Where Housing Fits into Your Lifestyle Plan
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Where Housing Fits into Your Lifestyle Plan
Why housing is important
An important part of living within your means is choosing the right place to live. Housing will be your largest expense, consuming about 25–40% of your income (ouch!). Whether you buy or rent depends upon your lifestyle goals and the current local housing economy. While it is generally considered better to buy a home than to rent, in some localities you may find it cheaper to pay rent than to pay large mortgage payments, taxes, and other homeowner expenses. Cash flow and savings need to be an overriding consideration.
Things To Know
- Housing will be your largest expense.
- Choosing your housing wisely will go a long way toward helping you realize your other lifestyle goals.
Should you decide to buy a house rather than rent, there are some income tax benefits of which to be aware. Interest paid on your mortgage as well as points paid to acquire the mortgage may be deducted from your income. Any property taxes you pay may also be deductible up to a limit of $10,000 that also includes state and local income or sales taxes (as of 2018). Costs for making any improvement to the house such as putting on a new roof, replacing plumbing or electric wiring, or adding wallpaper (not painting) can be added to your cost of the house to reduce potential capital gains taxes when you sell the house. You should keep careful records of these kinds of expenses.
Your home as an investment
While some very creative financing arrangements appear to make home ownership very affordable, they might have unforeseen consequences on the other end that can be devastating. On average, a family owns about three homes over its lifespan. This is possible because equity from one home is used to upgrade to another. A home is only a good investment if the mortgage terms and economy allow equity to build up as the mortgage balance declines. It’s not true that housing prices always go up any more than it’s true that stocks always go up.
There are many ways to keep housing costs down. One example is to share housing expenses with others, or opt for smaller and more economical housing. Choose your neighborhood wisely, keeping in mind how much it is going to cost to commute to work, transportation costs, and safety. Housing is a short-term "must have," but it shouldn’t be allowed to break you financially.
Choosing your housing wisely will go a long way toward helping you realize your other lifestyle goals. After making a written list of your goals, attach estimated current costs to achieve them. Use these figures to start your financial plan. Make a short-term budget that allows you to save and invest for your intermediate- and long-term goals.