![]() ![]() The billionaire investor Warren Buffett lives in a modest house worth 0.001% of his total wealth. Keeping housing costs low is smart, no matter how much money you have. But that doesn't mean it's impossible to find affordable options, even if you have to have multiple roommates or a longer commute. ![]() In some parts of the country (hi, New York and the rest of the Northeast), the percentage spent on housing can be even higher than the 37% average. Look for a place that costs 25% or less of your after-tax income, and funnel all of the cash you save toward your retirement accounts. To make more progress on your savings goals, however, you'll want to limit your housing expenses even further. If it's more than 30% of your pretax income, the standard measure of housing affordability, it's time to make a change. Rather than depriving yourself of coffee and avocado toast - though you might want to do that as well - take a hard look at how much you're paying for housing right now. But many Americans come up short.īut there's a lot to be learned from people like Sabatier who have managed to hit their savings goals well before 65. There's no shortage of advice about how much you should be saving, typically at least 10% of your income. Saving enough over a 40-year career to maintain your lifestyle in retirement is challenging enough. I'm going to continue to let it grow and hopefully making that decision 2 years ago will compound in 20 years into a lot more money." "While I don't have the exact figures, I estimate that cutting back for 2 years, before buying my first home, I was able to save about $25,000 that I invested in 20, and that 'cutting back' is now worth more than $100,000 in my investment accounts. "At the end of the day it comes down to a personal choice, but I was happy moving to a smaller apartment, moving closer to my office, and eating out less, to bank the difference," Sabatier wrote on Millennial Money. ![]() He was able to save about $25,000 in two years by cutting back on housing, as well as transportation and dining expenses. And if after all your good efforts the money still isn’t making it to the end of the month, consider a suggestion one of my students made a few semesters ago.Take, for example, Grant Sabatier, a 30-something self-made millionaire who founded the finance blog Millennial Money. The point is that juggling a laundry list of expenses is hard to do without a good sense for how they all fit together, the limits that should be set for each category and the strategic trade-offs you can choose to make. Then again, if your debt obligations are already approaching the 30 percent danger zone, you’ll have no choice but to trim the other two categories in order to accommodate that reality. Maybe an upcoming purchase will have to wait, particularly if financing is involved. Perhaps the rent will need to be shared or a less expensive space found. If that’s the case, it’s time to take a second pass at your plan with an eye toward adjusting the allocations within your control - everything but taxes. I can’t live on 25 percent of my gross salary!” When I do the math this way with my mostly college senior-level students, the reaction is always the same: “Seriously? That’s ridiculous. ![]()
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