Save your money and skip the mortgage completely. A mortgage is just a loan at 50% interest. Save as much money as you can, put it in high yield CD's, and in 10 years you can buy your house with a cashiers check.
I love it. The final is considerably faster than the Betas or Alphas. My biggest (and probably only) complaint at this point is that, due to the new stupid Volume Controls, I can't unmute the output for Line-In or Mic inputs on my computer. This is important because I use that input for when I play video games using my Xbox360 connected to my monitor.
Tough to evaluate myself. I don't have a job, but I live with my parents. I am running up a credit card balance, but it isn't due for a year. No car, no expenses, but no income either. It is almost like I don't exist. Thoughts?
harry fortunado - 15 years ago
people paying under 10 percent of income must be living in with their parents,they have not gotten out in the real world yet.
JMC - 16 years ago
I guess you can spend 28% of your income on housing if you are married and live far outside of a major metropolitan area, but if you are single and live in a major city such as myself, I think its impossible to live in a decent area spending less than 35% of your income on housing.
Are you kidding me? Here in the Silicon Valley it's pretty much impossible to live anywhere that doesn't cost 50% of your income. Even when I had 3 roommates, my rent was more than 28% of my income. I get paid twice a month, and the paycheck at the end of the month basically goes to my landlord. According to last night's news, the average cost of a home has finally fallen below $500k.
Blake B - 16 years ago
Save your money and skip the mortgage completely. A mortgage is just a loan at 50% interest.
Save as much money as you can, put it in high yield CD's, and in 10 years you can buy your house with a cashiers check.
I did it. It was interesting to see astonishment on people's faces. Most americans can't even save $1000 much less $250,000.
Quit buying crap you don't need. The neighbors aren't impressed and the only ones that benefit from your conspicuous consumption are the communist chinese who darn near own this country now.
We're coming it at 20% for housing expenses...I'm pretty stoked that we are able to afford our own home while still in school. I guess we bought at the right time (almost 4 years ago)
If anyone is looking for some excellent free software to help manage their expenses - go get a free account at mint.com. It's awesome. I don't work for them, I'm just quickly becoming addicted to the site.
bemis - 16 years ago
My rent is 15% of my gross income, going down to 13% when I move in a couple of months...
Credit score is >800...
No balances on any credit cards, which I use on a daily basis to pay for everything--every two weeks when I get paid I pay off whatever I owe on them, so never any interest...
I put between 11-13% of my gross salary into retirement specific accounts between a work based 401k and a Roth IRA, it's 19-22% if you could my employer match (yeay good employers!)
I have 8 8-month CD's that each contain approx. 1 month of expenses, every month a CD matures and I roll it back into another 8-mo CD... this way if I ever lost my income suddenly I'd have approx. 8 months of expenses available as they were needed
I save approx. 20% of my gross income into a high yield savings account which is destined to do something, not sure what... I think I'd like to buy a building like I live now (2-4 family in the city) and rent it out to good people at reasonable rates (similar to what I've been fortunate to have)
I also save another $200/mo towards dealing w/ car issues and a down payment on my next car, my current car is a bit older (7 years) but it's paid off and runs OK
My student loans are paid off, and I'm working on a grad. degree at night that my employer pays for (yeay again for good employers)
There's no way you can get ahead if you're not making much money, it's an unfortunate and simple math problem... I've got friends and family members in that situation now, no matter how hard they work they simply cannot afford to get ahead because they just don't make enough, and these are college educated people in professional fields. Sadly the old "Do what you love and the money takes care of itself" maxim does not work in most cases...
NYC - 16 years ago
living in new york city means my rent is over 50% of my income. When I factor into living outside of the city, taking into account +$250/month commute costs, a car (I have no need for one in the city), etc. the costs come up to about the same... only I would be spending about 2-4 hours in total commuting time per day.
Factor in what you think is a good quality of life, and you really are left with no choice - I do not have enough money for a downpayment for a house, and renting outside of the city would offer me little in savings and a poorer quality of life due to commuting times.
Which is better? Rent/etc. cannot be the only factor in that 28% - you need to figure in commute (gas, train, etc), commute times, car ownership costs, etc into that equation as well...
TheFU - 16 years ago
This article didn't go far enough, IMHO.
Basically, most people should live on a cash basis. If you don't have the cash in your pocket, then DON'T BUY IT!
Sign No. 1 - Your Credit Score is Below 600
Why do I care what my credit score is? If I'm living on a cash basis, I don't need any credit. If you do everything else listed below, this will take care of itself.
Sign No. 2 - You are Saving Less Than 5%
5% isn't enough. A household needs to be saving 20%. That means if both adults are working, 10% each. If only 1 is working, that person needs to be saving 20% towards retirement. RothIRA, IRA, 401(k) up to the legal retiremenet savings limits. After that limit is met, save the rest in non-retirement investment accounts.
Sign No. 3 - Your Credit Card Balances are Rising
Cash basis. Don't misunderstand, credit cards are necessary, but only as a convenience, not as a necessity. If you aren't paying your credit cards off every month, you need help. I have 3 credit cards. None with the same institution. A relative of mine had 1 card stolen and reported it to the bank. That bank cancelled her other card and both of her husband's cards even though she reported only 1 card as stolen and they all had different numbers.
Sign No. 4 - More Than 28% of Income Goes To Your House
That's a reasonable ratio, but I've always heard it as 3x your annual salary. If you and your wife make $140k total, then your mortgage for a home shouldn't be more than $420K. Also, think 15 year fixed, not 30 year or any ARM. Where you live needs to be a planned expense for years and years to come. If you want a bigger house, save for a larger down payment.
My signs that you are not managing your finances properly:
-----------------------------------------------------------
A - Cars - Never have a car loan over 3 years. If you can't afford the car with a 3 year loan, you shouldn't have that car. Related to cars, plan to keep a car for 10 years unless you are making $2M/year.
B - "pay yourself first" 25% of my income always goes into savings.
C - automatically invest monthly using ETFs. Never use a mutual fund with a "load" or a full cost broker. Diversify your investments with no more than 20% in a single investment. Sometimes your employee 401(k) plan doesn't give you many good choices. Make due the best you can to keep expenses low.
D - No $1 (or more) coffee. Use instant or some other low cost drink. Tap water is good too.
E - manage food costs. One lunch out each week. Bring your lunch from home most days. No more than two dinners out per week.
F - Track your expenses. I put everything into Quicken - everything. Monthly, look over the expenses and see if that goes towards your long term spending and savings goals. The little expenses add up quickly into real money. Look at the cost of every monthly payment and look for ways to minimize them. Big phone plan? Why? Get the minimal for $26/month. Use VOIP if your internet connection is stable. Big cable cost? It's just TV.
G - Emergency Fund. One year of expenses needs to be placed into a stable MM fund. This is an interest bearing account with no penalty for taking money out. How much do you need? Good thing you've been tracking all your spending.
Basically, think cash for all purchases. Some friends have started rounding all purchases up to the next dollar and deducting all credit card charges from their checking accound the day they spend the money. Then when the bill comes, you have the cash already accounted for and can pay the bill. At the end of a year, she ended up with about $2k extra in her account and used it for Christmas presents and a little vacation. Myself, I would have put that money into my savings investments, but she was already saving as part of her overall plan. Monthly savings was a bill to her already.
Have a goal for savings. College fund? New House? Retirement? Retirement Age? Track your pa
Slinky - 16 years ago
I pay 7% of my monthly income in housing. 10% goes to retirement savings, no credit card, credit score is somewhere in the 700s, and I budget for all my bills. My nonretirement savings are somewhere just short of 50% of my income. (At least until I buy my new car next month) I guess I'm doing alright! It's a good thing to resist lifestyle inflation.
@benton - If you are running up a credit card balance that means you are spending money. If you have no income, you are spending more than you earn. This is living beyond your means. It doesn't matter when the bill is due. If you have a plan to pay the balance off when it comes due (without using a student loan or something of that nature) then you are likely option 4 - According to the article, yes, but not according to my goals.
We pay less than 15% of our gross income for housing, save more than 18%, and pay off our credit cards weekly. Nope, I think we're doing just fine, thanks. ;)
14,5 % for me. With food and such - maybe about 20%. Still good.
benton - 16 years ago
Tough to evaluate myself. I don't have a job, but I live with my parents. I am running up a credit card balance, but it isn't due for a year. No car, no expenses, but no income either. It is almost like I don't exist. Thoughts?
Wiehann - 16 years ago
Same as Dale. Actually paying 55% of my income on rent. A little less luxuries elsewhere has never killed anyone.
Dale - 16 years ago
So, as a poor married college father scrimping on everything, I think having my rent (not mortgage) be apporximately 45% of what I earn in a month not living beyond my means since everything else only adds another 45%! Woot! I love living cheap :)
Peter - 16 years ago
This is a pretty good article. I'm just starting my career, so I'm borderline on a couple of those categories, but in a year or two it will be a different story.
very good wonderful
Save your money and skip the mortgage completely. A mortgage is just a loan at 50% interest. Save as much money as you can, put it in high yield CD's, and in 10 years you can buy your house with a cashiers check.
I love it. The final is considerably faster than the Betas or Alphas. My biggest (and probably only) complaint at this point is that, due to the new stupid Volume Controls, I can't unmute the output for Line-In or Mic inputs on my computer. This is important because I use that input for when I play video games using my Xbox360 connected to my monitor.
Tough to evaluate myself. I don't have a job, but I live with my parents. I am running up a credit card balance, but it isn't due for a year. No car, no expenses, but no income either. It is almost like I don't exist. Thoughts?
people paying under 10 percent of income must be living in with their parents,they have not gotten out in the real world yet.
I guess you can spend 28% of your income on housing if you are married and live far outside of a major metropolitan area, but if you are single and live in a major city such as myself, I think its impossible to live in a decent area spending less than 35% of your income on housing.
Are you kidding me? Here in the Silicon Valley it's pretty much impossible to live anywhere that doesn't cost 50% of your income. Even when I had 3 roommates, my rent was more than 28% of my income. I get paid twice a month, and the paycheck at the end of the month basically goes to my landlord. According to last night's news, the average cost of a home has finally fallen below $500k.
Save your money and skip the mortgage completely. A mortgage is just a loan at 50% interest.
Save as much money as you can, put it in high yield CD's, and in 10 years you can buy your house with a cashiers check.
I did it. It was interesting to see astonishment on people's faces. Most americans can't even save $1000 much less $250,000.
Quit buying crap you don't need. The neighbors aren't impressed and the only ones that benefit from your conspicuous consumption are the communist chinese who darn near own this country now.
We're coming it at 20% for housing expenses...I'm pretty stoked that we are able to afford our own home while still in school. I guess we bought at the right time (almost 4 years ago)
If anyone is looking for some excellent free software to help manage their expenses - go get a free account at mint.com. It's awesome. I don't work for them, I'm just quickly becoming addicted to the site.
My rent is 15% of my gross income, going down to 13% when I move in a couple of months...
Credit score is >800...
No balances on any credit cards, which I use on a daily basis to pay for everything--every two weeks when I get paid I pay off whatever I owe on them, so never any interest...
I put between 11-13% of my gross salary into retirement specific accounts between a work based 401k and a Roth IRA, it's 19-22% if you could my employer match (yeay good employers!)
I have 8 8-month CD's that each contain approx. 1 month of expenses, every month a CD matures and I roll it back into another 8-mo CD... this way if I ever lost my income suddenly I'd have approx. 8 months of expenses available as they were needed
I save approx. 20% of my gross income into a high yield savings account which is destined to do something, not sure what... I think I'd like to buy a building like I live now (2-4 family in the city) and rent it out to good people at reasonable rates (similar to what I've been fortunate to have)
I also save another $200/mo towards dealing w/ car issues and a down payment on my next car, my current car is a bit older (7 years) but it's paid off and runs OK
My student loans are paid off, and I'm working on a grad. degree at night that my employer pays for (yeay again for good employers)
There's no way you can get ahead if you're not making much money, it's an unfortunate and simple math problem... I've got friends and family members in that situation now, no matter how hard they work they simply cannot afford to get ahead because they just don't make enough, and these are college educated people in professional fields. Sadly the old "Do what you love and the money takes care of itself" maxim does not work in most cases...
living in new york city means my rent is over 50% of my income. When I factor into living outside of the city, taking into account +$250/month commute costs, a car (I have no need for one in the city), etc. the costs come up to about the same... only I would be spending about 2-4 hours in total commuting time per day.
Factor in what you think is a good quality of life, and you really are left with no choice - I do not have enough money for a downpayment for a house, and renting outside of the city would offer me little in savings and a poorer quality of life due to commuting times.
Which is better? Rent/etc. cannot be the only factor in that 28% - you need to figure in commute (gas, train, etc), commute times, car ownership costs, etc into that equation as well...
This article didn't go far enough, IMHO.
Basically, most people should live on a cash basis. If you don't have the cash in your pocket, then DON'T BUY IT!
Sign No. 1 - Your Credit Score is Below 600
Why do I care what my credit score is? If I'm living on a cash basis, I don't need any credit. If you do everything else listed below, this will take care of itself.
Sign No. 2 - You are Saving Less Than 5%
5% isn't enough. A household needs to be saving 20%. That means if both adults are working, 10% each. If only 1 is working, that person needs to be saving 20% towards retirement. RothIRA, IRA, 401(k) up to the legal retiremenet savings limits. After that limit is met, save the rest in non-retirement investment accounts.
Sign No. 3 - Your Credit Card Balances are Rising
Cash basis. Don't misunderstand, credit cards are necessary, but only as a convenience, not as a necessity. If you aren't paying your credit cards off every month, you need help. I have 3 credit cards. None with the same institution. A relative of mine had 1 card stolen and reported it to the bank. That bank cancelled her other card and both of her husband's cards even though she reported only 1 card as stolen and they all had different numbers.
Sign No. 4 - More Than 28% of Income Goes To Your House
That's a reasonable ratio, but I've always heard it as 3x your annual salary. If you and your wife make $140k total, then your mortgage for a home shouldn't be more than $420K. Also, think 15 year fixed, not 30 year or any ARM. Where you live needs to be a planned expense for years and years to come. If you want a bigger house, save for a larger down payment.
My signs that you are not managing your finances properly:
-----------------------------------------------------------
A - Cars - Never have a car loan over 3 years. If you can't afford the car with a 3 year loan, you shouldn't have that car. Related to cars, plan to keep a car for 10 years unless you are making $2M/year.
B - "pay yourself first" 25% of my income always goes into savings.
C - automatically invest monthly using ETFs. Never use a mutual fund with a "load" or a full cost broker. Diversify your investments with no more than 20% in a single investment. Sometimes your employee 401(k) plan doesn't give you many good choices. Make due the best you can to keep expenses low.
D - No $1 (or more) coffee. Use instant or some other low cost drink. Tap water is good too.
E - manage food costs. One lunch out each week. Bring your lunch from home most days. No more than two dinners out per week.
F - Track your expenses. I put everything into Quicken - everything. Monthly, look over the expenses and see if that goes towards your long term spending and savings goals. The little expenses add up quickly into real money. Look at the cost of every monthly payment and look for ways to minimize them. Big phone plan? Why? Get the minimal for $26/month. Use VOIP if your internet connection is stable. Big cable cost? It's just TV.
G - Emergency Fund. One year of expenses needs to be placed into a stable MM fund. This is an interest bearing account with no penalty for taking money out. How much do you need? Good thing you've been tracking all your spending.
Basically, think cash for all purchases. Some friends have started rounding all purchases up to the next dollar and deducting all credit card charges from their checking accound the day they spend the money. Then when the bill comes, you have the cash already accounted for and can pay the bill. At the end of a year, she ended up with about $2k extra in her account and used it for Christmas presents and a little vacation. Myself, I would have put that money into my savings investments, but she was already saving as part of her overall plan. Monthly savings was a bill to her already.
Have a goal for savings. College fund? New House? Retirement? Retirement Age? Track your pa
I pay 7% of my monthly income in housing. 10% goes to retirement savings, no credit card, credit score is somewhere in the 700s, and I budget for all my bills. My nonretirement savings are somewhere just short of 50% of my income. (At least until I buy my new car next month) I guess I'm doing alright! It's a good thing to resist lifestyle inflation.
@benton - If you are running up a credit card balance that means you are spending money. If you have no income, you are spending more than you earn. This is living beyond your means. It doesn't matter when the bill is due. If you have a plan to pay the balance off when it comes due (without using a student loan or something of that nature) then you are likely option 4 - According to the article, yes, but not according to my goals.
We pay less than 15% of our gross income for housing, save more than 18%, and pay off our credit cards weekly. Nope, I think we're doing just fine, thanks. ;)
14,5 % for me. With food and such - maybe about 20%. Still good.
Tough to evaluate myself. I don't have a job, but I live with my parents. I am running up a credit card balance, but it isn't due for a year. No car, no expenses, but no income either. It is almost like I don't exist. Thoughts?
Same as Dale. Actually paying 55% of my income on rent. A little less luxuries elsewhere has never killed anyone.
So, as a poor married college father scrimping on everything, I think having my rent (not mortgage) be apporximately 45% of what I earn in a month not living beyond my means since everything else only adds another 45%! Woot! I love living cheap :)
This is a pretty good article. I'm just starting my career, so I'm borderline on a couple of those categories, but in a year or two it will be a different story.