If your family is currently considering buying a new home, one of the biggest questions should be this:
“What percentage of our household monthly take-home income should go towards our mortgage payment?”
If you depend on the unanimous results of a Google search, the answer is 28%.
If you put your faith in the results of a lender or a mortgage calculator found on the website of a new home development, you may be pleasantly surprised to see how big and nice of a home you can “afford” based on your household monthly income.
However, Dave Ramsey teaches no more than 25% of your household take-home income; in an effort to prevent becoming “house poor”; where you could afford to pay your monthly mortgage but could not live a comfortable lifestyle.
After meeting a 2nd time with our Associate Financial Consultant, Christina Tumbleson at Charles Schwab, where my wife and I recently starting investing our money, we learned that we are spending around 13% of our monthly take-home income on our monthly mortgage.
However, that number was based on the total of both of our full-time salary positions. That does not account for the monthly income I make from my 5 side hustles; for example, I made $531 last month from my two YouTube channels alone.
When we consider all my side hustle income, we can easily yet conservatively count on another 1%.
Therefore, at around 12%, we are fortunately spending a little less than half of the conservative 25% of take-home income Dave Ramsey suggests.
While it is undeniable that at age 37, my wife and I are at solid places in our careers and are being paid accordingly, we also have no other debts other than our home. I have been driving the same 2004 Honda Element for over 13 years now. Not to mention, I spend literally all my free time on my 5 side hustles; which provides passive streams income for our family.
But perhaps most important is the fact our 1900 square feet, 4 bedroom, 2 car garage home is still much more humble than it needs to be, according to popular American dream standards.
The main take-away is this: We choose to live way below our means.
If we wanted to sell our current home, we could pocket an easy $50,000 and then “upgrade” to a half a million dollar home. I could even trade in my old Honda Element for a new Toyota Tacoma.
We could “afford” to do that.
But if I am going to impress anyone by my finances, it’s not going to by how much I spend, but instead, how amazingly little.