How Much Should I Spend on Housing?
20. May, 2009 
6 Comments
My Housing Costs
When I first moved to North Vancouver, I moved into a one bedroom apartment with a roommate. North Vancouver is known for being a fairly expensive place to live (besides Victoria and the downtown core, probably the most expensive place in BC). We were paying $1100 a month, so split between us, that was $550 each.
In May, I moved out into the new place that my wife and I will be living in once we’re married. It doubles our square footage, is in a much quieter and safer neighborhood, and comes with access to laundry – three of our most desired features in a home. We thought we’d have to spend at least as much, if not more than I was paying in order to get this place, but luckily because of the economy, my monthly rent is $900. Hurray, that means less rent, right?
Well, not yet. Until we’re married, I’m taking on the rent at this place alone. My parents are willing to lend me the money to help me out over the next few months, if necessary, but that just means more debt I don’t want to go into. So all of a sudden my monthly rent is $350 more a month than it used to be. In addition, I have to pay for one third of the monthly utilities in the house (it is a basement suite). I haven’t seen a bill yet, but I would estimate that it is going to be in between $100-150 a month. That brings my total to, let’s say, $1000 a month on housing. If I was making a significant amount of money, that wouldn’t be such a problem. Sadly, $1000 a month is 62.5% of my monthly net income.
How Much Should I Spend?
This, like so many other things in personal finance, is personal. It differs depending on your situation. If you’re living at home with your parents, your “rent” may be $200 a month – if that. Your percentage might be 0! Your monthly costs are going to change if you are sharing a place, like with a roommate or a spouse, it is going to change depending on where in the world you’re living, and its going to depend on your preferences. For Ashley and I, our home is the most important place. We wanted a place that made us feel comfortable, safe, and like we were at home. We spend a lot of our time at home, so we would rather spend more money on our living expenses and decrease the amount we spent on going out – because we don’t go out that often.
There are some “rules of thumb” out there. Gail, the host of ‘Til Debt Do Us Part, recommends around 35%. Gary Foreman over at Living a Better life says 30 to 35% of your net income. Crown.org says 36%. If you’re single and living in the city, it is not unreasonable to be paying 50-55% of your income, and if you’re living at home, 0% is possible. But the average recommendation seems to be around a third of your income.
My Ideal Housing Percentage
Once I am married and Ashley and I are living together, our joint income will significantly decrease the strain on my finances. At that point, $1000 a month will be about 33% of our take home pay, something that is quite “average”. However, that is not yet my ideal.
As I move towards Serenity, a financial life free from stress or strain, I am going to seek to create a gap in our finances. Leeway in our budget means less stress. If I have to worry about whether or not I can eat dinner because I am not sure if I can make rent next month, I am not going to be stress free. One third of our finances going towards our rent is manageable, but if one of us were to lose our job, or get injured, it would quickly become very tight.
Instead, my ideal is to increase our income to the point where our housing cost is 25% of our income. I am okay with 33%, I would prefer 25%. At 25%, there is enough room in the budget to play with potential costs. Once it is at 25%, I would love to keep it there for as long as possible. That means that if we decide to “upgrade” in the future, I would love to keep that percentage. For now, my goal is simply to reduce it to that amount.
That means we need to increase our monthly income by about $1000. Ashley is working towards a raise that would help, and I am working towards achieving a full time position that would also increase our monthly income. This is a long term goal, so I am hoping to achieve an extra $1000 a month in 1-2 years.
What about you? How much are you spending on your housing? Don’t know? Try recording your spending.
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Matt Goulart
Good post man. But how do you work this stuff out if you’re self employed and don’t have a fixed income. I’m not working with linear percentage figures; income can change drastically from month to month. Any tips??
[Reply]
Great question.
I think I would suggest that you predict your yearly net income, if possible, and then work your way backwards. So instead of creating your percentages off of a monthly income, you figure out how much you might make this year, and go from there.
For example, if you are going to predict that you will net $20,000 this year, then find 25 or 35% of that, divide it by the 12 months of the year, and you have an approximate budget. Or, because you’re going to be combining your money with Alicia, plan all of your expenses around her income, and use your income purely for debt repayment and saving.
Would that work? Anybody else have thoughts/ideas?
[Reply]
Great blog Alan, really enjoying your material. It seems we’re in a rather similar situation, with Amanda and I only a matter of months into the marriage; living in the Lower Mainland with low incomes.
Between us Amanda and I earn only $1800 monthly and our rent is $875 including all utilities, basement suite in Cloverdale. That’s us at 49%. My income took a bit of a jump in May as I moved from being paid 20 hours weekly to 30 hours weekly, forgetting the fact I work 40/50+! This didn’t increase my take home pay however as I’m investing the raise in medical/dental/life insurance and a retirement plan (5% that’s matched 5%). We’ve found every time we jump up in pay we try to stick at the same monthly expenditure. That way we’ve actually been able to invest and save somehow; which we’re pleased with particularly with our low income.
We don’t give ourselves the chance to go into debt with secured credit cards and never buying anything we can’t pay for up front.
I suppose the elephant in the room however is the fact that we’re still renting and therefore paying someone else’s mortgage. How long to do you plan to be renting Alan?
[Reply]
Wow, Dave, that’s great that you’re able to put aside money for saving and retirement already. Congrats!
As for renting, I’m not sure how long Ashley and I are planning on it. For one, I am not sure if buying a house is better off financially than renting, I’ve seen the math go in both directions. In addition, as long as we’re planning on living in North Vancouver, we’re planning on renting. Buying a house up here is insane – a down payment on a house would be 3x my annual salary. If/when we move off the North Shore, we’ll probably take into consideration buying a place, but who knows when that will be.
[Reply]
It’s hard to set a fixed percentage because incomes vary a lot more than housing costs – having a lower income doesn’t automatically mean you should go for the cheapest possible option unless you’re really willing to give up a lot. But on the other side you can keep improving your situation by finding something that you don’t mind (which it sounds like you’ve done) and then not moving up as soon as your income increases. In that context you could set a percentage that you would allow yourself to spend if your income rises significantly, depending on what you’re comfortable with and what else you need to spend on. Personally I’d like to keep my percentage pretty low but that means doing more work to build my income.
Adam: I did this by setting a target for average monthly income based on my past experience and what I knew I could do if I worked for it, and then estimating everything in relation to that. To make sure you’re safe you can set your target a bit lower than what you expect and plan around that, but also have a plan if you exceed it. It also helps to build up some extra cash that you can use in case a payment is delayed. That way you have a good idea what will happen over a long enough period of time, and you have the cash to keep it up if you get paid less one month and more the next.
[Reply]
Yeah, actually, what you’ve described is pretty much exactly what we’ve done, and are planning on doing.
We found something that we really liked and enjoyed, and went for it. It’s going to end up being an average percentage of our income, once we’re married and settled. After a few more months, or a year or two, the two of us are both going to be making more income, so as long as we stay where we are (which we’re planning on doing), then that percentage will drop.
The percentage isn’t the final say, it’s not like we are going to refuse to spend more money on housing if one of us loses a job, it’s just a guide, an ideal.
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