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You saved based on current expenses and then re-evaluate your savings as you move through life events (home purchase, children, etc).
You should currently have a minimum of 6 months "bare bones" living expenses saved- that is, the bills that MUST continue to be paid if you are unemployed. You can cut back on eating out or premium cable or a hobby, but you have to pay rent/ car insurance/ eat/ keep your lights on & phone bill paid, etc.
When you go to buy a home eventually, you would want to have 6-months of homeowner expenses (including mortgage, tax, electric/gas/trash/water bills, etc) prior to purchasing a home. This number may be similar if your home and rental expenses are similar, but it could be quite a bit more and your savings need to reflect the additional "must pay" expenses.
If your house payment is more than your rent, then you would be living beyond your means. Get a smaller house.
Not necessarily- when I was saving to buy, my rent was $500/mo and I was saving several thousand per month. After I bought (a condo I could safely afford as it was under 2X my annual income), my expenses (mortgage/taxes/insurance/HOA) sky-rocketed to $2,000 per month....but I could still save plenty and still lived well within my means.
I assume nothing. If you have $1000 bucks to spend on housing, then that's the most you have to spend on housing--whether you rent or own.
If you only have $1,000 to spend on housing, then- yes, that's your max.
But to assume that someone who is renting for $1,000 ONLY has $1,000 to spend on rent is just that- an assumption.
When I was renting, I was spending about 6% of my net pay on rent. If you assumed that was all I could spend on buying a home based on my assumed income, you would be underestimating my annual income by 80%!
Back to OP- we don't know enough about his expenses, savings rate, projected income trajectory, other sources of income, etc- to assume that his current rent is ALL he could afford to pay when he decides to purhase a home in the future.
Personal finance will tell you that housing should cost around 30% of your pay. In my case, it's closer to 80%.
As I pointed out in the initial post, I have heard it is cheaper to own than to rent. I do not know if this is true, because I have absolutely no desire to own a home.
Personal finance will tell you that housing should cost around 30% of your pay. In my case, it's closer to 80%.
As I pointed out in the initial post, I have heard it is cheaper to own than to rent. I do not know if this is true, because I have absolutely no desire to own a home.
Renting vs owning is not a black & white decision. Whether it costs more or less over time depends on the house itself, your tax bracket, and the location.
Some things to consider in the evaluation are:
•Fixed expenses for a home, like property taxes, electricity rates (not fixed, but an ongoing expense), and HOA dues. Some areas of the country have property tax rates as little as .5% ($500 per year on a $100k home). Some areas are 3% ($3,000 per year on same $100k home value).
•Homes DO eventually get paid off, then you are just left with the fixed/ongoing expenses. Which will be easier to meet once you're retired/fixed income? Fixed expenses of $500/mo or eternal rent of $1,000 (& up). Or fixed expenses of $1,350 and rent of $1,000? Again, varies by location and individual property.
•The two biggest "perks" of home ownership are tax deductions and potential appreciation:
-If you are in the 25% tax bracket and deduct $10,000 worth of mortgage interest and property taxes each year (ie, a $150k home in a fairly high tax area), then your tax bill decreases by $2,500. Over 10 years, that's $25k you could save by being a property owner, which MORE than off-sets routine home maintenance OR could even pay for a new 30-year roof or a new garage addition.
-Appreciation. Yes, many areas are at the low-point of the last decade as far as home values, but over time (and especially in densely populated urban areas) values have always gone up. Maybe not 10-20% a year ever again, but 2-4% per year....which means that over the life of a 30-year loan, **most** homes will double or more in value. The only was you could make $150k by renting over 30 years (assuming $150k home doubles to $300k over 30 years) is to consistently play and beat the stock market or start/invest in a successful company. Savings accounts or even CD's and bonds are not likely to see that kind of consistent growth.
Hope this helps explain what to weigh in calculating the costs to buy vs rent.
A loan is a debt that must be repaid. Taking on more debt is not part of my financial decisions. I owe no one and own nothing.
Well, unless you're living somewhere rent-free due to the kindness of friends or family, you DO owe a landlord rent on the 1st of every month for the rest of your life. You will never not owe rent because as you said, you own nothing.
I totally get the desire to be debt free, but in 25 more years, I will own my place and have only about $600 in today's dollars of monthly upkeep & expenses (monthly electric & other bills and annual taxes and insurance). Plus, I will own an asset that I can sell for money.
You, on the other hand, will be paying rent infinitely and will have nothing to sell. (assuming you didn't fund liquid assets like stocks or bonds when you chose to continue renting).
I don't owe it. I pay it, but I don't owe it to him.
Uh, ok? Sounds like you have an a-typical rent agreement (most renters do OWE money because they have a signed lease promising to pay....and if they don't pay, they get evicted).
Good for you.
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