This guide outlines housing costs you, as a renter or homeowner, can calculate to help determine what you should spend on housing. Using our suggestion, the 25% rule, helps avoid being "house poor," ensuring that you can continue to save, pay off debt, and achieve your financial goals.
Table of Contents
- What is the 25% rule?
- What costs are included in the 25% rule?
- Why only 25%?
- RamseyTrusted Real Estate Pros
- Next Steps
What is the 25% rule?
This rule states that you should spend no more than 25% of your monthly net (post-tax) income on housing costs.
What costs are included in the 25% rule?
For renters, you'll include your monthly rent, any mandatory fees you pay (e.g., pet fees, parking fees, trash/valet fees, required amenity fees, etc.), and your renter's insurance.
For homeowners, include your mortgage (principal & interest), homeowner's insurance, HOA fees, property taxes, and Private Mortgage Insurance (PMI), if applicable.
These costs should stay at or below 25% of your monthly net income.
Why only 25%?
You may have heard others share that 30% is totally completely fine to spend on these costs. Here's the trade-off to consider: would you rather have breathing room in your budget or be able to technically pay the bills but have little left to pay off debt, build emergency savings, or build wealth?
RamseyTrusted Real Estate Pros
If you're looking for a real estate agent and prefer the Ramsey way of doing things, take the guesswork out of buying a home by working with a Ramsey-vetted real estate agent.
Connect with a RamseyTrusted Pro here: RamseyTrusted Real Estate.
Next Steps
Have you connected with an EveryDollar Coach? The coaching team would love to connect with you and help you budget so you can reach your financial goals.
Schedule a call here: One-on-One Coaching.