Good Morning Green Panda Friends! Today is the last post in our Leasing vs. Buying Series. When planning our monthly budget one of the first expenses that we should allocate our money towards is our housing. There is no point in buying food if we have nowhere to cook it, and there is no point in paying our cable bill every month if we have nowhere to watch television.
What percentage of our income should be for housing?
It is a common practice that 20% of our monthly income should be allocated towards housing. However, if we don’t allocate the full percentage of our income towards other monthly expenses such as transportation and food, we can allocate more than 20% of our monthly income towards housing costs.
Monthly costs that should be included in our 20% of income for housing are our monthly rent or mortgage payment, property taxes, as well as utilities such as heat, hot water, and electricity.
I currently allocate 19.70% of my gross income, and 29% of my net income towards my monthly housing costs. I currently have no monthly costs for transportation; this allows me to allocate more of my net monthly income towards my housing costs.
The percentage of income that we allocate towards housing depends on our current financial situation, as well as the opportunity cost that we are willing to pay for housing. Our cost of living depends on where we live. If we live in the middle of downtown in a big city the percentage of income that we allocate towards housing can be very high, because we are paying for convenience.
If you are thinking of buying a home it is important to consider all of the additional First House Related Expenses. These are additional onetime expenses such as housing closing costs or ongoing expenses such as home renovations that are not included in the percentage of our monthly income that we allocate towards our housing costs.
How do I know what percentage of my income is for housing?
The easiest way to know what percentage of income we are spending on housing is to use a monthly budget worksheet. Many Financial Institutions offer free monthly budget worksheets that automatically upload your monthly transactions into the budget worksheet, as well as divide your monthly spending into percentages.
Most personal financial blogs also offer free monthly budget worksheets. We are usually responsible for manually tracking and entering our monthly spending into these types of budget worksheets. The worksheet will calculate and categorize our spending into percentages of our monthly income, but we must manually enter all of the data.
Here are some of my favourite monthly budget worksheets from personal finance blogs, financial institutions, as well as other financial websites:
Mint offers a very easy to use monthly budget worksheet. Both the website and worksheets are user friendly. Monthly budget worksheets offered by Mint include various financial goals such as tracking your student loan and paying off debt.
Check out our post on Green Panda titled Free Spreadsheets for Personal Finances. We offer a variety of free worksheets for a variety of financial goals such as monthly budgeting, retirement planning, and debt reduction.
RBC Royal Bank offers My Finance Tracker to their online banking clients. It is a free tool that tracks our money to create a budget and make saving our money easier. It also offers a free expense analysis so we can see exactly where our money is being spent every month.
In case you missed them, here are all of the posts in our Leasing vs. Buying Series: