What percentage of our income should be for housing?

It is a common practice that 20% of our monthly income should be allocated towards housing. However, if we don’t allocate the full percentage of our income towards other monthly expenses such as transportation and food, we can allocate more than 20% of our monthly income towards housing costs.

Monthly costs that should be included in our 20% of income for housing are our monthly rent or mortgage payment, property taxes, as well as utilities such as heat, hot water, and electricity.

I currently allocate 19.70% of my gross income, and 29% of my net income towards my monthly housing costs. I currently have no monthly costs for transportation; this allows me to allocate more of my net monthly income towards my housing costs.

The percentage of income that we allocate towards housing depends on our current financial situation, as well as the opportunity cost that we are willing to pay for housing. Our cost of living depends on where we live. If we live in the middle of downtown in a big city the percentage of income that we allocate towards housing can be very high, because we are paying for convenience.

If you are thinking of buying a home it is important to consider all of the additional First House Related Expenses. These are additional onetime expenses such as housing closing costs or ongoing expenses such as home renovations that are not included in the percentage of our monthly income that we allocate towards our housing costs.

How do I know what percentage of my income is for housing?

The easiest way to know what percentage of income we are spending on housing is to use a monthly budget worksheet. Many Financial Institutions offer free monthly budget worksheets that automatically upload your monthly transactions into the budget worksheet, as well as divide your monthly spending into percentages.

Most personal financial blogs also offer free monthly budget worksheets. We are usually responsible for manually tracking and entering our monthly spending into these types of budget worksheets. The worksheet will calculate and categorize our spending into percentages of our monthly income, but we must manually enter all of the data.

Here are some of my favourite monthly budget worksheets from personal finance blogs, financial institutions, as well as other financial websites:

Mint offers a very easy to use monthly budget worksheet. Both the website and worksheets are user friendly. Monthly budget worksheets offered by Mint include various financial goals such as tracking your student loan and paying off debt.

Check out our post on Green Panda titled Free Spreadsheets for Personal Finances. We offer a variety of free worksheets for a variety of financial goals such as monthly budgeting, retirement planning, and debt reduction.

RBC Royal Bank offers My Finance Tracker to their online banking clients. It is a free tool that tracks our money to create a budget and make saving our money easier. It also offers a free expense analysis so we can see exactly where our money is being spent every month.

In case you missed them, here are all of the posts in our Leasing vs. Buying Series:

How to Pick the Perfect Apartment

How to Choose the Perfect Roommate

The Pros and Cons of Having a Roommate

The Pros and Cons of Leasing an Apartment

The Pros and Cons of Buying a Home

The first thing that we need to decide when we are picking the perfect apartment is our budget. Once we determine how much we can afford to pay each month for rent, then we can start searching for the perfect apartment.

When I first moved from Toronto to Montreal I found my first apartment online. I had been to Montreal before so I was familiar with the city. However, I was unable to travel to Montreal and visit apartments. I searched through the classified ads on the McGill website to find an apartment that was within my monthly budget. If you are moving to a new city and you are unfamiliar with the new city, it is a safe bet to search for an apartment in a university neighbourhood. Even if you are not a student in university, living in a university neighbourhood has several advantages.

University neighbourhoods are generally very safe living areas; they also usually have several apartments for rent within the neighbourhood. Daily living amenities such as grocery stores and pharmacies are usually very close by, and most apartments in university neighbourhoods are offered with utilities included in the monthly rent.

It is a very smart financial move to search for an apartment that offers utilities

When utilities are included in our monthly rent it is easier to budget because our monthly expenses are fixed. To this day, I still live in an apartment that offers utilities included in my monthly rent. I enjoy having only one fixed monthly bill which includes my rent and all of my utilities such as heat, hot water, and electricity.

It is common to find an apartment that offers utilities such as heat and hot water, but the tenant pays the electricity

I am not the type of person who leaves the lights on when I am not home, or leaves the television on when I am not watching it; therefore I don’t waste my electricity. I like having utilities included in my monthly rent not because they are expensive, but because I like having fixed monthly expenses.

If you live with a roommate it is a good idea to find an apartment that offers utilities because roommates share the monthly financial responsibility of paying rent

When roommates find the perfect apartment both names are on the apartment lease, this means that we equally share the monthly financial responsibility. If we do not find an apartment that offers utilities one roommate will be forced to register the utilities in their name only. This means that one roommate will be solely responsible for payment of the utilities. If only one roommate is financially responsible for payment of the utilities and the other roommate moves out, it could be hard to force someone to pay for a monthly utility bill that is not registered in their name.

Some people choose not to search for an apartment that offers utilities included in the monthly rent because they feel the landlord over charges for the cost of utilities

Some people prefer to pay for their own monthly utilities because they feel it is better to have variable expenses and a lower monthly cost. I have never lived in apartment where I had to pay for the monthly utilities; therefore I am not sure how much the monthly cost is for heat, hot water, and/or electricity. I prefer to have one fixed monthly living expense, even if the monthly cost is little bit more expensive.

Here are the other posts from our Leasing vs. Buying Series:

How to Choose the Perfect Roommate

The Pros and Cons of Having a Roommate

The Pros and Cons of Leasing an Apartment

The Pros and Cons of Buying a Home

When we are deciding how to choose the perfect roommate we may look for a friend or a family member.  We may also place an ad on Craigslist or Kijiji to help us choose the perfect roommate. When we are considering how to choose the perfect roommate we have to consider many factors such as financial means, personal privacy, common interests, living habits, and work ethic. 

How to Choose the Perfect Roommate

We want to make sure that our perfect roommate will be able to constantly pay their bills on a monthly basis.  We also want to make sure that they respect our personal privacy.  It is important to have common interests with a roommate for decorating and aesthetic reasons.  It’s also nice to spend time with a roommate outside of the apartment. 

Similar livings habits and worth ethics are important because we want to live with a roommate who will share the cleaning responsibilities, as well as the upkeep of the apartment and daily routines.  If you are a morning person it may be hard to live with someone who is awake into all hours of the night.

My first experience living with a roommate was less than amazing and it ended a friendship.  We were young and away from our families for the first time.  When you mix complete freedom with financial responsibility and a couple of boyfriends, things are bound to be a little tense.  If we are young we may lack the communication skills to salvage and/or rebuild a friendship.  This is why it may be a good idea to set apartment rules and conditions in a roommate agreement.

Choosing the Perfect Roommate with a Roommate Agreement

If you are like me than you love the hit TV Show The Big Bang Theory.  One of my favourite episodes is when Sheldon and Leonard examine their Roommate Agreement.  Of course due to Sheldon’s narcosis the roommate agreement on The Big Bang Theory is long, detailed, very extensive, and extremely unnecessary.

A basic roommate agreement should include arrangements for visitors and overnight guests, grocery shopping, sharing utilities, the payment of rent, ownership of furniture and other household furnishings.  The roommate agreement should also include conditions for breaking any of the agreed upon arrangements in the roommate agreement.

Choosing the Perfect Roommate with Flatmate Finder

If you already have an apartment and you need to choose a new roommate, or if you are moving and need to choose a roommate to find a new apartment, searching roommate websites such as Flatmate Finder is a good place to start.  Flatmate Finder is a website that can match your needs with others to help you choose the perfect roommate.  Whether you are looking for a room, or you have a room to offer, roommate websites can help you find the perfect roommate in the perfect location and at the perfect price. Other roommate finder websites include Easy Roommate, Roomster, and Roommates.  

Here are the previous posts from our Leasing vs. Buying Series:

The Pros and Cons of Buying a Home

The Pros and Cons of Leasing an Apartment

The Pros and Cons of Having a Roommate

Photo by Meggrs

During my first year of college I lived with a roommate and now I live with my boyfriend, so I have lived to tell about both experiences.  Having a roommate has pros and cons just as living with a boyfriend or girlfriend also has pros and cons.  Eventually over time, your boyfriend may become your roommate, or your roommate may become your boyfriend.

Having a Roommate is cost efficient; it ensures that there will always be someone living with you in your apartment to share the monthly bills.  The difference between living with a roommate and living with a boyfriend is that having a roommate should be treated liked a business deal; but living with a boyfriend or girlfriend is an emotional commitment as well as a living arrangement.

Sharing our Privacy with a Roommate

Sharing Privacy with my Roommate was an ok experience for me because I grew up with a younger sister.  My roommate was my age and we both moved to a new city to attend college.  It was comforting to share my experiences with someone who was experiencing the same things.  There was really no invasion of privacy with a roommate since we both had separate rooms and we shared the kitchen, bathroom, and living room.  Since we both grew up in households with siblings we were used to sharing, and respected each other’s privacy. Communication is the key to having a good roommate.

Sharing privacy with my boyfriend is a completely different living experience because we share everything.  There is only one bedroom and there is nowhere to escape when we want or need some personal privacy.  The difference between sharing privacy with a boyfriend and sharing privacy with a roommate is that we are probably more excepting when our loved one invades our privacy than we are when a roommate (and total stranger) invades our personal privacy.

Preserving our Privacy with a Roommate

Preserving our privacy is easier with a roommate because we can always leave the apartment or go to our own room.  However, when our roommate is our boyfriend or girlfriend preserving our privacy becomes a more problematic situation.  My boyfriend and I each have our own dressers and closets in the bedroom for our personal belongings, but we don’t have any other individual space.  All of the other areas and spaces in our apartment are for common use.

My boyfriend also lived with a roommate his first year of college.  I asked him if he preferred having a roommate or living with his girlfriend, and he declined to answer the question.  I definitely prefer living with my boyfriend rather than having a roommate.  I can always count on my boyfriend both financially and emotionally, but we can’t always count on a roommate.  Roommates come and go, but boyfriends or girlfriends are forever…hopefully.

Other posts in our Leasing vs. Buying series include:

The Pros and Cons of Buying a Home

The Pros and Cons of Leasing an Apartment 

Photo by Tulane

If we are in the Starter Financial Life Stage then we are probably moving out of our parent’s house.  When we are moving out we have to consider the many pros and cons of leasing an Apartment. Leasing our first apartment can be very over whelming and we should be prepared and know the rights that tenants have.  We should have a basic knowledge of Lease Agreement Forms as well as the Lease Laws available for tenants.

For a first time renter there are several pros of leasing an apartment.  As a Starter in the Financial Life Stage Cycle we may not have a lot of accumulated possessions.  Therefore, a pro of leasing an apartment is that we have the option to lease a furnished apartment. 

Having a fridge and stove included in our lease agreement can be a big help when we are leasing our first apartment.  Apartments can be leased semi furnished or fully furnished.  Fully furnished apartments are usually available for long stay Travellers and International Students.  As per our lease agreement a fully furnished apartment can include a fully furnished bedroom along with other furniture such as couches, chairs, tables, and small kitchen appliances such as a toaster and microwave.

A con of leasing a furnished apartment is that the furniture is not ours.  Other tenants and residents have slept in the bed and used the appliances.  However, this is also true with a semi furnished apartment.  Whenever we lease an apartment whether it is fully furnished, semi furnished, or not furnished at all, we must always keep in mind that someone else lived there before us. 

Another pro of leasing an apartment is that we only have one monthly bill to pay.  In some circumstances tenants are responsible for paying their own utility bills such as heat, hot water, and electricity.  However, in most circumstances tenants pay one monthly rent to their landlord which includes all utilities. 

Leasing an apartment is also beneficial to tenants because as per our lease agreement we have no responsibility or liability for the well being and upkeep of the apartment building.  We are responsible to keep our apartment clean and in good order, but we have no responsibility to repair any damages such as the plumping or appliance malfunctions.  As tenants we also do not have to shovel snow in the winter and cut grass in the summer.  

The con to leasing an apartment is that our landlord owns our apartment and we are just renting the space.  Landlords have access to our apartments any time they want.  The details will be stated in our lease agreement which stipulates the conditions under which our landlord can enter our apartment.  Most lease agreements state that the landlord must provide 24 hours notice to a tenant when they wish to enter an apartment.  However, emergency circumstances such as water damage may allow the landlord to enter a leased apartment whenever they feel it is necessary.

There are several pros and cons to leasing an apartment.  Leasing an apartment is definitely better for budget reasons because we only have one monthly bill to pay, and we don’t have to worry about any additional costs such as property taxes.  A con to leasing an apartment is the invasion of privacy that comes with living in close proximity to several neighbours.

Before we sign a lease agreement it is important to fully read and understand what we are signing.  It is also beneficial for tenants to understand the lease laws in their city before they sign a lease agreement. 

Photo by Eden Pictures