![]() ![]() Also, it does not specify what the other debt payments should be.įor example, if an individual is making interest-only payments on their mortgage and credit cards, then their debt payments might fall under the 28/36 rule, but when factoring in a reasonable interest rate and principal payments to pay down debt, they could be way over these limits and, as a result, cannot reasonably afford their debts. For example, since this rule is based on gross income, it can translate into spending about 35 percent of take-home pay on housing and over 45 percent on housing and all other debts. As this rule goes, if these expenses fall within these "debt-to-income-ratio" guidelines, then, typically, an individual is in good financial shape as far as their income and debt payments are concerned.īut this rule is incomplete and can result in severe budget and financial difficulty if acted upon under certain conditions. Other debts, such as credit cards, car loans and school loans should not exceed 36 percent of the gross monthly income. Under that rule, a family's monthly housing expenses, which include principal, interest, taxes and insurance, should not exceed 28 percent of the gross monthly income. Most lenders have typically used a "28-36 guideline" to measure an individual's ability to buy and afford a house. ![]() Total that up, and 63 percent of take-home income for many families can go to the "big three," leaving the rest for other essential and discretionary living expenses. Housing expenses have increased the most and now consume about 30 percent of take-home income, transportation takes another 18 percent and almost 15 percent goes to food. If the latter, then you might spend less on transportation and more on housing and dinners out (single apartment dwellers in New York City tend to use the oven in their kitchen for storage!).Īccording to academic research on this topic, American spending patterns have changed a lot. ![]() If the former, you might need less for housing and more for transportation and groceries. Do you live in a rural area with two children, or are you single and live in a big city? For example, what you spend on the "big three" - housing, transportation and food - can vary widely from one family to the next. What should a family think about when designing a spending plan for their family? How you spend your money is entirely a personal matter. ![]()
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