First of all, thank you for sticking with the Budget Scrubdown! Now that we’ve taken our budget snapshot (Part 1, Part 2), now’s the time to start examining each spending category to find ways to trim our expenses to put towards saving and debt reduction. The first area we’re going to take a hard look at is our housing expenses. Housing expenses should account for no more than 30% of your net income or take-home pay. Housing expenses are notoriously hard to trim, mainly due to the fact that we MUST have shelter, and leases and mortgages are relatively inflexible once we sign the dotted line. Regardless, we’re going to give it a good college try and dig deep into our resource bin to see what we can do to save some dough.
What To Include In Your Housing Expenses
When you think of your housing expenses, we’re talking about the following items:
- Homeowner’s Insurance (probably included in your mortgage escrow account)
- Private Mortgage Insurance (PMI, if you have a VA Loan, you shouldn’t have this)
- Property Taxes (probably included in your mortgage escrow account)
- Homeowner’s Association (HOA) or Condo Fees
- Electricity Bill
- Water/Sewer Bill
- Heating/Gas/Propane Bill
- Waste Removal Bill
- Insect/Pest Control (often quarterly)
- Yard/Lawn Maintenance
- General Home Maintenance & Repairs
- Extended Home Warranty (annual premium, not a typical expense)
Exhaustive list, right? Now, you’ve gotta figure out how much of your net income is tied up in your housing expenses. Add theses expenses up and divide by your net income, then multiply by 100 to determine your housing expenses percentage.
(Monthly Housing Expense Total / Net Income) x 100 = Percent of your monthly budget spend on housing expenses.
If you’re spending 30% or less, great! You’re well within recommended guidelines for this budget category. If not, don’t worry, let’s look at strategies you can use to start bringing this down.
Why You Need To Spend 30% or Less On Housing Expenses
Because housing expenses are extremely intertwined and highly inflexible, the more money you lock up in this expense category, the less wiggle room you have in your overall budget.
When I say that housing expenses are extremely intertwined, what I am really getting at is this: the larger your house, the greater your rent/mortgage, the higher your electric bill, and so on and so forth.
And when I say that housing expenses are highly inflexible I mean that once you sign your lease or mortgage, your payment amount is set for the entire term of your lease or mortgage of which you are 100% obligated and responsible to pay, no excuses.
You might be asking
me your computer, “Well, what the heck am I supposed to do now, Chica?”
Funny you should ask. Put on your big kid pants and let’s start tearing your housing expenses apart. Before we get started, I want you to keep a few things in the back of your mind:
All available options are on the table, no matter how undesirable they seem.
Always remember that you have a choice in EVERY consumer decision you make.
Remember that a sacrifice in the short term can mean rewards in the long-run.
You are the final arbiter of your finances. That’s why we call them personal finances. They’re yours and it’s personal.
Time to get crack-a-lackin.
How To Reduce Your Monthly Rent or Mortgage Expenses
If you have a mortgage:
- See if you qualify for the any programs via Making Home Affordable Program (Deadline extended to December 2013, jump on it now!)
- Refinance your mortgage to a lower interest rate (if you have a VA Loan, check the IRRRL or interest rate reduction program via the VA).
- Refinance your mortgage via traditional routes.
- Have your home reassessed for property valuation. The Wall Street Journal reported that “half of all homeowners may be paying too much in property taxes”. Contact your local property assessor (via tax office) to re-assess your property.
- You might qualify to cancel your Private Mortgage Insurance (PMI) if you have more than 20% of your home’s value in equity. Check out Bankrate’s 9 Steps To Cancel PMI.
- Rent out a room in your home.
- Do you have a family member willing to move in and share the expenses?
- Downsize your home and buy a smaller house. (Smaller house = smaller utility bills…typically)
- Sell your home and return to renting.
If you pay rent:
- Start shopping for more affordable accommodations so that when your lease expires, you’re ready to move
- Bring on a roommate.
- Negotiate your lease renewal with your landlord. See if you can trade personal skills in maintenance, accounting, or other related skills for a reduction in rent
We’ll cover saving on utilities and maintenance costs on Wednesday.
Downsizing Is The New Awesome
Bigger isn’t always better…that’s what she said. But really, it isn’t. First of all, the larger your home, the higher the utility bills. It costs more to heat and cool. It takes more time to clean. And, let’s be honest, the more space you have to fill, the more tempted you are to buy stuff to fill the empty space. I got you nodding like the congregation at church on Sunday, didn’t I? Can I get an Amen?
Honestly, nothing inspires me more to attempt a downsize more than a trip to Ikea, which also happens to be a very dangerous store for me to wander…but I digress.
Seriously though, if you really think about it, downsizing your household can free up additional funds and time to spend on other things you’d rather do.
Have you ever considered downsizing your home? How do you save money on your housing expenses? What are you willing to do to lower your monthly housing expenses?
Oh, and don’t forget your chance to win this week’s book giveaway: Personal Finance in Your 20s For Dummies!
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