Your Housing Expenses

LISTEN TO INCREASE — Your Housing Expenses

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If you’ve been following along each week, you’ll know that we’ve defined money as fuel for your journey. Your dreams and goals are worth fueling, so we’ve been discussing how to have a full financial tank in 8 practical steps. If you’re just jumping into the conversation, you can catch up on where we’ve been at trumbleagency.com/increase. But for today, we are going to discuss the 8’th financial marker on our Fuel Gauge. 

Our final mark of financial health is keeping our housing expense within 25% of our take home pay. This housing expense includes either your mortgage or rent, property taxes, and insurance. Collectively, those three categories make up your housing expense. There is a reason that this step is the final mark of financial health. 

You’re probably asking yourself if this is even realistic based on what the average American spends on their housing expense each year. I want to remind you that this is a financial target. I believe that you can and will hit these targets, but to hit them will mean swimming against the current of society.

In my insurance agency, I have the privilege of working with many of the best loan officers in my state. As I have lunch with them and talk about their businesses, I am always interested to know what their client’s DTI ratio is. DTI refers to debt to income ratio. Lenders have rules that they need to stick within when they approve a loan. If the debt to income ratio is too high, they can’t lend because the likelihood of that borrower defaulting is too risky.

The vast majority of people purchasing a home today have a debt to income ratio of 40–50%. What this means is that their debt payments are 40–50% of their income, not their after-tax income, but their pre-tax income. The primary expense in that debt is their mortgage.

These numbers show the uphill challenge most Americans face when trying to get their housing expense to the ideal level of 25% of their take home pay or lower. When this housing expense number isn’t at or below 25%, many people aren’t giving and they aren’t saving for retirement. They are living month to month, trying to survive and make ends meet. That may be ok for a season, but I don’t want it to be my reality forever, do you?

This is why this is a target and why it is the final mark of financial health. If we can give 10%, invest 15%, and keep our housing expense within 25%, then we will have the most sturdy financial foundation to build off of and be the most generous people on the planet. But hitting these targets requires pursuing something different than what is normal today.

And so, we are going to pursue this financial target that ultimately is an income target.

I have seen people at varying income levels keep their housing expense within 25%. In the beginning, it requires them to buy right. They can’t purchase homes just because they are pre-approved for a higher mortgage. You must get as close to that 25% target as possible today.

If you purchase a home at 40% of your take home pay today, the road to get that down to 25% is pretty long. But if you can purchase or rent as close to 25% of your take home pay as possible, you are in a very strong financial position. That position allows you to grow into larger homes as your income increases and build a financial foundation that lasts.

Next week, we are going to begin discussing how you can increase your income without working longer hours or getting side hustles. If your housing expense is far from 25% of your take home pay, don’t worry. We’re going to solve that. Not by you moving, but by you increasing your income systematically and permanently. 

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Zach Santmier is the owner of Trumble Agency, Inc. and the author of the personal financial course, Increase. He focuses on helping families escape paycheck to paycheck living so they can freely pursue their ideal future.