Housing
Because your rent or mortgage payment is probably your biggest payment each month, it has a huge affect on your budget. If you are paying more then the recommended amount, you need to carefully think about ways to reduce this expense. It is very hard to get ahead if your housing costs are out of control. Even if your housing expense is only modestly higher then the recommended percent it can be difficult to balance your budget.
Let’s talk about renters first. If you are a single renter, getting a roommate can be a good option if there is extra space available. If there is not extra space you could move to a bigger place and get a roommate. If neither of these options appeals to you, you could move to less expensive home or apartment when your lease is up. Renters usually find it fairly easy to move, since they are not as emotionally attached to their homes as homeowners are, and they do not have to hassle with trying to sell their home. If the new place is closer to your job, you could also save on transportation expenses.
For homeowners one on the easiest ways to reduce your monthly mortgage expense is to get a better interest rate on your loan. (Later this year there will be a section on debt that will have more information on how to get a better interest rate.) For every $100,000 you borrow a ½ point reduction in your interest rate would save you about $42 per month. Beware – continually refinancing and incurring closing costs and points, is not the way to save money. You want your loan balance to go down over time, not up.
A common problem with homeowners is that they move into a home that they really like but that costs more then they can comfortably afford. They justify the decision by saying that they will grow into it, meaning their income will catch up. Sometimes their income does catch up, but often the housing continues to strain the budget. Bankers are more then happy to loan money to people with satisfactory credit (or in some cases even those with poor credit) because they know that you will do everything in your power to make that payment every month, including cutting back in other areas. But, what that means to you is that you will constantly feel the pinch. So, although it is a difficult thing to do, moving to a less expensive house could be the best thing for your budget. Just remember, a house is only a house, your family and your belongings will make any house a home.
If you live in an area that has outrageous home prices you probably think there is no way to reduce your housing expense. Don’t give up. Check out home prices in surrounding areas, sometimes moving as little as 15 miles away will make a big difference, but don’t forgot to take the increased transportation costs into consideration when deciding if moving is financially beneficial.