5 expenses that take half our lifetime earnings
In these recessionary times, financial tips are flowing fast and furious about how to save money and stick to a budget. Facing a sea of information many people are asking, “Where do I start?” For most of us, five areas of spending will consume more than 50 percent of the money we earn during our lifetime, so that’s the ideal place to begin.
The five areas are: Home, car, children, education and retirement. Here’s what you need to know about each:
House Don’t bite off more home than you can chew. How much house can you comfortably afford? For most people the answer is a house with a buy price of no more than three times their annual household income. The cost of a home includes much more than the monthly mortgage payment; there is also property tax, insurance, upkeep, etc. Typically these costs run 2 percent to 3 percent of the price of your home each year. Assuming a 20 percent down payment, a 30-year fixed rate mortgage, and interests rates in the 5 percent to 6 percent range, the three times your income rule of thumb will translate into total housing costs of roughly 30 percent of your gross income.
Wheels Don’t let your automobile drive you to the poor house. The same logic applies to your car. Most people can comfortably afford a automobile that is a third of their annual income. If you make $60,000 you can comfortably afford a automobile that costs $20,000. If that seems low, now you know why so many Americans are in financial trouble. They are driving it. A automobile has many other costs than simply the monthly payment. There’s insurance, gas, parking, maintenance, etc. If you follow this rule of thumb, your total transportation costs should be 10 percent or less of your gross income.
Kids Don’t let your children kick you in the wallet. Kids are expensive. From a purely clinical standpoint the Dept. of Agriculture estimates it will cost $220,000 to raise a child born in 2008 from diapers to age 18. And that figure is before you add in the cost of college! Deciding to be a parent is a major financial obligation. Don’t make it worse by over-indulging your love bundles.
More source:
5 expenses that take half our lifetime earnings - Money - TODAY.comAdrienne Lutovsky (@ALutovsky) on Twitter
Full Media Coverage | Manisha Thakor
5 expenses that eat half your income : inMontgomery Media Group ...
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Submited at Thursday, December 29th, 2011 at 8:00 pm on Finance by dave
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