When it comes to cost of living, a handy rule of thumb is this:
30% of your net income should go towards housing
Housing Costs are defined as Rent/Mortgage, Insurance, Taxes & HOA dues when applicable.
For example, if you make a $125,000 salary annually.
You have approximately $100,000 net income (after taxes).
$2,500 per month is a reasonable amount to spend on housing -
($2,500 x 12 = $30,000 per year).
But most people living in large metropolitan areas pay much more than that!
San Francisco is constantly criticized for the high cost of housing but it’s not the only place where a decent rent is hard to come by. Friends in Austin, Seattle, Atlanta and Boulder are pinched by housing costs.
We have choices - you can commute from a distant suburb, you can live with roommates, you can live in a basement apartment without a stove.
Or you can spend more than 30% of your net income on rent/mortgage.
The good news is this: It’s okay to spend more on housing if that’s your priority.
Your goals, lifestyle and circumstances should drive your financial decisions. That means YOU get to decide! The aforementioned calculation is rule of thumb, a generalization. But individuals aren't generally the same.
There are different types of people living life in all different ways. There are those folks who save 50% (or more!?) of their income and want to retire in their 40s, who don’t care where they live as long as it’s cheap. There are people who are huge homebodies for whom it’s worth it to spend a large portion on rent because they want a home with certain amenities and comforts, therefore they cut back in other ways. You have to weigh your values and your goals, and then make decisions that are in line with them.
We’re choosing to continue to participate in the modern economy, and it’s pretty wild and confusing. All we have to do is commit a bit more time and attention to acquire financial knowledge little by little.
I believe in you! Just learn what’s relevant to you right now. That alone is huge.