Expenses

In the last couple of days, we have been discussing income, wealth building, and issues of the sort. Let's talk about the expense side for a couple of minutes.

The single largest expense for most families is housing. How do you decide how much to spend on a house? Keep your mortgage to two times your annual income, and you should be fine. Yes, you can most likely be approved for a larger loan, and the realtor may be mortified that you plan to stop far short of your purchasing potential. That's not the point. The point is keeping you in your home, and giving you some margin.

Next, buy only vehicles that are two years old or older, or if you choose to buy a new one, keep it for 10 years or more.

Save some amount from every dollar that passes through your life. I like the 10% rule. Save 10%, and give away 10%, of every dollar that passes through your life.

If you are unable to save 10% and give away 10%, chances are incredibly high that you are spending far too much for housing costs, and most likely more than you need to on automobiles.

What's the solution? Sell your home (in this market?), and find something that fits your income, or get a second job so your income will cover the ratio.

Until next time...

Randy