How Your Housing Costs Can Tell If You're Living Beyond Your Means

Burdensome housing costs are one of three signs that you may be living beyond your means.

According to CNN Money, 47% of Americans would struggle to come up with $400 to cover an unplanned expense and nearly half of today’s workers are living paycheck-to-paycheck.  In a world of readily available credit, a significant part of working America’s inability to meet the demands of a financial emergency is due to an overextension of their obligations, or said another way, too many Americans are living beyond their means.  If month after month you find yourself with nothing in the bank to show for all of those hours you put into your job, you may be one of them.  Here are three signs that you may be living beyond your means and how you can fix them.

1.  Your housing costs eat up more than 30% of your paycheck

Housing is many Americans’ largest monthly expense.  However, no matter how much you earn, your housing costs, which include your rent or mortgage payment, property taxes, and homeowners’ or renter’s insurance, should never exceed 30% of your take-home pay. If your current housing expenses surpass this limit, it’s a clear indication that you’re in way over your head.

Between 2011 and 2014, 52% of Americans had to make at least one major sacrifice to cover their housing costs, according to CNN Money.  If you can relate, you’re better off downsizing to home or apartment that you can comfortably afford — meaning, one where the total anticipated monthly costs equal less than 30% of what you bring home in your paychecks.

2.  Your credit score is low

As we’ve discussed before on this blog, background and credit checks are the new normal when applying for a home or apartment.  So if your credit score is low, not only may it hurt your chances of getting that place you’ve had your eye on, it may also be an indicator of a more serious problem.

There are several factors that go into your credit score, some of which carry more weight than others. The two biggest, however, are your payment history, which speaks to your ability to pay your bills on time, and your credit utilization, which is the extent to which you’re using your available credit.

If you’re living beyond your means and spending too much, you’ll be less likely to pay your bills in a timely fashion. Similarly, if you’re using a large percentage of your total credit line, it’s probably because you’re racking up too many charges and not paying them off quickly enough.  Both actions can wreak havoc on your credit score.

3. You’re not saving any money

Working Americans are generally advised to set aside a minimum of 10% of each paycheck for emergency savings or retirement. If your expenses are such that there’s absolutely no money left over each month to stick in the bank, it’s a sure sign that you’ve adopted too costly a lifestyle.

To start, create a budget that outlines your current spending, and compare it to what you’re getting from your monthly paychecks.  Next, work on cutting expenses so that you’re not only spending less than what you bring home, but have at least some money left over to add to your savings.  Some prefer to slash one large payment (like housing costs) and other prefer to cut a lot of smaller payments, like daily take-out lunches, cable bills and gas.

In a follow up post we’ll discuss more ways to be a better saver.  However, if your current housing costs are more than your budget can afford, that’s something that the team at Waterman Realty and Tax Pro can help you with today.  Send us an email or give us a call.

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