Housing Expense Guideline For Financial Independence

Housing Expense Guideline For Financial Independence

If you want to achieve financial independence, you need to get your housing expenses under control. This article will provide a housing expense guideline to help you achieve financial freedom sooner, rather than later.

Although I've said that overpaying for a car is the #1 wealth killer for the middle class, paying ever rising rent over the long run could actually be way worse.

Inflation is an unstoppable juggernaut that will smash your retirement dreams to smithereens if you aren't on the right side. If you can stabilize your housing expenses, you will have a much easier time creating more wealth.

Therefore, as soon as you know you've found a place you want to live in for at least five years, buying a primary residence instead of renting is probably a good idea. The longer you can own your home, the likely greater wealth you will build.

General Housing Expense Guideline For Financial Freedom

There's a general guideline that says renters shouldn't spend more than 30% of their net income on rent. The 30% recommendation comes from the Brooke Amendment passed in 1969 which determined the point where a family living in public housing was considered financially burdened by housing costs.

As for homeowners, few banks will lend beyond a 43% debt-to-gross income ratio (10% too high IMO). For example, if you pay $2,000 a month for your mortgage and another $300 a month for an auto loan and $300 a month for student loans, your monthly debt payments are $2600. If your gross monthly income is $8,000, then your debt-to-income ratio is 33 percent.

In this article, I'd like to layout a housing expense guideline to help folks reach financial independence sooner. I'll go through my own housing expense history to reveal some nuggets of wisdom.

If you can get your housing expense equal to 10% or less of your gross income, you will be well on your way to financial freedom.

Housing Expense Guidelines And The Rent Burden

First, let's take a look at this interesting chart that shows the rent burden for younger residents in several major cities. Rising rents are creating rising fortunes for landlords. Therefore, you probably don't want to rent forever once you've identified a place you want to live for at least five years.

Income To Rent Chart
Good luck fighting the trend! You will get crushed over the long run.

The influx of new people over the past two decades has far surpassed existing housing supply due to concentrated job growth in America's major cities.

As a result, rents and housing prices have skyrocketed. We've reached a breaking point, which is why I'm actively investing in the heartland of America instead for the next decade.

I've never worked in Los Angeles, the most rent burdened city surprisingly, but I did start my career in NYC in 1999 and finished my career in San Francisco in 2012. Rent increases will likely last for a while due to high inflation and worsening housing affordability.

Here's a timeline of my housing expense history.

A Timeline Of My Housing Expense History

The #1 housing expense guideline is to keep your living expenses to below 10% of gross income. Don't listen to the general advice that says the limit is 30%. The general population is struggling.

Below is my housing expense history which follows my housing expense guideline. I retired in 2012 at the age of 34, partly because I kept my housing expenses low.

NYC 1999 – 2000 Housing Expenses

NYC felt just as expensive then as it does now. To cut costs and reduce commute time, I decided to share a studio at 45 Wall Street with a buddy of mine from high school. The place was just a eight minute walk to work at 1 New York Plaza. We paid $800 each for the luxury of passing out each night after a 14-hour work day.

My base salary was $40,000 a year or $3,333 a month plus an unknown bonus. Therefore, my rental expense made up 24% of my gross income. My fellow analysts at Goldman Sachs either rented a one bedroom for $1,800+/month or had their parents buy them their own place. There was a ton of Bank of Mom and Dad going around.

I could have joined my colleagues in spending ~50% of my gross income on rent, but I made a conscious decision to save more money because I was maxing out my 401k from the get go. Walking to work in the dark and walking back home in the dark was depressing. I had to save aggressively in order to one day be free!

Lived close by work to save time and money. Had to get in by 5:30am!

NYC 2000 – 2001 Housing Expenses

My first roommate moved out because his parents bought him a one bedroom condo on the upper east side for $250,000 that lucky duck. It was a great buy since it's worth ~$750,000 today. Even though his parents helped him out, 17 years later, he still lives in his one bedroom condo with his wife! Talk about living luxuriously and frugally at the same time.

The Street decided to bump up all first year starting analyst salaries to $50,000 from $40,000 in 2000. As a result, my salary went from $40,000 to $55,000 given I was now second turd on the rung. I found a new roommate and rented a studio with an alcove for $1,800 a month. Now we were living large!

I lived in the living room and he lived in the windowless room for $900 a piece. With a new gross monthly salary of $4,583, I was now paying just 19.6% of my salary in rent. Again, I could have very easily decided to get my own one bedroom apartment for $2,000 a month, but work continued to be too painful. Including my bonus, my income was over $100,000.

SF 2001 – 2002 Housing Expenses

The biggest surprise about moving to San Francisco was how much cheaper rent was compared to Manhattan. Still frugal, despite a raise and a promotion, I decided to rent a room in a two bedroom, one bathroom apartment at the edge of Chinatown for $900 a month. Going from living in a living room with no privacy to having my own room and shared common space felt like a luxury! But I knew the place was a dump (see picture).

I joined my new firm as an Associate with a new salary of $80,000. My rent as a percentage of gross income fell to just 13.5%. A couple colleagues made fun of me for not living in a more posh neighborhood. But it just felt stupid to spend up when I didn't know for sure I'd be in SF long term. I was still exploring a new city and wanted to keep living costs to a minimum. Finally, I was starting to feel rich living so modestly. What a contradiction.

The white building was my dingy 2/1 apartment at the edge of Chinatown I shared w/ a weird fella. Noisy as hell.

SF 2002 – 2003 Housing Expenses

My roommate turned out to be a little unstable, randomly screaming his lungs out in the middle of the night. After my girlfriend stayed with me for several months in this 2/1 apartment at the edge of Chinatown, we decided to get our own one bedroom apartment in Cow Hollow, a nicer neighborhood in SF's north side for $1,600 a month.

I paid $1,000 a month and she paid $600 a month given she was only one year into her career. My salary was now $90,000 (tends to go up $10,000 a year in finance back then), meaning that I was paying 13.3% of my gross salary to rent. However, if you account for my bonus, which can range from 50% – 200% of salary, my rent made up less than 10% of my annual gross salary.

Once I got rent down to under 10% of my annual gross salary, I started feeling like I was making massive financial progress. Rent no longer felt like a burden, even after maxing out my 401k, investing ~30% of my post 401k cash flow every month, and investing 100% of my bonus.

Oh, and the one bedroom was also kind of a dump. It was very dark and right below an alcoholic neighbor who would leave deep bass music on all night long. Drove us nuts! Every week the blue recycle bin was full of beer cans.

Related: The 30/30/3 Home Buying Rule

SF 2003 – 2005 Housing Expenses

With a good amount of cash flow at 25, I started wondering what was the point of working so hard since I was living much lower than my means compared to my peers (quarter life crisis). When you start feeling rich, you want to improve your life! At the same time, I didn't want to pay more than $2,000 a month in rent, which was what was required to get a nicer place.

Instead of renting, I decided to buy a 2/2 condo for $580,500 with 25% down and assume a $2,100 mortgage + $230/month HOA + $500/month property tax instead. Although the total came out to $2,830 in cash outflow, the net cost after deductions was more like $1,900 a month. With a new monthly base salary of $8,333, my housing expense grew to 34% before deductions and 23% after deductions. This was an obvious violation of my housing expense guideline.

The $435,000 mortgage lit a fire under my ass to work harder. I never felt this much financial burden in my life. It was stressful knowing that if I lost my job, I may lose my condo. I'm not sure if I would have continued working in finance after age 26 if it wasn't for debt.

Major Motivation To Pay Down Mortgage Debt

For the next 12 years, the monthly mortgage kept going down with each refinance until I paid the sucker off in 2015. Meanwhile, the median rent for a 2/2 apartment in SF went from $2,100 to $4,600! How nuts is that?

The property is currently a $4,300/month rental. I'm below the median, despite the prime location because it's not remodeled.

San Francisco historical rent chart for a two bedroom apartment - housing expense guideline
Holy crap!

While the average renter was getting crushed by inflation, the average homeowner saw his housing payments go down. There is a 40-year declining mortgage rate trend to be aware of. When I first bought my condo, my mortgage rate was 5.25%. Then I refinanced it to 3.375% for a 36% decline. 

Check the latest mortgage rates online with no obligations. The more quotes you can get, the lower the mortgage rate you will likely receive.

SF 2005 – 2014 Housing Expenses

After a couple of years in the condo, I actually regretted not buying a nicer place in 2003. The reason why is because property prices continued to grow (greed). As a result, I took on a whopping $1,220,000 mortgage at 28 and bought a $1,520,000 single family house at the end of 2004. It ended up being two bedrooms too large for my eventual wife and me. I let the sellers rent back the place for 3.5 months before we moved in 2005.

My housing expense as a percentage of gross income got as high as 60%! Once again, I was worried about my future. It also felt wasteful to own such a large house with just the two of us. As a result, I rented out the garden room to help defray expenses.

My housing expense eventually fell to 28% of my base salary after earning some raises over the next nine years. If you include my bonus, the lowest my housing expense got was ~8.3% of gross income.

SF 2014 – 2019 Housing Expenses

When I first bought my current primary residence in 2014, my gross housing expense was ~24% of my gross income, or 17% of my gross income after deductions. I purposefully bought an 18% cheaper house than my previous residence because I was earning less and wanted a smaller house. I was able to lock in a 2.5% 5/1 ARM.

Due to further income growth, my housing expense twas only ~8.2% of my average gross income before deductions and ~5.7% of my gross income after deductions. I'm now wondering whether I'm living too frugally again. The idea of buying that dream house in Honolulu one block from the beach in 2020 can't come soon enough!

Live the good life in Golden Gate Heights - housing expense guideline
View from my master bedroom deck.

At the end of 2019, we finally moved into a bigger house down the block we bought for cash in 2019. It took about six months to model as it was also very old.

We bought the new house with cash after selling about $1 million of stock in 2019. This was a fortuitous event because stocks began to correct in 1Q2020 due to the coronavirus pandemic.

Our housing cost is now about 2% of our annual gross income. Paying all cash for a house is one of the key reasons why I felt much better during this bear market compared to the one in 2008 – 2009.

San Francisco Housing Expenses 2024+

Real estate performed well during the pandemic given the record-low mortgage rates and increased desire to live in a nicer home. If you are going to spend more time in your home, you will want to pay more money for a nicer one.

We followed my housing expense guideline and limited our housing expense to between 5% – 10% of our annual gross income. We've built up a lot of wealth over the years and want to live a better life.

Personally, I bought a forever home during the worst of the pandemic in 2020. I'm also bullish on the housing market for the next several years as the economy continues to rebound.

Our overall housing expenses account for less than 10% of our monthly gross income. This is the way it should be as we try and build more passive income to stay away from work. We have two young children and we want to spend as much time with them as possible.

If you want to build wealth, it's hard to beat owning rental property in a strong environment. The ability to benefit from rising rents and rising property values is a powerful combination.

The Housing Expense Guideline To Follow

My #1 housing expense guideline to follow is to keep housing expenses to no more than 10% of your annual gross income.

Although the general rule is to keep housing expenses to no more than 30% of your gross income, you will NOT feel like you're getting ahead at 30%. Instead, you'll feel like you're running in place.

Only after I got my housing costs to below 10% of my gross income did I start making massive financial progress.

For those of you who live in expensive cities, you might think that spending less than 30% is next to impossible. But that's exactly what some people are doing.

They do so by sharing a bedroom, sharing a studio, living with five roommates, or even living in a van like one Google employee is doing. Decide on a housing expense limit and adjust accordingly, not the other way around.

Housing Expense Guideline For Financial Independence

When you're in your 20s, who cares about living in a nice place? I was making over $100,000 and living in a living room! My guests didn't mind. If you're chilling at home, you're not at work, which is exactly where you should be most of the time.

If you're bullish about your career, only then should you consider buying a property and spending ~30% of your gross income on housing.

Aggressively saving money on housing for 10 years will pay off. Keeping your housing expense to <10% means you can easily save and invest 50%+ of your income each month.

Eventually, you may want to live in a nicer place if you find a partner or start a family. But from ages 18 – 34, living like a pauper is great for financial independence seekers!

What percentage of your gross income do you spend on housing?

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Income And Net Worth Required To Buy A Home

Here's also a chart that highlights the income and net worth required to buy a home at any price point. The Ideal Income and Ideal Net Worth columns correspond well with my housing expense guideline for financial freedom.

Income And Net Worth Required To Buy A Home at any price point

Once you've gotten neutral real estate buy owning your primary residence, it's time to finally go long real estate by investing in more real estate.

Invest In Real Estate More Strategically

Real estate is my favorite way to achieving financial freedom. Real estate is a tangible asset that is less volatile, provides utility, and generates income. Stocks are fine, but stock yields are low and stocks are much more volatile. 

The combination of rising rents and rising real estate prices builds tremendous wealth over the long term. Meanwhile, there are more ways to invest in areas of the country where valuations are lower and net rental yields are higher thanks to crowdfunding. I highly recommend investors follow my Buy Utility, Rent Luxury real estate investment strategy.

The Best Real Estate Investing Platforms

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. The real estate platform has over 400,000 investors and manages over $3.5 billion. 

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. They potentially have higher growth as well. However, before investing in each deal, make sure to do extensive due diligence on each sponsor. Understanding each sponsor's track record and experience is vital.

Both platforms are free to sign up.

Housing expense guideline and investing in real estate

I've personally invested $810,000 in real estate crowdfunding across 18 projects. It's been great to diversify and earn more passive income from the heartland. My real estate investments account for roughly 50% of my current passive income of ~$300,000. 

Join 60,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. 

About The Author

208 thoughts on “Housing Expense Guideline For Financial Independence”

  1. Alice Carroll

    You made a good point that gross income should be directly related to housing expenses. I’m planning to look for student rental houses soon because I’m considering to get a second college degree in year or two. Maybe sharing the house with someone else would help in saving money on rent.

  2. Chris Chapman

    I need some advice. I am moving to Charlotte to start my first career job (just finished college, 22 years old). I am living at a nice apartment complex very close to work. I have yet to decide what apartment to get and would love some advice. Apartment A1 (681 sq. ft) has an amazing layout and is very practical.. However, is 45% of my income Apartment A3 (627 sq. ft) is a bad layout and is not very practical at all and is 35% of my income. I really do not know which to do choose as I will be living there for 15 months and having my girlfriend move in the last 3 months of the lease. Any comments would be awesome.

  3. We’re at 15%! I found your site thanks to Simple Money Man. I’m learning so much…this is now my favorite blog!

  4. Great article and discussion! Our problem is that we have no house and a lot of savings… almost $3m. We are stationed overseas and so we don’t need to buy property. My question is- we could make housing 0% of our monthly expenses by paying for it in all in cash. What are the general considerations on whether to use savings to put down more and lower monthly expenses?

    1. If you have $3 million in savings, I would comfortably by our house for cash for $2 million or less and then reinvest the remaining. But I guess it depends on what your expenses are and your cash for generation.

  5. Ron Warkentein

    I currently have house buying fever for a house I saw for $800,000 and this would put us at 50% of our take home income. It’s a beautiful home with the potential for increasing in value. What should I do?

  6. We are at 14% on the Peninsula just calculating PITI/Gross Income. Did you include maintenance and utilities in your numbers, Sam? Do gardeners and cleaning services count? Regardless, we’re definitely under 20% total, and our first child is due next month so it looks like we’re in a great place. :)

    1. Not bad! I did not include the secrect gifts provided to the maintenance boys. That’s on your own!

      Congratulations on your child. May you have a smooth and joyful delivery!

      1. Good question Sarah as there can be many added costs to the home as I found out when I bought a house with a long drive way and very large yard :)

        So the question is what do you count if you have no mortgage? Just the taxes and insurance? So if you are mortgage free, but spending $27,000/year on Taxes + Insurance, but making $300k gross you are in the sweet spot? Other expenses are more “discretionary” I guess although they feel necessary – landscaper, cleaner, maintenance, etc

  7. I live in the NW (Portland) where housing costs show little sign of slowing……and I have that voice in my head that I’m going to get priced out of a larger home as affordability continues to tumble….BUT….. I’m comfortably under the 10% mortgage to gross income though.

    So I’m torn between the fear of losing to affordability or investing 20% of my post 401 max out.

    PS this quickly became my favorite financial advice site. Well done!

  8. Sam, great to hear your perspective and experience. I have been at both extremes. I was lucky enough when I worked at a bank in NY to sit next to a guy who lived in The Bronx for many years and helped keep me grounded in terms of my lifestyle and spending habits while everyone else was blowing all their money on rent and alcohol.

    I started in NY sharing an apartment with a girlfriend in Queens for $1500, split equally (about 16% of my salary). We broke up and I moved closer to the city into a studio for $950 (after a raise, still about 16% of my salary). In my my 2nd year at the bank I became an associate and he convinced me to buy a small studio in the North Bronx for $55,000. The same year I received a significant pay bump as our market started to do well and I was then paying 7% of my salary for housing and 4% of my gross income for housing. In addition, that year Obama had created a housing incentive as part of the stimulus package after the crisis. The deal was you received $8,000 for the purchase of a home or 10% of its value below $80,000. Since I paid 20% down, I received 10% back. So if you include closing costs and my down payment, I paid about $8500 to reduce my housing costs by 50%!

    I had never felt so rich in my life! I was aggressively investing 50% of my salary and all of my bonus just as you did. However the party did not last forever.

    A few years ago, I got a serious girlfriend and we recently got married and had a child. Work and my commute was getting to me so I rented an outrageous 2 bedroom 2 bath close to work in Midtown to be able to see my family. Now I am back paying about 32% of my salary in rent. However my money did not go to waste. The money I saved went towards buying a commercial rental property in California in 2013 and last year I bought my second one. I am still waiting for the income from the second commercial property to kick in and finally cover my rent but when I do, I can’t wait to get that feeling of saving and investing back again!

    As for that Bronx apartment, I currently have it rented out.

  9. I’m at 8.5% ignoring my overtime income since that is not guaranteed. I have 3 roommates, but I can walk to one of my jobs and I’m close to public transportation for the other. The real downside is how long a walk the grocery store is, but this is not my forever home. I’ll hopefully move cities to be with my girlfriend. I’m not sure if we’ll split her current rent in half. If we do, my rent goes up by $250. I imagine it would depend on what sort of job I can get in her city. She’s holding down her place just fine without help. Sugarmomma?

  10. PatientWealthBuilder

    great great article (again) Sam. When I got my first job I bought a townhouse and rented it out to between 2 and 3 room mates. So my housing cost on a net basis was less than 10% and sometimes I was making money on it. This is my recommendation to all singles. Buy a house and rent out rooms. Housing is a COST not an investment. It doesn’t become an investment until much later only when you become a legitimate real estate investor. I enjoyed reading about your experiences.

  11. This is my first time on your website and this is truly a great article – much more in-depth than al to of stuff you see online. This is a very motivating article and it’s made even better by you illustrating your own experiences.

    What you’re saying about saving money is true but very hard to do. Most people seem to not be willing to make the sacrifice in the short term to get the long-term reward. They’re continent to spend too much and live too luxuriously even though they are not building any finical base or finical future for themselves.

  12. My wife and I moved into my $1,000 a month rental in NYC. So we are doing well and are saving for a home, hopefully in the next 12-18 months.

  13. Your First Million

    Wow what an amazing view from your deck! Absolutely gorgeous! I 100% agree with your idea of what should be spent on housing costs. When speaking with people I work with (working in the public sector I know what they make) and seeing what they are paying for homes is just downright scary. While we are paying somewhere around or just under 10% of our income on housing, some of them are stretching it to amounts even above 1/2! I don’t know who is lending on these ratios but it reminds me a lot of the run up before the last housing bubble. Anyone with good financial sense would keep their housing cost low and use the savings to invest.

  14. We’re at 9.5% in the home we bought 1.5 years ago.

    Before that, we were at 2.6% for about 6 years because we had paid off our mortgage. That was sweet and really helped us rocket up our net worth. We were just at 7.3% until we paid it off.

    We’ve always economized on homes and cars, which is one major reason why we’re doing so well now.

    A lot of people we know have spent a whole lot more on their homes and trucks. Instead, we put the money into our 401Ks and rental property.

    We’re planning on retiring next spring. At that time we’ll own 5 properties free and clear and one on a mortgage. We may pay off that mortgage when we finish renovating property #6 and flip it.

    We expect to be able to buy one new rental property pretty much every year AFTER we retire.

    That’s a good feeling.

    One person at work was starting to show some resentment at the number of homes we have. I asked them if they had noticed all the really big, expensive, luxury pickup trucks in the parking lot. He said yes.

    I said that our first rental property was the pickup truck I didn’t buy and the 2nd rental property was the pickup truck my wife didn’t buy.

    Our 3rd and 4th was the really expensive home we didn’t buy. By way of contrast, we have a bulletin board at work that people post their homes for sale. In 8 years of working there, I’ve only seen 1 home for sale that was less than the COMBINED cost of our first 4 properties plus our two cars!

    Choices have consequences.

    1. Amazing! That is so awesome you guys have been so disciplined to build your wealth. It’s all about choices and I do wonder whether people realize this or not. One thing you might want to reconsider is buying so many rental properties in retirement. I’ve been retired for five years now and I don’t want to deal with more tenants and hassles.

      1. It’s also a risk if they don’t have other assets. I remember the Vegas guy talking about how his properties crashed in value and almost ruined him. One should always have diversification, especially when you don’t have a primary income (i.e. income diversification)

        1. Very good point about diversification! I’m completely in favor of totally different types of income streams and resources.

          We’re doing rental property, stocks and bonds, farm income, and social security. Plus we’ll probably start another business or two just for fun.

      2. We have a daughter with Down’s Syndrome to provide for. Just because we’re tired of working full time doesn’t mean our responsibility to provide for her goes away.

        We’re using a property management company so our need to be involved in daily activities is fairly limited. We intend to keep it that way.

  15. We home school our kids and saved so much money and property taxes by not being limited to only looking in towns or neighborhoods with the best schools. There is a LOT of awesome houses at great value if the local schools are not your primary consideration.

    Also, we moved from the northeast to Orlando, FL. The tax relief is huge! No regrets moving.

  16. Agree completely. It’s crucial to keep your housing costs low, and to keep your primary residence as only a small percentage of your net worth.

    And wish me luck doing just this. I’m looking to buy an unrealistically cheap studio co-op. I have a friend who wants to room with me, but in order to pass the DTI requirements to buy a “normal” priced 2 bedroom (co-op board requirements), we have to put in a huge down payment which would require liquidating my entire dividend portfolio that I’ve earmarked for (hopefully early) retirement. He’s pressuring me to do that and I’m not comfortable doing so. I found a VERY cheap studio 1bed that I hope I manage to snag (I can easily put down 40% and can qualify based on current income) as long as there are no MAJOR problems with it (such as mold and nightly gang shootings). Hate to leave my friend behind , but one has to do what one had to do.

    Sam is on the mark here; one can’t be spending more than 10% of their income on housing if they expect to hit financial freedom. For me, I also need assets working for me and producing income if I don’t want to be a slave to my job forever. He may be comfortable selling off his assets to buy a primary residence, but I’m not. Not unless I absolutely HAVE to.

    Another home run, Sam. Housing is one of the biggest expenses out there that keep us slaving away forever. Whether you own or rent, keeping your expenses less than 10% of your income is crucial to being able to build wealth. Sometimes a bigger house isn’t as good as we think.

    ARB–Angry Retail Banker

  17. Good article.
    One thought in addition however is that you are only basing this one income.
    You can buy a house you cannot afford and stretch the payments out over decades or aggressively move to pay it down so you are free faster.

    We will be mortgage free in two years (44) and spend about 10% of gross on the mortgage. With our automatic savings, cash flow is still tight. I have no idea how people manage 20% let alone 30%. Assuming no kids.

    In any case, some people could have a higher % of income spent on their mortgage because they are paying it down more aggressively. With the market at the levels they are, getting a guaranteed return of 3% might not be such a bad thing – especially if you are hardwired to avoid debt.

  18. 10% sounds like a safe threshold, but how is this possible in hot markets like the Bay Area?

    For example in the South Bay, we have a

    New graduate engineer who is making 100K in the bay fresh out of college.
    500K for a 1b/1b condo in the Santa Clara area purchased with 20% down payment):
    * 1,910 P & I
    * 300 for HOA (actually on the lower end )
    * 500 for Property tax (1% which is low end too)
    * 90 for Insurance

    Total: $2,800

    That’s already 33% of gross.

    1. Probably not possible right off the bat but if you get a roommate or have a significant other living with you then you will already be getting close. Then as your salary rises over time your mortgage will stay the same so in a few years you will get down to 10%.

      1. Salaries don’t really increase dramatically over the years, especially not faster than the hot housing markets, which rise 7-10% YoY. If you’re lucky and perform well, it will increase at inflation rates (~3%). Yes, the mortgage gets better. however the aforementioned scenario already considers 20% down, which suggests a pretty good monthly payment over a 30 year period. Not trying to be grim, but in hot housing markets, you definitely have to push your budget higher. 10% is desired, but not realistic IMHO, unless you have a lot of cash on hand.

  19. As a mid 30 yr Pharmacist, I have a small two bed townhouse in LA and I am at about 35%. I could have bought cheaper one, but due to the safety reason, I picked one in safer area. I couldn’t save much money for down payment due to high student loan, but now that I paid off student loan, my goal is to save and refinance so that I can make my housing expense at or below 20% of my gross income. If I can make it below 10%, it would be awesome!!

  20. I ran the numbers and in the past 16 years and was never more than 19%, 11 years I was at or below 15% and starting this year I’m at 6%. Not quite 10% but likely close enough. At least I think my investments show that it is close enough.

  21. SeattleGirl

    Thanks for sharing your dwelling journey with us, Sam!

    I believe that the affordability index is different for those that are super high income earners….but, without missing the entire point of your article I also interpreted your main message as “live frugally as long as possible, even when on paper you can “afford” it “.

    For a person such as myself, of course I cannot fathom spending 40% of my monthly gross on housing…nor could I afford it. However if I was a $500K/year income earner, it would be much more realistic perhaps?

    Here’s an example of two individuals obtaining housing and how these hard and fast rules can be somewhat misleading:

    Individual A has 3000 dollars a month disposable income after all taxes are deducted, which would indicate the ability to pay 900 dollars a month for housing in order not to be considered “housing stressed”. That would leave that individual with 2100 dollars a month for all other required and discretionary purchases. Assuming Individual A can find a nice studio apartment for 900 dollars or less, Individual A is considered not to be “housing stressed” because Individual A is only spending 30% of his or her available income for housing.

    Individual B has 10,000 dollars a month disposable income after all taxes are deducted, which would indicate the ability to pay 3000 dollars a month or less for housing as to not be considered “housing stressed”. But individual B likes to live it up, desires to reside in trendy housing in a hip and happening area for 4000 dollars a month. Individual B would be considered “housing stressed” because individual B is applying 40% of his or her income to housing, which is 10% over the guidelines. But individual B has 6000 dollars a month for his or her other expenditures, which is certainly superior to Individual A’s situation.

    1. Good point!

      “Based on my research, I’ve found that the ideal mortgage amount and income combo is $1 million and $250,000 a year based on today’s rates.” – Sam

      That’s close to 40% before deductions with a 3.250% 5/1 ARM mortgage including taxes and insurance.

      1. Good thing 5/1 ARMs are lower than that. But interest rates have risen since last year for sure. Maybe you’ll have to make $275,000 to reach the ideal income now. But it’s close enough.

        $250K MAGI.

    2. The problem. With using numbers instead of percentages is like Sam’s “how to make [x] and still feel broke”. The number you need for FI is directly related to your burn rate. Your burn rate can usually correlate to your house payment. If you’re spending 10% of your income on housing the likelihood that the rest of your spending is 40% of total income is good. And if it’s not, well you’re still more likely saving that 15% that you’re not putting toward your house.

      In my experience people with a low %age house payment might spend higher in other categories of their budget, but people with a high %age house payment rarely spend really low in other categories unless they literally need it to make the house payment.

  22. As a single 20-something lady lawyer who lives in a big city, it’s almost impossible for me to live so cheaply because I can’t take the risk of rundown/sketchy living places–Safety is a priority. This translates into me spending about 40% of my income on rent.

    1. I see your point. My wife and I live in Jersey City (by NYC) where we also pay round 30% of our gross income.. I will not move to a cheaper, more shady place just to save money if I don’t have a belief in safety of the cheaper place.

  23. We’ve been at about 20% since we bought our house 6 years ago. Currently we’re at 20% of my husband’s gross base salary (because we renovated last year) and in a good year we’re at 16% or 17%. Even at 20% the taxable account has less going into it, whereas the years we’re at 16/17% we’re able to save all of that extra money. I really can’t imagine being higher than 20% and making it work.

  24. Well, we’re the lucky few to inherit 2 apartments from our folks, who went into a mortgage back in the day, when finances were simpler and life easier :D

    We do work on renovating a small rural home, that will get us out of the city for at least 2-3 days/week till daughter grows old enough to move out and then we’ll probably rent the 2 apartments and move out in the nearby village. As long as I have a wi-fi connection, I can still earn my money and enjoy a more peaceful life.

    Right now, with all the re-building and renovation work, we’re spending a big chunk of our money, but in few years it will get back to normal and we’ll have our small house in an inhabitable state

  25. Hi Sam,

    Been a long time reader, first time commenting – thanks for all the insights.

    I am currently at 33% with my two mortgages (all inclusive of taxes and insurances) in NY. Both loans are fixed at 3.5% – one with 15 yrs (2.5 yr old) and the other with 30 yrs (brand new). I’ve been a firm believer that we will most likely not going to get any cheaper debt in the future than now. That being said, I can paid off the 15 yr mortgage relatively quicker (in 3-4 years) if I don’t invest anywhere and strictly force myself to pay extra principal every month. In my opinion, this helps me for a much better cash inflow monthly to allocate my assets through multiple securities later. This also brings the housing expenses down to 18% of our income. In your eyes, what would be an ideal approach? Would you pay off one mortgage so that you have better cashflow month to month (and also keep the mortgage to income ratio down to 18%) or take advantage of the cheap rates and invest in other securities and shoot for higher returns than 3.5% (net of all fees and taxes)? Thanks in advance for your inputs!

      1. Kept the first one as primary and bought the second as rental for now with possibility of moving in later down the road.

      1. Thanks Sam! the FS-DAIR is very helpful. I am currently pretty much a starter on building my current net worth (still in my late 20s) and sometimes, carrying close to a 1mm debt scares me!

    1. Make the additional principal payments, to payoff the loan as soon as possible. Create a mortgage calculator via excel, and calculate how much you will save in interest payments towards the bank….

      However, it is important for you to take into consideration the qualitative cost and risks associated with your plan, not just the quantitative factors. Will the additional payments to principal or lump sum payment lower your quality of life, or place a burden on family. i.e time away from family, increased stress or health problems from over working, no work/life balance…

      Remember, there is no need for an ultimatum, and you can consider a compromise, for example, paying the loan off in 8 years…

      Best of Luck,

  26. The Long Haul Investor

    Well stated through and through. I’ve always felt 15% was an optimal number, and to bad more people don’t aim for it. To many people confuse a completely updated apartment(with sky high rent), or an oversized house with massive driveway as the definition of having made it big. It’s the opposite unless your ratios are inline as you pointed out above.

  27. 18% (16% tax advantaged) for a 3BR/3.5B townhouse in Arlington VA. Not our retirement home (way too many steep stairs) but a good place to live until then (heart of the County on the Orange line).

  28. Great thoughts, Sam. My wife and I spend about $1,800 per month in Los Angeles, which is about the cheapest thing available without getting shot at. That’s a small percentage of our income though, which allows us to save in order for a possible relocation to Dallas in the next year or so. Cap rates are much more favorable there for buying rental properties, and I was happy to see it was one of the more affordable cities on your chart–plenty of room for the rents to grow after we buy a few rental properties!

  29. Hi Sam – long time reader, first time commenter. We currently spend about 9% of our gross income on our mortgage (including taxes & insurance). We are shooting to pay our home off in 4 years (8yrs after origination….woohoo!) and once paid off, we’ll be at 5.8% of current gross income. FI here we come!

  30. Another great Post! Funny, you and I used to work on same building at around the same time frame. I wish I was as lucky as your co-worker and gotten a place to live for $250k! that was a great buy. I instead chose to move to NJ for a nice 1.3 hr commute and great property taxes :-(

    1. Doh. What were you doing at 1 New York Plaza? I worked on the 49th floor in international equities. It was an amazing experience. Even got to have breakfast with Mike Mortara (fat ankles from Liar’s Poker) at the Partner’s private lounge with several first year analysts.

  31. Financial Coach Brad

    Absolutely agree on these points! We speak to a LOT of people who are paying 50%+ toward just housing costs. It’s hard to get ahead when so much of your money is allocated to a fixed expense like that.

    Another thing many people don’t realize, is that there are a lot of costs beyond a mortgage payment. We are 100% debt-free, house and all, but still have almost a thousand dollars per month in housing expenses. Taxes, utilities, maintenance contracts, etc.

    So people who sign on for a mortgage payment that is already pushing them close to the financial edge, sometimes get pushed over that edge by the additional costs added on top.

  32. We live in a really cheap area – a rural suburb of Indianapolis. But we’re also in the richest county in the state – the median household income in my county was 84K last year. The median household income in my immediate area is around 100K.

    Anyway, our house cost us a total of $187,000. The payment on our 15-year loan is a little over $1,000. It’s less than 5 percent of our gross income.

    I really like the security of a low payment compared to our income. Even if this blogging thing goes down the tubes, we could pay our mortgage with nearly any kind of job. It should be paid off this year anyway, but I still like that security. Like you, I dislike debt!

  33. I rent a 2 bedrooms apt in the Valley near LA. Rent comes out at 20.8% of my gross monthly income, and almost 41% of net income. I voted 16-20 because I didn’t count my “3rd paychecks” and bonus (bonus is 7-10% of gross).

    I could do better, slightly. But not enough to justify it. I’m at a point in my life where I just don’t want to sacrifice some level of comfort (having a bedroom and no roommate). Believe it or not, it’s cheaper than the 1-db I had before. I’m still saving 35% of my net income (after maxing out my 401(k)) so I’m not too bad.

    Relocation to a MCOL area is on the radar, and if it happens, then I will be able to save 45-50% of net income.

    I so wish I had your insight when I was in my 20’s and 30’s.

    1. Being able to save 35% of your net income after you max out your 401(k) is great! Keep it up, and keep on inching that savings percentage higher until it hurts. I hear you on reaching a point where you no longer want to live in a dump. Good luck!

  34. Currently spend about 5% of income on a $2.2 million mortgage on a $6 mil home. This tax deduction is a lot sweeter because my wife and I filed for divorce which allows us to each deduct the full 1.1 million max per person, instead of 1.1 million per married couple. Darn marriage penalty, not worth being legally married when it costs over an extra $100k per year in extra taxes. We also split our company’s income across two single returns to eliminate federal income tax marriage penalty and CA’s new “millionaire’s tax” which also has a marriage penalty.

    All combined, home represents a roughly $79k interest tax deduction and $60k property tax deduction. It’s a nice feeling around tax time.

    1. That’s a positive way to put it! Yes, to not allow for a doubling of the mortgage interest texted action once a couple gets married is a relic of sexist days. Is the government saying that to people with homes can no longer benefit? Is the government saying that one partner has to stay at home and take care of a family? What is going on here.

      So who gets the house though? $6 million house must be sweet, even in a place like San Francisco and New York City!

      1. We both have the house and live together happily, we just split ownership 50/50 on paper so we could each deduct the full interest on 1.1m each. Luckily there was a recent court case which determined this is perfectly legal among unmarried partners. Before that the IRS was giving people crap for this. The tax code is just so messed up.

  35. Sam,

    210K income
    18% on 10yr/2.75% mortgage

    We want to purchase a 1br condo (rental property) in a highly desirable area (San Diego), but probably can’t put down enough to breakeven from the rent generated (or avoid PMI). If the interest portion of the mortgage is covered by the rent, would you consider it a sound investment? Would put us at 28% (before the rental deductions) with the purchase of the rental property. Condo would be a 3K mortgage that should generate around 2K in rent. Daughter will also be attending college in area and could live in it with a roommate for 4 years. Do you have a formula you use for rentals? I think I recall reading that you were writing a book on purchasing real estate/rental property.

      1. Makes sense. I left out the part about wanting a vacation home in SD. Trying to figure out a way to eventually make that happen. No desire to vacation in the heartland. ;)

    1. Danielle@wenthere8this.com

      Hi David,

      I am curious where in San Diego you are looking to buy a one bedroom that would result in a $3K mortgage? I own a one bedroom condo that cash flows (15%) right in the city of San Diego (North Park to be exact). And the mortgage is $1,300 (taxes, insurance and HOAs included).

        1. This where we would ultimately like a 2nd/vacation home. Trying to figure out a way to make others pay for it.

  36. Dood, el Farbe

    Current annual mortgage/home costs (I’m including stuff like P&I, taxes, insurance, but not stuff like 1/20th cost of new roof per year, etc.) are around 4% of gross. Will drop to about 0.4% soon once the mortgage is gone…

  37. Great Post Sam! This is so important, many personal finance people focus on the “latte'” issues in personal finance but it is housing, transportation and food that will destroy your fiances. All numbers are % of base salary excluding bonuses and investment income.

    This is still possible – here is mine from graduation.
    2013 – Just outside of Toronto Ontario. 400 per month for a shared house with 2 people 45 minutes from work. 7% of my income.

    2014-2015 Transferred to Calgary Alberta with the same country. Grew my income substantially during this time. Rented a 1 BR Basement apartment below a young family. Extremely noisy but was hard to find a place when i moved there cause oil was still booming. 900/month or 13-16% of my income

    2016: Because of the oil crash Calgary became a tenants market. I negotiated my rent down to 700 per month. Everything is negotiable, know what type of market you are in and get the best deal. Landlords will discount good tenants in a tenants market. 11% of income.

    2017: I had to move out of that basement as I took another promotion and would be working from home. They had another baby too so it was even louder. I moved into a 1 BR + den to use for my home office. It was 950 and i got the lease terms i wanted (still a renters market) 12% of my income.

    1. Great job being disciplined with your housing and negotiating a lower rent! Yes, everything is a negotiation. Be willing to have the conversation folks. Work on your social skills and things will get better for you overtime!

  38. Interesting housing history. As a bachelor, I have always rented out extra space in my home to help with housing costs. I always lived within my means, but didn’t truly wise up until I met my wife. We both had homes, but hers was much more affordable. We chose to give up my large home and move into her small but completely adequate townhouse. Best decision we ever made. Downsizing was truly the biggest contributor to our progress toward financial freedom. We are now mortgage free in a relatively low maintenance home. Can’t escape property taxes and association fees, but they are a very small fraction of our household income. We keep saying we are going to move into something nicer, but that keeps getting put off. Maybe in another few years.

  39. Just under 10% in Dfw area includes mortgage, insurance and property taxes (killer here). It’s probably closer to 12% if you include utilities, landscaping etc. though. I personally think it’s way too much house but the wife disagrees lol

    1. Aw – I know the feeling. We’re upgrading to a bigger, nicer house in June that we don’t need because the wife wants it. Only reason I gave in is I think property values are going to continue to increase where I’m at, the cost of the new place (3k+ sqft, 4bd/4ba,3 car garage) is still cheap < $400k with everything upgraded and total cost is about 8% of income after accounting for bonuses and stock. Property taxes here fortunately are cheap – will be around $2100/yr.

    2. I feel your pain.
      There’s no hard numbers to figure…you just have to decide how much your sanity is worth and then give in if it’s worth more than the cost difference for the house.

  40. We’re at about 22% right now in the Portland metro. Thankfully, we have no car payments or credit cards, but have two student loans with about $20,000 remaining. Our debt ratio is about 24%. Feeling pretty good about that right now, but have a lot of other work to do in other areas. We’ve thrown so much money at debt that our investment accounts are embarrassingly low. I have a pension, but not sure if we should invest more or just pay off those student loans. We could knock both loans out this year for a guaranteed 5% return. Not sure what to do.

  41. Love this post and agree with what you’re saying, Sam. We’re currently renting in SF and at 13.7% of gross OTE (with expected income growth going forward) and looking to buy in the East Bay in the next 12-18 months in the Lamorinda area (need a little more cash to get to the 30/30/3 status first). Rented longer than we would have liked after moving back to CA 2 years ago. We have 4 rental units (TX and South Bay) so I’m on the right side of some of the inflation but not as long on real estate as I want to be long term.

    What are your thoughts on the increasing % of income being spent on rent? Where do you think it can go from here given that percentage is so high already (particularly in the Bay Area)? Rents have slid a bit due to more inventory coming online, so we’ll see. There doesn’t seem to be much room for rents to rise much further (at least in the short term) without incomes continuing to rise (which they may be, but I haven’t seen any income data for SF).

  42. Thanks for another great article. Shouldn’t loan term for house be factored in? I’m at ~ 14% with my 30 year mortgage(3.5%). I almost refi’d to 15yr (2.75%) … that would have jumped me to ~ 18%.

    1. Dood, el Farbe

      Hi, I realize you’re asking Sam, but hope you’ll forgive the buttinsky here.

      I did that on my current house – when I bought it, I had another house still under mortgage so on the new house took a 30 year because at that time one of us (not me – my better half) was concerned about cash flow.

      Once we sold the older home about a year later, I refi’d the new one for 15 at a lower percentage (about the same 15 year % we could have gotten earlier, so no loss). I figured the overall lower interest payments over time justified the then somewhat higher debt/income ratio.

      If I were in your shoes at 14% D/I ratio, I’d certainly be willing to jack the debt/income ratio to exchange that 30/3.5% for a 15/2.75. While I don’t know your outstanding principal, in my case I believe the difference in overall interest paid was on the order of $40K. That’s worth temporarily having a higher but still comfortable D/I ratio.

      Of course there can be exceptions, like if you know or think you’ll have some large expenses coming soon that will strain your cash flow. Or if you’ve got a low enough income (can fully deduct the interest, not liable for AMT) such that you’re sure you can use the 30 year mortgage and its lower payments in a sort of arbitrage against other investments, such that at the end you’ll have earned more via investing the payment difference (15 year – 30 year) than you would have saved via the 15 year.

  43. Passive Investor

    I’m at 0%. Technically I get paid to live for free, but I also have a side job in doing so. I live in a 4 plex and rent the other 3 units out. My tenants pay my “rent”, water, garbage, and landscaping. Plus there’s a couple hundred left over. I’ve already felt the magic of inflation, because just 4 years ago when we bought the place, we had to “pay ourselves rent” of $500 just to break even.

    There’s constantly a little devil and angel on the shoulder telling me buy a big house and live it up vs stay put for longer and buy more rentals. I’m getting more worn down lately, but we’ll see how long I hold out.

  44. Save Splurge Deny Debt - Cameron

    Awesome charts and post on this topic.

    We are currently around 16% after we refinanced out of PMI and got a half point lower rate. We decided to buy a foreclosure that needed work instead of new construction like all of our friends were doing.

    We had the money saved for a down payment to get into the house and then fix it up enough to get an appraisal to come in and remove PMI from our loan. This made more sense than renting for a higher amount and not having a home.

    The older house allows to finish up killing our student loan debt and then get on with independence sooner. We are lucky to live in a cheap area (Arkansas) and have higher than average salaries.

    We may not live lavishly now, but I hope to be laughing all the way to the bank when I am able to sit in my underwear on a hammock in my backyard on a Tuesday drinking a mimosa at 10 AM.

  45. Currently a tad under 10% in the SF Bay Area, (1bd/1ba w DW) but the pressure is mounting to upgrade to a larger place w a baby on the way.

    If we continue renting we could keep it close to 10%, but if we buy it’ll likely be closer to 15-20%.

    1. Upgrade after the baby. Most people think you need a room for the baby, but you really don’t for a while my just put the crib in the bedroom or living room, if you even need a crib at all. You can easily wait until the kid is 1 or 2 before needing more space.

        1. Only counter would be depending on the area, homes with 3 bedrooms on one floor typically are in higher demand. You have some security knowing if you ever sell, those looking to raise a family will be attracted to the home.

          Also given transaction costs selling earlier than at least 5-7 years will hurt you financially.

          I think a great future post would be – how much house do I need? Here in the Twin Cities for both baby boomer retirees and older millenials looking for a quality home, 2,500 to 3,000 properties seem to be the sweet spot. Larger than a starter home, but less maintenance than a 4,000 monster.

      1. Exactly S.G.! Currently we live in a 1.5/1 with our 1 yr old being in our room in a wonderful part of SF near Clement street and the Presidio. We love it here. We pay 14% of our income in rent (rent control), but within a year we are ready to make the move and buy into a 2/1 condo or SFH in the area, up to 25% max of our monthly expenses. Kid is perfectly fine running (crawling) around at Lake Park during the day and sleep peacefully at night. Talking to other local parents with similar living situations we could do this for another 2-3 years max, but we are ready to upgrade to our first “forever” home.

  46. Lots of interesting thought in the comments.
    The article in general is good and I think that overpaying for housing is indeed a bigger killer than the cars. The cars are just a more accessible way for poor people to shoot themselves in the foot.
    My thoughts when buying a house and it’s kinda repeating what’s been said above:
    1. Transaction costs are a killer. We rented till we were sure what size family we wanted and where we wanted to end up. Now sure things happen with job changes etc but the idea was to pay 1 time for a house for…well the rest of our lives. 6% coming and going in the largest transactions in your life is a sure way to not come out ahead.
    2. A variant of #1 above. If you’re in a state like California (prop 13) or Florida (homestead) and your taxes are essentially frozen at your time of purchase that’s even more reason to maybe stretch a bit (a bit…not a ton) and buy your “forever” house right away. Flat property tax rate over 30 years is huge…and even huger in retirement.
    3. Until you’re married, employed and have a kid on the way or decide for sure no kids in your future then don’t buy. School districts and size of house needs change dramatically then you’re stuck with transaction costs (see #1) and a reset tax basis (see #2).
    4. Exception to #3 is if you can buy and then rent out a room or other area (duplex) and actually make money or live “free” or below market rent for your portion.

    We currently pay 15% net after taxes in a high tax bracket. That feels about right in terms of what I want to achieve with savings. In the Bay Area CA that’s damn near impossible. So I’d say what I say to all my family…move. I have friends with portable careers living in newly purchased multi-million dollar houses in the Bay Area that frankly, aren’t nice houses. I shudder to think what they need invested when they retire just to pay the property tax to keep their house. If you like the equity build in cali buy a rental property. Unless you have to live there don’t. Not worth it. Except maybe San Diego is Santa Barbara, that may be worth it.

    1. 1. Yes, keep turnover to a minimum. I will not sell until commissions go down by half. It’s the internet age for goodness sake!
      2. Yes, another good reason to buy and hold forever in CA. But, the taxes still creep higher to painful levels at a 2% rate of increase a year.
      3. I say buy when you know you want to be somewhere for the long term (10+ years), and you can afford it with 30% of the value of the house in cash for a 20% DP and 10% cash buffer. You don’t want to put your life on hold for mr or mrs right. Live it the way you want now.

  47. We are in the South Bay and spend 10.1% of our gross income on mortgage, insurance and property taxes for our 2000ish sq ft single family home. Before we bought our house we were renters in San Francisco and lived in a 1 bedroom apartment (about 800 sq ft). At that time we were spending 9.2% of our gross income on rent.

  48. We’re from the Netherlands, were it could be similar expensive in the big cities (especially Amsterdam). We only started working towards FI 2,5 years ago. And bought our current house a little before that. Luckily we were smart enough to not max out on mortgage (which was just really insane) and settled for 80% of what the bank wanted to give us. We still pay a little over 20% of our income on the mortgage.

    Impressive to read what choices you’ve made and how it affected on your overall live and path to FI. For many this would mean making some real sacrifices.

  49. Currently paying 600 to rent out my friend’s living room in Walnut Creek. He bought the condo a few years ago for about 250k and recently refinanced to a lower interest rate. We built a nice barn door ourselves one weekend for about $150, so now it looks like a second bedroom. I work in the financial district of SF so I bike/bart everyday – my employer pays for public transportation. I make about 210k as a software engineer to my rent is about 5% of my after tax income. Also pay a lease of about $200 a month which I want to get rid of to lower my cost of living even more.

      1. Yes David, I do have some:


        Basically bought a few tong & grove wooden planks and glued them together. Then we put planks over each corner to add strength. The hardware to attach it and make it role can be bought on Amazon if you search for barn door kit. We also rented a sander for the wood and finished it off with some natural wood varnish.

        1. Nice! What are the dimensions of the room? Do you share a bathroom? Yeah, killing it with 210K income!

          1. Yes, I do share a bathroom which is the only bad part, but my roomate travels a lot so he’s barely at home (only see him a week out of the month). Not sure about the dimensions but it’s pretty big, I can fit a king bed and 2 closets, furniture for a 55′ tv and my bikes. Also have access to the balcony which is nice.

      1. Thanks for your reply Sam! I’m actually a long time reader and a big fan, most of my ideas for investing/saving and reducing my cost of living come from your blog posts. I’m currently 28 and have about 150k in cash saved up. Not sure if I should buy a property 2018-2019 or keep living on the 600 rent place. I would like to reduce my commute time so I’m thinking of maybe moving closer to the city with roommates and get rid of my car which is about $350 for the lease & insurance plus about $150 in gas. What do you think?

  50. I really enjoyed this article. It shows how you became financially independent (which choices you made that were key.)

    Unfortunately, I spend about 55% of my income on rent. I know it’s way too high but it’s tough to get out from under. At this point I have a dog which really limits the possibilities for being frugal by getting roommates.

    1. I hear you on the dog. Limits your choices. I allow dogs at my rentals, but only after I’ve played with it for a bit :) Can’t have one that destroys the floors and barks all night and day.

      You’re going to have to make some “sacrifices” before you get sick of work. The key is to do so now BEFORE you hate your job.

  51. I lived by myself in a nice apartment complex for the first 3 years of working only because I didn’t know the area (Central Mass) and didn’t have a lot of friends in the area. I was probably paying 30-40% rent/net income during my time there.

    Once I knew the area better and made some friends, I downsized to an apartment that was 1/4 of the cost of the apartment complex and took on two roommates. I’ve been there 2.5 years and rent is about 13% of net income. I’ve almost saved up enough to put a down payment on a house, but I may stay there a while longer as I like my roommates and I’ll continue to save.

    1. Buy the house and rent to your roommates. It might be a dynamic that wouldn’t work for you, but have you considered it?

  52. Trying to get ahead

    We spend about 2.7% of our gross income on housing since we have no mortgage (we bought our house all cash). We just pay property taxes and insurance. We spend almost as much (about 2.5%) on the train for the two of us to get to work. That’s the crazy part. .5% on 2 cars (one is paid and several years old and one is leased). We feel like we spend a lot of money and live very well without breaking the bank.

  53. Your First Million

    When my wife and I were first getting started out, both working full time, our monthly net income (after taxes) was right around $10,400 per mont. We bought our first starter home, a modest 3 bedroom 2 bath, for $195,000. Our monthly mortgage payment (including tax and insurance) was $1,177 per month. I guess that comes out to 11.3%.

    And people wonder how we made our first million before 30… it’s not rocket science! Just pay yourself first and keep reinvesting in yourself and your assets.

  54. We are at 13% in south bay here in the bay area. Not easy. We bought a home in 2014.

    I do have a slightly different take than you on home ownership though – I believe in markets like California in churning through homes, and capturing the tax free appreciation (2yrs 500K tax free)

    I’d love your opinion on what we are trying to do/hack:
    We are planning to sell our 800K home for 1.2-1.3M and buy a fixer for 1M, with about 200K in reno costs. We will then reno (what we call “forced appreciation”) and then plan to sell it again in 2 years and keep the tax free gain. If the market tanks, we will just stay in it and ride it out, since we only take the property tax hit and keep our mortgage payments the same or lower.

    I’m a licensed realtor in addition to my FT job, so I get to keep half the commission. We estimate that if we could do this 2 more times, we could own a home free and clear in 4 years, while pumping our savings into “investments” not our primary home. I understand not every year will be like buying in 2014. Its not super novel to do this, but I am still interested in what you think.

    1. 13% is not easy for the South Bay indeed.

      I’m against churning any investment, especially homes given the brutal 5% selling commission + transfer/excise tax. Those costs are just wastes of money IMO. Think about selling your house as LOSING 6% instantly, and with no guarantee of reinvesting the proceeds in something better.

      I’d rather buy, live, rent out and buy a new place.

      The market has finally softened. No rush to buy anything. I’m waiting until this winter to really look.

      I will not sell until commissions drop in half.


      What It Costs to Sell A Home Today

  55. Currently my wife and I pay ~13% to rent a 1br in lower Manhattan. We do plan on buying & moving to suburbia within a year and that figure will likely increase to ~20% (before deductions). Though our monthly will go up, I suspect we’ll generally feel better/more financially responsible as we will be paying down principal each month + getting a much needed tax deduction as opposed to sinking $60k/year with zero ROI.

    Looking back at my bachelor years, my maximum was 27% and that certainly felt like an awful lot at the time. The less you make the less percentage you should spend on housing.

  56. Stealth Saver

    My mortgage and property tax are around 25%. However I opted to not escrow my tax payments for 2 reasons

    1. So I could earn the interest myself on the money I’m saving for tax

    2. In an emergency situation im not obligated to pay my monthly for property tax with my mortgage payment.

    If there is an emergency I can spend that money I would have put away for tax, and hopefully make up that missed deposit at a later date.

  57. I’m at 25%, BUT…I’m semi-retired, my 3br/2ba 1932 home in the Sunset District is paid off (~1.3M), and property taxes, insurance and mantainence run about $1500/month. My nest egg is such that I’m financially independent– I only work to increase my travel budget. :)

    Anyplace around here that I’d want to live in would probably run about 3500/mo., so the way I figure it is that my house actually pays me a dividend of about $2000/month.

    1. Sounds like a good way to think of things regarding a paid off house! If you’re comfortable living off your cash flow, all the merrier. Sounds like we have a similar type of house, but I’m just up on the hill.

      Once the house is paid off, you don’t need much as Mary is demonstrating!

  58. Dollar Barrister

    Currently at 16 percent of gross income but hoping to drive that number down further as income increases! As you say, I think the trick is to have a number in mind that you are comfortable paying each month for housing and then building your life around that rather than letting lifestyle creep mess with the percentage.

  59. Sam,

    Isn’t this post somewhat contradictory to some of your early postings encouraging folks to obtain the maximum mortgage they can afford? I believe you were recommending a $1M mortgage as optimal… My current mortgage is just over 10% of gross, and actual payments including extra principal payments are 15% of gross, but I still have a long way to go… (~$700K) Luckily we’re at 3.25% fixed

    1. Hi Andre,

      A $1,000,000 mortgage is optimal if you can afford it. Afford to me means spending no more than 1/3rd of your gross income on your total housing expense. The lower, the better.

      Your $1M mortgage at 2.5% is around $4,100. Total monthly cost before deduction may be ~$5,500. $5,500 X 3 = $16,500 = $198,000.

      $198,000 is close to my $200,000 – $250,000 income for maximum happiness. The buffer is for rates up to 4%. You get max deduction, and enough money to live comfortably.

      Related: The 30/303 Rule For Home Buying

  60. 7.52% and I’m retired. It took a number of years but having the mortgage paid off and multiple streams of income make for a very low level of stress and give my wife and I the freedom we have been working for.

  61. Ms. Conviviality

    Our housing costs include a rental condo and single family home. Condo has a mortgage and house is owned free and clear. Total housing costs are 12% of gross income. Although this is a low percent, I sometimes still get hung up on the fact that the condo is 53% underwater and rent is not covering the mortgage/association fee. The nice reminder from this post is that if inflation does its thing rent will cover costs one day. Other mental notes I’ve compiled from past FS posts is that the condo will eventually make up a very small amount of my net worth if I continue hustling and there will be opportunities for refinancing, too!

    1. I hope you keep very very detailed records of your losses every year.
      One option would be to sell but if you don’t carry forward losses on your rental can be put against income when it turns positive in the future. Won’t help you now but imagine 15 years from now.

          1. Ms. Conviviality


            The community is another reason I love this site. Since reading your note I’ve looked into passive activity losses and I really do want to thank you again for saving me the frustration, years from now, of looking back with regret on old tax returns that I would have tossed! I didn’t have the foresight to see a need for some old tax returns when, according to my spreadsheet, positive income flow from the rental may take about 10 years.

  62. Done by Forty

    Up until this month, we were very comfortably under 10% as you recommended. But we just bought a new place and it’s creeped up to 15%.

    As you experienced, I’m feeling a little financial pinch and am more motivated to earn than ever. I’m trying to utilize that to up our income: silver linings, baby!

    I love this post. I may copy the format if that’s alright with you, and try to document our weird living situations over the years.

  63. Thanks for reiterating that you started at $40k a year and was still maxing out your 401(k) from the beginning. The first time I found that nugget on your blog, it was the biggest kick in the ass that made me immediately bump up my contribution to over correct and max out within the first 6 months of the year. I never contributed more than $9k a year previously.

    One of the biggest disservices to young professionals is when people tell them to contribute enough to get the max employer contribution and nothing more. It’s sets a bad precedence to do the bare minimum for many years or decades to follow.

  64. Sam, this is fantastic. In Millionaire Next Door, I believe they recommend buying a house at a purchase price equal or less than 3x your income (not sure that’s the exact figure, but believe it is). That’s a nice quick and dirty formula, but I like the idea of actual % of gross income because it accounts for interest rates, property taxes, etc. (which can obviously vary).

    We were living in Walnut Creek until recently, spending about $3,200 per month PITI. That put us at 25.6% — looking at your chart it really did feel in between running in place and starting to feel like we were making real progress. I think we’d have felt wealthier had we been in an area with a lower cost of living where childcare, groceries, etc. were cheaper (another interesting factor to consider, but maybe gets too granular).

    My wife and I have agreed that our new home in Ann Arbor will not exceed $500k purchase price. If we went that high we’d be at a 21% gross income on housing (AA property taxes are nuts!). I’d love to get closer to the 10% mark, and we definitely could buy a house that would do that for us, but I’m very bullish on my business and expect I’ll double my salary in the next few years. So finding a home that’s reasonable now that we wouldn’t need to upgrade (ever) is huge. I don’t mind putting us in a higher housing cost bracket today when I expect my income to go up but my housing costs to stay the same or decrease should rates go lower again in the future.

    Kudos to you for sacrificing early and managing to keep your housing expenses so low over time.

  65. Nice post Sam! My wife and I are currently at about 10.5%. With all those refinances as interest rates fell, I’m curious as to how you kept closing costs in check? Were you able to get closing costs waived or negotiate reduced costs with your lender?

  66. P&I & escrow is about 9% for us. I can’t imagine a payment 3x bigger (maybe 2x bigger if we didn’t have daycare expenses). I agree with the poster who said a lot of the generational difference is people just not willing to live with roommates, or wanting the 2 bedroom rather than the efficiency, etc. Plus you have people marrying later and later, which can be great for your career, but puts off the financial benefits of shared housing/expenses as well (living together is cheaper, but still doesn’t have the same efficiencies as merged finances).

    I find your apartment stories interesting, but one thing I would point out is that the perspective is very different for women vs men. I shared an apartment in college, but i wouldn’t have shared with a stranger anywhere but the controlled situation of a dorm. I think shared housing is important for frugality when you’re young, but I would only share with someone I already knew and trusted with a key to my living space (and trusted her judgment well enough that she wouldn’t allow people free access who I wouldn’t trust with my living space). I would also be less likely to be willing to rent in a sketchy neighborhood, especially if working long hours and commuting in the dark.

    1. Thanks for sharing your perspective as a woman. As a man, I definitely need to feel like I can trust my roommate(s) too. But often times it is a leap of faith after an initial meeting. But with social media and LinkedIn, the vetting is better. Social currency and reputation is super important today.

  67. I’m in the Bay Area now, too, and paying so much in rent that it makes me ache, even though it’s only about 20% of my post-tax income. My parents live back on the East Coast and I’ve just found a gorgeous place that needs some refreshing but no major construction. It has a rental property (separate entrance mother-in-law) and is close to my parents in a good school district. For less than the same payment I’m making now, I’d cover mortgage and property taxes! I have a location-flexible job, the kids are open to it…your article may have helped me decide to bite the bullet! Thanks :)

  68. I agree that roommates are the key to building wealth, at least early on before marriage. When I graduated college, I had two roommates in a 3 bedroom apartment. It only had two bathrooms, $800/month total rent. I told one of the guys we should share a bathroom, and pay $250 each, and ask the other guy to pay $300 for a master bedroom with master bath. He quickly agreed. Luckily my roommate was clean who shared the bathroom and this was never a problem.

    That made living off an initial $33k/year salary, with credit card and student loan debt, manageable (1999). In fact, when I moved from there 3 years later, I still searched out a roommate and found one, and was paying my half of the rent, at $375.

    The rust belt is a pretty stagnant place, though, and there is NO NEED to be in a rush to buy. Housing prices just won’t go up that much over time, even vs. renting. I have since moved to the “South” where housing prices go up much faster, at least where I live in Nashville.

    Moral of the story? Keep your housing costs as low as possible, and don’t buy a house at least until you are married (unless you plan on being a landlord). I am not a fan of real estate transaction costs at all. We’ve owned one, and only, house since 2008.

  69. The Luxe Strategist

    As a former New Yorker, you’ll get it when I say this: I’ve always hated the ’40X your salary’ rule of thumb for rent. I think it tricks people into overspending on rent and thinking it’s OK. For example, if I was making $80,000 I could spend up to $2,000 on my rent, or 30%. Hell no.

    In NYC I’ve paid 20% my income, but now it’s just 10%. I always kept my rent low by living with roommates and instead prioritizing a place in the RIGHT neighborhood, versus living alone in a far-flung corner in Brooklyn/Queens with zero amenities.

    I love all your early apartment stories. I showed a picture of my first NYC room on one of my blog posts. Any normal person would have looked at it and ran in the other direction. But not me, because I like to play the long game. Looking back, that crap room makes the successes I’ve had with jobs and apartments only that much sweeter.

    1. I’m somewhere between 20-22%

      I did the same thing after years of being stupid and living on my own in Manhattan. I hoofed it to Queens, cut my rent severely, got a place by the express trains that gets me to work in the same time as when I lived in town and found a building that gives 2 year leases and barely raises the rent each cycle. Sure it isn’t owning a place, but considering just about everything here that’s reasonably affordable are coops, Id rather not deal with the hassle of being a shareholder and dealing with approvals for everything (renting your place out, doing upgrades, even letting relatives stay for an extended period….yech!)

      Yes, I’m paying someone else’s retirement, but to me, its a cost Im willing to bear since its not overbearing at this juncture. If I bought a 2BR, Id probably have about 15k+ a year less to invest in the market…..I can only hope I’ll be ‘right’ at the end and I realize I’m kicking the can down the road, but the hope is, all else being equal, I’ll be sitting on a large pile of retirement cash I can then geo-arbitrage and get a nice place elsewhere for cash. Not the worst option out there.

    2. Good point on 40X salary. I forgot to mention I had to have my sister’s BF at the time be my cosigner because I did not have 40X the total $1,600 rent as salary! Let me go shoot him a thank you text 18 years later for taking a risk on me :)

      Queens…. SO CHEAP! I take the F train all the time to Flushing Meadows for the US Open. Gotta be a hot bed of opportunity there no?

      You are absolutely right about the crap holes making what you currently have that much sweeter. It’s awesome. Just like driving a pile of junk or working minimum wage jobs at McDonald’s. So much more appreciation today!

  70. Winner winner chicken dinner! We’re at 9.96% so just sneaking in there under the wire! Agree completely with the premise of this (and many of your other articles). If you want to have unusual results, you can’t follow the rules of thumb that everyone else uses.

  71. Does this % include utilities and and other housing related costs? Here’s my breakdown:
    -mortgage: 22%
    -utilities: 5.6%
    -side savings for maintenance or misc costs: 2%
    Total: 29.6%

    While it seems high I know and have thought that myself, we bough it because of the market timing and our goal to stay in one house until retirement. Our house was built in ’09, and we bought it from the original owners in ’13. Needless to say, we have quickly built equity in it upwards of 60k-ish already from the purchase price.

    1. The housing expense guideline tends to always be high in the beginning, and gradually goes lower as your expenses go up slower than your income.

      29.6% is good for your first house because it should only get better. Nice job on the timing!

  72. Go Finance Yourself!

    Including mortgage, property tax and insurance, we pay about 8% of gross income. We bought our 3 bed 1 bath starter home right out of college with a 5 year ARM thinking we’d never stay past 5 years. Ten years and multiple refinances later, we’re still there while all our friends are maxing out their mortgages.

    If I had to guess, I’d say fewer people are willing to share a crappy place with a roommate then there once were. It used to be you saved up 20% for your first home, upgraded to something a little bigger when the first kid came along, and then moved into your dream home several years after that. Now in the world of instant everything, people feel the need to buy a house by 30 that is the size of what their parents bought at 45. In today’s society we want more and we want it now.

    1. Gotta love it. Nice job getting a 5/1 ARM to save on interest expensive, and then actively taking advantage of ever lower rates by refinancing. The 30-year fixed borrower has truly paid too much over the past couple of decades, especially if they didn’t refinance.

      You are right about insta everything. 2% down… let’s do this! No.

  73. Sam what do you include when you define “housing expense” …?

    Are you factoring in property taxes, maintenance, accruals for repair, insurance, HOA, utilities, etc, etc? Or are you specifically referencing mortgage payment?

  74. Housing cost, the potential FI killer! Based on our base salary only our housing fits in the 11-15% range, add in bonus and rental income and we are <10%. We have an owner occupied building and the rent covers the mortgage, you could argue we are at 0%. Housing done right can be a FI catalyst.

  75. I live in the Heartland, so my monthly mortgage is a box of Skittles, some Pez, and three containers of pantyhose for a 3,800SF on a hillside five acres abutting a lake.

    Actual number is less than five percent.

  76. Back of the napkin, including property tax, insurance & improvements (e.g. Home Depot), we spend about 28% of our household net income on housing expenses in the S.F. Bay Area. It certainly FEELS higher but then again I usually don’t take into account my wife’s earnings, which go exclusively to food, gas, clothes and other daily stuff she needs for the family.

    We have about 240k left and 13 years left on a 15-year loan at 2.875%. We bought it for 435k and ballpark it’s worth 800k now! Very tempting to cash out and be mortgage free but we really like living here. Certainly we could accelerate payments.

    Now my co-workers (in tech) are the ones really in a pickle of their own making. They’re the ones buying those 900k fixers in Hunter’s Point and working 70 hours weeks to boot. I tell ’em not to. We’re in a little bubble and given the history of the last 20 years, they should be prepared to lost 50% of their home value, in nominal terms at least. Of course, they don’t listen.

  77. Sam,

    There is a very important point that you missed in your survey. I pay less than 0% of my income on housing without using the bank of mom and Dad. I bought a Duplex and rented out one half while living in the other. The rent covers the entire mortgage payment including taxes and insurance a day then some.

    1. Thanks Mike. I’ve included that notation with “0% or less” due to rent.

      I was regretting at one point not doing what you did (bought a SFH instead), but then I got over it since the math after renting it out equated to something similar. But, I did spend more than I needed to while living in the home for almost 10 years.

      I think you’re smart for doing this. When you get sick of your place, you can then rent both units and buy something sweeter.

      See: What Type Of Investment Property Should I Buy?

  78. My current property is ~7% of base income and ~4% after bonuses and RSUs. We’re building a new property though that will be at ~12%/7.5%, though.

    I completely agree one of the best ways to get ahead is to keep your “home” costs down. The only time it works out better to go “bigger” on a home (in the long run) is a hot housing market where your leverage at 5:10-1 on a more expensive house pays off with significant equity gains.

  79. I have to argue with this one,I live in the suburbs of Vancouver BC and the price to wage ratio is about 11:1,I believe it takes around 100% of the average wage earners take home pay to afford to buy here.
    Yes I have lived in other low cost areas before but the reason they are low cost is because the wages/opportunities are not there ie you lose your job your SOL, and as for those “side hustles” that every guy and their dog does,sure as long as your doing it for less than minimum wage.
    My rent is about 25% of one paycheck and it usually stays in about that area,most of my friends housing costs after their mortgage is payed off is double and in two cases triple my rent(which is all inclusive).
    If I were to buy it would cost me eight times my wage to purchase a house in my area,yet I watch co-workers and friends jumping into financial servitude for the next 25 years and as soon as they buy the house all the usual stuff happens of kids,upgrades to house and vehicles,nice vacations.All this happens because according to our society,once you have purchased a house its the best and only financial move you have to make,and since most people can not afford to pay down mortgage and invest for their future they had better hope so.
    Friends of mine who are in their late 50s-early 60s are now trying to jam whatever they can into their RRSPs which is almost comical because they spend the refund on life expenses etc and never realizing that had they got a retirement account built up first and used the power of compounding they would be in a much better position.
    I went the route of renting after my divorce 15 years ago and put as much cash away as possible and will be FIRE in three years,while my peers who have a lot of equity in their house will have to work for at least 15 years after I am FIRE.Let me say that I am not against home ownership but it is not the end all be all that society makes it out to be.

    1. I don’t get Vancouver home prices since there is no massive industry that pays high wages to support such home prices. Vancouver is more expensive than SF, yet name several big name companies out of Vancouver that match the scale of Google, Facebook, and Apple. There are none!

      Hence, the conclusion is that a housing price to wage ratio of 11:1 is unsustainable. That the government is either corrupt or incompetent to let locals get priced out by hot outside money.

      Vancouver is a lovely city, but come on. At the end of the day, property prices are supported by job and wage growth, and rents.

  80. Jim @ Route To Retire

    We spend about 18% of our gross income on our house. I like the house, but I hate it because it’s more house than we actually need. However, we got a fantastic deal on it in a great neighborhood.

    We’re about 8-9 years from having it paid off, but if we don’t retire early to Panama, we’re going to downsize in the next year with the main intent being to reach FIRE even sooner.

    — Jim

  81. And here I thought I was doing well at a 30% mortgage to income ratio. Instead I am running on a hamster wheel. I guess it is a different kind of rat race.

    I am waiting 2-5 years to see if our family is going to grow from 3 to 4. If it stays at 3, then we will seriously consider downsizing. The benefit of living north of the Bay is my housing prices are cheaper than in the city. The downside is that housing prices are still expensive due to proximity to the bay area.

    Hopefully people will keep leaving the city and start moving north (instead of East as placed like Livermore are getting expensive) and no one can afford to move south.

    1. I grew up in the North Bay. I always thought it was undervalued (why live in godforsaken Vacaville when Santa Rosa is about the same price? Both commutes are brutal.) I think there’s a perception gap because it certainly FEELS farther away because it’s less developed than the East Bay and crucially, there’s no BART service. In addition, prices have risen. People are moving north and boosting your equity.

      1. Let’s hope so! Vacaville does seem far away too but the lack of Bart in the north hurts us. There will be a new commuter line soon but our neighbors in Marin did not want it going through their towns so the end of the line is San Rafael or maybe Sausalito.

        1. Good luck getting BaRT up to Vacaville. Not gonna happen anytime I can see. Will be helped by the flux north though. Not a bad rental property market, at least wasn’t 2 years ago.

  82. Currently sitting at 0% housing costs. I’m fortunate enough to have generous parents letting me live at home while I hoard my income and save and invest heavily.

  83. Danielle@wenthere8this.com

    My mortgage is currently 20% of gross income, but we do live in an expensive city (San Diego). I expect a pretty good sized raise in the next year or two, so it should go down to about 16-17%. Until we rent it out and buy a new place. I don’t enjoy being house poor, so I’m not willing to go much over 30% of gross even when we do buy a new place. Our goal is to buy a place, live in it a few years, then rent it out and buy another one. So unfortunately it will be a while until mortgages are paid off!

    1. We really want to get to San Diego. Currently live in NorCal. What part of San Diego do you live and what’s the plan for coming up with down payments for each of these new purchases? We love North County from Carmel Valley up to Carlsbad.

      1. Danielle@wenthere8this.com

        I live in downtown San Diego. North County is nice, but I prefer the city. I save about 45% of my after tax income (after 401K and IRA contributions), and that’s where the down payments will come from. And because we plan to live in each new property, it can be financed as owner occupied, which means lower interest and down payment. I originally want to buy properties as rentals, but 25% down is tough! Plus, getting a loan on an owner occupied is so much easier. I know San Diego is expensive, but what a great city!

  84. We are in the 10% range. Our house is in rural Pa. We are only about 100 miles from NYC. What a difference in real estate prices and taxes by just driving 2 hours outside of the city. Many people here take the train or bus into NYC to work.

    We have been to SF 10 years ago for our Honeymoon. We loved it there and want to go back soon. We glanced at a few real estate flyers when we were there. The prices were mind-blowing. SF is truly a lovely city.

    1. The working class has been priced out of NYC. But the rich elite there need to keep them around so they can still be served and cleaned up after, so there are housing projects and satellite cities. Two hours is a heck of a commute. What is four hours worth to you? That’s 20 hours a week if you work five days. More than 200 hours (more than 8 days) a year spent traveling to and from work. That’s a real shame.

  85. Jack Catchem

    Hmmm. I would be spending 20%, but with the additional principle payment, it’s closer to 30%. I’m actually pretty excited about the expense as it means it will be paid off by the time I turn 50 and the expense can drop to microscopic hoa & property taxes. Classic more pain now for less later!

    1. Gotta admit, it’s pretty magical. And it’s away from the congestion on the eastern side of the city. I was just at my old house yesterday measuring the old dishwasher to get a new one. I liked it b/c its a handsome house, but I don’t love it like me current house.

      The takeaway is: you can find joy in cheaper, smaller, less exclusive houses and neighborhoods too! You don’t have to live where everybody else wants to live.

  86. Simple Money Men

    I’m was spending about 17% on my mortgage (including taxes and insurance) this was a USDA 0% down 30 year mortgage @ 3.5%. I’ve rented out the two spare bedrooms to friends. I now spend 0% of my monthly gross income on my housing expense.

  87. I’m in the 16-20% category. I used to be way higher when I was freelancing and not making as much, but of course I live in LA. I got pretty damn lucky in that not only did I find a high paying gig, but it also just happens to be 1.6 miles alway from my house. Like the LA golden ticket!

  88. I live in Hong Kong, possibly the most ridiculous place to own or rent a home. We live in modest accommodation, really not what I would like to be in. We currently rent and spend 16% of our income on rent which turns out is pretty good. Many colleagues spend way over that, 30%+, and have really quite nice homes. Buying a place here is essentially a pipe dream without a hefty chunk of cash to deposit. Deposits here for a family home (~1000 sq ft) would be US$250,000+ :-(

      1. Long-term plan is hard here, money just keeps pouring out of China and raising property prices. If there was a correction in the next couple of years I would look to buy rather than rent. At the moment we just need to keep expenditure modest and not put too much money in our landlord’s pocket.

  89. Considering I’m unemployed at the moment, I’m paying well over 100% of my income, but that’s what an emergency fund is for.

    In normal times, I’m paying 20% of gross income. Not bad for living in the heart of Silicon Valley, especially for a single (or currently no) income family of 4.

    1. Not bad at all. How is the job hunt going? Are you enjoying spending the off time with your kids? Any desire for your partner to go back to work?

      Maybe you can join my unemployment/early retirement club!

  90. Charles Sarahan II

    I am on the high side for a different reason. My wife and I bought a place with a big mortgage. It takes up a huge chunk of the family budget. The reason we bought it was for our parents. We both are only children so we wanted a place where we would have enough space for her mom and my parents. My dad thought we were nuts. Time may prove him right but we have enough space for my parents to move in if necessary. Her Mom lives with us full time and I expect my parents soon. Count our son living with us and you’ve got three generations in the house. Four when you include the grandkids from our daughter. BTW, I use after paycheck deductions in my calculations because cash is king. Tax refunds are treated as a bonus just like any work bonus. If I breakeven when we sell, I will be okay with that. We have been diligent in saving for retirement. I admit that scares me because expenses won’t really drop. I don’t want to be eating kibbles & bits when I’m later in life.

    1. Hi Charles, so what’s your percentage?

      If your dad thinks you are nuts…… I gotta imagine that is a hint he doesn’t want to live with you guys? Two sets of parents in one household sounds aggressive, unless there are separate wings and cottages.

      But, if you’re good with it, all the power to you. That’s great to be able to take care of three generations housing expenses!

      The expense should go down over time.


  91. About 20 minutes outside of D.C. with a rent:gross income ratio of around 21%. That’s for a 2/2 apartment.

    If I can get my lady to pitch in half, I’d be at the optimal 10%.

    Always enjoy the charts, Sam. Helps to put some structure to (un)common sense.

    1. Howdy D’Angelo, what’s preventing your lady from paying half, or at least a prorated amount, if she’s living with you 100% of the time? :)

      I used to go to high school in McLean, VA, also about 20 minutes outside of DC. Where you at?

      1. Ten Bucks a Week

        I’m surprised no one has asked you this yet, but you wrote “I paid $1,000 a month and she paid $600 a month given she was only one year into her career.” Maybe D’Angelo has a similar situation.
        However, my question is why did you provide a discount to your girlfriend? And would you give a discount to someone just out of college in your rental now? I don’t mean to be offensive, but I know you are all for equality of the sexes.

        As for me, my rent has been around 20% of my income, my goal is under 15%.

        1. Yes. When I care for someone, I want to help them out, even if it’s just a little bit. It’s like paying for dinner or a show. Do you not have a girlfriend, wife, or friends you care about where you do something nice for them? You should watch The Joy Luck Club. Has a good scene in there where the husband made multiple times more than his wife, but made her pay equally for everything. Marriage didn’t end well.

          Yes, I gave about a 25% discount to market for one rental for one tenant who was a middle school teacher for years. I’m really a proponent of teachers because they provide so much value to society. I admire them so much that I decided to become a high school varsity tennis coach to try and help contribute to our youth as well.

          I think I might have found a good follow up post from your comment. Please expound more on your money philosophy with others. Thanks!

          Related: How To Develop Emotional Intelligence: The Key To An Easier Life

          1. Ten Bucks a Week

            Thank you for sharing your reasons behind the decision. I do have a wife and all our finances are together. However, we do do nice things for each other.

            As for my philosophy, I believe it is pretty similar to yours. I hope to use money gain more freedom and hope to share with others less fortunate along the way.

            Can’t wait for your follow up article, you are a writing machine! As for the Joy Luck Club I think I’ll see it once my No Rush Shipping credits get to $3. Thanks!

      2. This isn’t D’Angelo, but I wanted to say that I was in the McLean High school school district (went to Thomas Jefferson though). My parents still live in the area.

        I need to study your numbers a bit more. I’m just a few years older than you, I was making similar amounts of money, I jumped up about the same time, and I have a lot of money, but don’t have any passive income sources. But I also do enjoy my corporate job a lot.

        1. Cool. I wasn’t smart enough to go to TJ :)

          How much money is a lot of money? You can easily convert your money into a 2.5% earning risk free investment if you wanted e.g. $10,000,000 can generate $250,000.

          It is great you have a job you enjoy in your early 40s. I totally burned out at 34. I thought I could last until 40, but I couldn’t bear doing the same old thing over and over again.

          Related: A Long Road Home: Financial Samurai 2017 Passive Income Streams

      3. That’s a good question. She’s cash flowing her Masters right now at UMD so the plan is to revisit that after she’s done. She’s also a teacher (HS) and I share your POV on the value they add to society. I’m just hoping some of that extra value she’ll bring after getting her Masters nets an ROI large enough to get that ratio down. We shall see…

        We’re out in Silver Spring, MD. I’ve only been to McLean once or twice but it looks like it’d be nice area to grow up.

  92. I’m spending about 18% of gross but am less than 1 year from paying of my loan in 10 years.

    So soon the percentage will drop to less than 5%.

  93. Did you include property taxes as part of the calculation? I think there could be an apples and oranges comparison if you don’t, since renters don’t have to pay property tax…..just a thought

      1. How about including principal portion of the mortgage payment? I think that should not be included, since that may be considered as investment for home owners vs renters losing the entire monthly payment. Including principal I am at 18%, excluding that I would be at around 13.5%

        1. It’s up to you. I include principal because although it is building equity with each mortgage payment, it’s still a cash outflow.

          My examples use housing expenses before deductions and after deductions. A P&I mortgage can’t suddenly exclude principal one month.

    1. The Long Haul Investor

      That’s false information. Renter’s absolutely pay property taxes via their rents. When a landlord calculates how much to charge you for rent they must include all costs including property taxes. So yes they are passed onto you via rent. The landlord in the majority of residential situations pays the property tax for the property. He is reimbursed via rent.

  94. Apathy Ends

    Our mortgage is about 12% of our gross income (including insurance and property taxes)

    I did refinance last year because of your posts – 2.75% 7 year ARM down from 4.25%

    We are in MN but property around the city is still fairly expensive. we could have spent another 150+k on our home but decided we didn’t need 2500+ sq feet

    1. So awesome you refinanced down to 2.75% from 4.25%! Feels so good right? I went with the 5/1 ARM at 2.375%. Still have 4 years of the 2.375% rate left to go, which is fine b/c I’m highly likely going to sell in three years before moving to Hawaii.

      12% housing expense is good! It should gradually go down as your income increases.

  95. We currently rent for the convenience of living within 2 miles from work but also have a rental property that “subsidizes” our rental expenses. Our rental expenses are minimum when computing the rental income (definitely less than 10%). Even without the rental income, the rent is low when you count the gas and time in commuting that we save.
    Our plans are to build/buy a home right after retirement. We’re allocating anywhere from 15% to 20% of our net worth for our primary residence. It will depend on when we retire and where we decide to purchase.

  96. So how much do you recommend for total debt load (house, car, loans)? US government says 43% is maximum. What do you say is maximum?

      1. The reality is that the vast majority of people do have car and credit card payments. So how much do you recommend that we spend on that?

        1. Honestly, ZERO for revolving credit card debt. The average APR is 15%, and many go to 20%+. Not even the great Warren Buffet has beat those returns each year.

          If you spend 1/10th of your gross income on a car or less, there shouldn’t be car payments either.

          This site is not for the vast majority of people because the vast majority of people don’t have a burning urge to be financially independent. If they did, they’d find this post!

          See the following posts that go into more detail about debt pay down.

          Pay Down Debt Or Invest? Implement FS-DAIR

          Steps To Get Out Of Massive Credit Card Debt Due To Lifestyle Inflation

          1. Sam, I have a question for then. Is there any a case where you could see someone having a car loan as the right decision?

            In my case, I bought a car that falls right at 10% of my salary (less after bonuses are considered) and financed it at 1.5% for 3 years. I have the cash on hand to pay it off today, but I haven’t due to the low interest rate on the loan. I thought that putting that capital towards investments would likely be the better move in my case. I’d love to hear your thoughts.

      2. My wife needed a handicap accessible vehicle and I did that on a 4 year car loan, with 2 more years to. While I’m tempted to pay it off, I don’t because it’s at 1.6%!

        1. Curious as to where you get 33% debt, 33% savings, and 33% for everything else…what about taxes? After taxes, most people only have 50-80% of their income left over. Are all of these percentages, before or after-taxes?

  97. Currently we are spending less than 10% of our income on housing. We are only paying for insurance and property taxes since we paid off our mortgage. Definitely one of the best things that I’ve done and have been trying to shovel as much money into investments and cash for the future waiting for the next great opportunity. Maybe midwest living and investing will be for us :)

  98. Currently we spend around 10% of gross a month on our mortgage. Then again I don’t live anywhere trending, unless you consider that retirees seem to be headed to Delaware. Honestly I often think about how I could make a lot more moving somewhere else. However, when I think about the cost of housing probably tripling from where I currently live I tend to pause. Is 20% pay increase worth a 40% raise in housing costs.. Interesting question.

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