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How Healthy is Your Housing Budget?

Tips to Budget for a Better Mortgage

Portrait picture of Happy couple drinking tea while sitting on the balcony

Rent and home prices are hitting record highs recently and many of us face challenges when it comes to affordable housing.

What’s a healthy amount of your monthly budget to spend on housing?

A common rule of thumb when it comes to your housing budget is to spend no more than 30% of your gross monthly income, which is your income before taxes and other deductions are taken out of your monthly paycheck.

While certainly not a hard and fast rule, think of this ratio as a guideline to use when budgeting for housing costs.

Renters should be sure that the 30% of gross monthly income includes rent, heat, water, and electricity. For homeowners, that 30% ratio includes mortgage payment and interest, insurance, property taxes and utilities. You should still be able to manage other expenses like transportation, medical costs, groceries and other living expenses.

For many people, paychecks are being squeezed with rapidly rising prices on gas, groceries and other essentials, so it might mean it’s time to take a closer look at your monthly finances.

Here are a few tips for the health of your housing budget:

Check In with Your Budget

With rising inflation, chances are your overall housing budget ratio has changed.

Take time to assess your monthly income against current expenses to review the suggested housing budget ratio. How have things changed? Do you have a realistic plan for the money that comes in each month? Be sure there is a line item in your budget for groceries, gas, healthcare and medications, childcare, savings, and entertainment. If you haven’t been following a budget, take time to create one, no matter how simple, to track your expenses so that you can go back, review, and adjust as needed.

How to Create a Successful Budget Plan

Take a Look at Debt

Many people find it hard to manage housing costs when struggling with high credit card balances or other debt. The longer you carry a high interest credit card balance, the more it takes a bite out of your available monthly income. You will save the most money by starting to pay as much extra as you can on your highest-interest debt first, and then once that’s paid off, move on to your second-highest interest debt, and so on.

If you are feeling stressed by debt, exploring options such as a debt management plan or working with a trusted financial counselor could help you reduce monthly payments and reduce the overall cost of your debt.

Use our Debt Calculators

Look for Ways to Reduce Expenses

To achieve a healthy housing budget, where might you be able to cut costs? You may be able to save money by doing things like planning your meals to reduce grocery bills, canceling streaming services you’re not using, or reducing your electric bill by cutting energy usage.

As noted above, you may also be able to save money on your debt by finding options to lower interest rates or reduce monthly payments.

Are any major purchases on the horizon? Can you postpone major purchases like a new car or other large item? So often, when it is time to make a major purchase, it catches us off guard and we immediately turn to credit to pay for it. If your washing machine will need to be replaced in the coming months, try to set aside cash now. When the time comes to replace it, you may be able to minimize the use of credit.

Schedule a Free Individual Financial Analysis. This is a 30 minute one-on-one analysis where our Financial Experts use a Credit Report to show you just how much you are paying for credit.  This review consist of rate analysis, payment history, type of credit, terms of credit and anything negatively and positively impacting your credit score.  We use your financial goals, current situation, and customized solutions to help you achieve your goals.

Take our 31 Day Financial Fitness Challenge

Connect with a Housing Counselor

You don't have to do it alone. Whether you are experiencing budget challenges as prices continue to rise, or longer-term financial challenges, every MTC Federal member has access to 100% Free Financial counseling services. Through our partners at Greenpath Financial Wellness, you can connect with a a housing counselor to help you develop a customized plan to stay in your home.

©2022 MTC Federal Credit Union. This article is shared by our partners at GreenPath Financial Wellness, a trusted national non-profit.