never said there shouldn't be a metric, but 1/3 seems just arbitrarily picked out of a hat.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
