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Old 08-25-2017, 12:12 AM
 
8 posts, read 3,535 times
Reputation: 25

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My husband and I rent a 600-sq ft 1-bedroom apartment in California with our 2 dogs. When we first moved into the place, our financial situation was dramatically different, and we make nearly double what we did when we first moved in.

To give you a better perspective on this, right now we spend about 15% of our monthly net income on rent.

Our place has carpets (which have seen WAY better days - that's having 2 dogs for ya!) And not gonna lie - I'd love laminate floors, some semblance of a yard, and a 2nd bedroom for a home office. (I don't see us having kids anytime soon, so we don't need a nursery). All of this comes at a price - and would turn that 15% of our income into around 25%-27% going towards rent. A fairly decent increase.

I think of all the "other" things we could do with that money - create a bigger nest egg, save for a down payment on a home, take an epic 3 month roadtrip (something we've talked about doing), etc. Right now, we live super comfortably and it's been nice, but I almost feel like if we stay, we need to figure out how to manage our money better, and give it more purpose.

What percentage of your income goes towards your home or apartment? And what would you do if you were in our shoes? Stay in the tiny 1-bedroom with less than stellar carpets, or consider an upgrade?
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Old 08-25-2017, 12:46 AM
 
Location: Las Vegas
12,348 posts, read 22,261,293 times
Reputation: 20941
Stay where it's cheap. Paying more for rent is just throwing money away. Save for things you want!
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Old 08-25-2017, 01:09 AM
 
22,021 posts, read 23,791,249 times
Reputation: 18917
Quote:
Originally Posted by hellomoving12 View Post
My husband and I rent a 600-sq ft 1-bedroom apartment in California with our 2 dogs. When we first moved into the place, our financial situation was dramatically different, and we make nearly double what we did when we first moved in.

To give you a better perspective on this, right now we spend about 15% of our monthly net income on rent.

Our place has carpets (which have seen WAY better days - that's having 2 dogs for ya!) And not gonna lie - I'd love laminate floors, some semblance of a yard, and a 2nd bedroom for a home office. (I don't see us having kids anytime soon, so we don't need a nursery). All of this comes at a price - and would turn that 15% of our income into around 25%-27% going towards rent. A fairly decent increase.

I think of all the "other" things we could do with that money - create a bigger nest egg, save for a down payment on a home, take an epic 3 month roadtrip (something we've talked about doing), etc. Right now, we live super comfortably and it's been nice, but I almost feel like if we stay, we need to figure out how to manage our money better, and give it more purpose.

What percentage of your income goes towards your home or apartment? And what would you do if you were in our shoes? Stay in the tiny 1-bedroom with less than stellar carpets, or consider an upgrade?
For me, it's just under 24% of gross salary on rent. I feel very lucky to have a merciful landlord who, despite it being a rent controlled apartment, did not raise the rent nearly as much as the rent control laws allow. If I were paying the current market rate, my rent would be 39% of my gross income. When I moved in 9 years ago, I paid the market rate and the rent was about 21% of my gross income.

As a renter in CA, I think you have to be very wary of taking on those rent increases. Is your income likely to double again in the next 5 years? I'm guessing not. It's very, very, easy for rent increases to outpace your increases in income because California is popular and they do not build enough housing. That means rents and home prices regularly increase faster than incomes. Next thing you know, you upgrade your housing, pay 27% in rent, and 5 years down the line, you're up to 35% of income in rent...or more...and then it's hard for you to save for a down payment on a house because you're paying so much in rent...and the vicious cycle begins.

I think you need to take your own advice--Learn to manage your money better and give it more purpose. Do that now. It's something you need to do no matter what. And something you need to get the hang of long before you take on a big obligation like taking on higher rent.


If you decide to take on the higher rents, here would be the bare minimum requirements for whether or not you can really afford it:

--Have all other debts, if any, paid off.
--Minimum of 6 months of living expenses saved. Those living expenses would include the new (higher) rent.
--Still able to save at least 15% for retirement. This sounds like a lot. But it isn't. It's what you need to save for a half decent (not luxurious) retirement in your 60s. Especially if you're a renter, you should consider it a bare minimum, because taking on those higher rents may mean you'll never be able to buy a home (at least not in CA).
--Still able to save at least 5% in addition to retirement for other goals (replacement car, other savings).

In my experience, people tend to way overestimate the happiness they'll get from laminate floors and larger living spaces and way underestimate the happiness they'll get from increased financial security.


Even if all of the above conditions were met, I probably wouldn't do it, but I think if you could meet or exceed all of the above conditions it would at least be a reasonable decision, even if I wouldn't personally do it.

For further reading on giving your money more purpose, I highly recommend the Mr. Money Mustache blog:

http://www.mrmoneymustache.com/2013/...one-blog-post/

And I absolutely LOVE this video he did. It's both true and entertaining--and potentially life changing if you take it to heart--no exaggeration.

https://vimeo.com/183016901

Last edited by mysticaltyger; 08-25-2017 at 02:26 AM..
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Old 08-25-2017, 08:50 AM
 
205 posts, read 76,088 times
Reputation: 164
I'm at about 15% of income for owner costs (mortgage, taxes, insurance, fees, upkeep and upgrades). I could see pushing it to maybe 20% but wouldn't want to go much past that. If I had 2 people living in a 600 sq ft. place I would definitely want to upgrade but that may not bother you.


How about upgrading to 18 to 20% of income and then taking that leftover 7 to 9% and investing it to increase your income?
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Old 08-25-2017, 11:50 AM
 
Location: The Triad (NC)
23,868 posts, read 51,359,274 times
Reputation: 23699
Quote:
Originally Posted by hellomoving12 View Post
My husband and I rent a 600-sq ft 1-bedroom apartment in California with our 2 dogs.
...we spend about 15% of our monthly net income on rent.
Does your net also have you fully funding your retirement account options?

If so ...then you're doing very well and SHOULD be able to save enough to buy
something after a while (tho maybe not in CA). Very few in CA are managing that.
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Old 08-25-2017, 12:51 PM
 
Location: CA, OR & WA (Best Coast)
224 posts, read 142,951 times
Reputation: 187
Bigger is not always better. We had a 4,000sqft house on 5 acres for 16 years with rooms that only the housekeepers would see. Sold it and downsized to 1800sqft. Paid cash for the small house and no longer have a house payment and its the most amazing feeling in the world.

I would rather retire at 50, with a simpler life than 70 and debt.

You should stay in your small space and save/invest your money. A 3 month epic road trip sounds pretty foolish (financially speaking) unless you have 3 months to live.
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Old 08-25-2017, 02:13 PM
 
Location: Florida
3,059 posts, read 2,349,999 times
Reputation: 2546
I don't think we can give you the answer. It sounds to me that you do a very good job managing your money. I don't see you trying to keep up with the Jones. Thus I am a lot more open to you spending more money on housing that I normally would be.

You mentioned an option of saving for a home. I think I would lean toward staying put until you could buy the home.

You mentioned the carpets. Maybe recarpet the apt. Maybe area rugs would be a good deal.

If you can take a 3 month road trip that tells me you are not working year round. Maybe think of a part time job during that 3 months to speed up the down payment on a home.

My impression of CA is that it is very expensive. Maybe think about relocating.
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Old 08-26-2017, 12:20 AM
 
125 posts, read 31,599 times
Reputation: 93
Quote:
Originally Posted by hellomoving12 View Post
My husband and I rent a 600-sq ft 1-bedroom apartment in California with our 2 dogs. When we first moved into the place, our financial situation was dramatically different, and we make nearly double what we did when we first moved in.

To give you a better perspective on this, right now we spend about 15% of our monthly net income on rent.

Our place has carpets (which have seen WAY better days - that's having 2 dogs for ya!) And not gonna lie - I'd love laminate floors, some semblance of a yard, and a 2nd bedroom for a home office. (I don't see us having kids anytime soon, so we don't need a nursery). All of this comes at a price - and would turn that 15% of our income into around 25%-27% going towards rent. A fairly decent increase.

I think of all the "other" things we could do with that money - create a bigger nest egg, save for a down payment on a home, take an epic 3 month roadtrip (something we've talked about doing), etc. Right now, we live super comfortably and it's been nice, but I almost feel like if we stay, we need to figure out how to manage our money better, and give it more purpose.

What percentage of your income goes towards your home or apartment? And what would you do if you were in our shoes? Stay in the tiny 1-bedroom with less than stellar carpets, or consider an upgrade?
I would try to buy a home if possible. There are conventional loans which will grant you the downpayment of just 3%. But there is a huge housing bubble again, yet to get qualified just in case you find something, might be prudent
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Old 08-26-2017, 01:51 AM
 
Location: rural DE
1,259 posts, read 338,914 times
Reputation: 2256
Go on the road trip. Then come home and make some life decisions. The people telling you to be wary are right. Nothing is logical any more and it's not like you can rent a place and count on a fixed increase every lease renewal, nor can you count on a pay increase. I was in your position and saved the money for the future, but the future pulled the rug out from under everybody and I never got the road trip or the house or anything else. So in hindsight, I'd say the life experiences (trip) are not unimportant. The space depends on what you want it for. If barbecues and an office are important to you, then you should have them. It's up to you how important they are and if something else might be more important.
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Old 08-26-2017, 02:05 AM
 
22,021 posts, read 23,791,249 times
Reputation: 18917
Quote:
Originally Posted by NYC refugee View Post
Go on the road trip. Then come home and make some life decisions. The people telling you to be wary are right. Nothing is logical any more and it's not like you can rent a place and count on a fixed increase every lease renewal, nor can you count on a pay increase. I was in your position and saved the money for the future, but the future pulled the rug out from under everybody and I never got the road trip or the house or anything else. So in hindsight, I'd say the life experiences (trip) are not unimportant. The space depends on what you want it for. If barbecues and an office are important to you, then you should have them. It's up to you how important they are and if something else might be more important.
Despite my being wary of upgrading housing, I actually think the road trip might be a good idea. It depends on a lot of factors that aren't provided in the original post. but all other things being equal, a 3 month road trip is a one time cost. Higher rent is forever.
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