Mortgage %

[LivingAlmostLarge]

We tell people all the time on this site 15% to retirement and no more than 25% to Mortgage.

So I was looking at the budget numbers, how does it all work the budget?

25% mortgage
15% retirement
5% short/long term savings
= 45%

6% SS
1.5% Medicare
10% federal taxes
5% state taxes
= 22.5% taxes

= 32.5% to live on

Is this reasonable?

[Eagle]

I believe Texas, Alaska, Florida, Nebraska, Nevada, Washington and Wyoming have no state income tax.


17.5% estimate for the rest of the taxes looks about right. Not sure how realistic it is for everyone to have a mortgage payment at 25% and save 20% of their income. Ideally that would be the goal I guess.

[feh]

You gotta pay your bills. If you're gonna alot 25% to mortgage, you may not be able to save 15%, depending on your salary.

Personally, I would prioritize things as:

1. save 15%
2. pay bills (living frugally)
3. mortgage payment, if it can be afforded
4. additional savings

[skip17py]

South Dakota also does not have state income taxes.

[ua_guy]

It's not that clean, and the recommendations should both be qualified and clarified for pre- or post- tax calculation.

Also, it's advised that you use your effective tax rate (calculated on your yearly return) rather than the "list" rates for taxes. If you own a property there are things like mortgage interest deductions and other deductions that factor in.

Your retirement savings goal should be calculated on your age and also your vision and goals for retirement and not just a flat number. Chances are you'll need more or less than 15% for retirement.

YMMV.

[dawnwes]

Oh, they get their money in other ways. Usually property taxes are higher.

I believe Texas, Alaska, Florida, Nebraska, Nevada, Washington and Wyoming have no state income tax.


17.5% estimate for the rest of the taxes looks about right. Not sure how realistic it is for everyone to have a mortgage payment at 25% and save 20% of their income. Ideally that would be the goal I guess.

[Singuy]

Oh, they get their money in other ways. Usually property taxes are higher.

Probably true, I know Texas' property tax is around 3% of the total cost of the house, which is insane.

Mine is around 1.5% (Florida).

[disneysteve]

= 32.5% to live on

Is this reasonable?

In a word, yes, it is reasonble, but it does depend on a number of factors. First, how much do you make? It is much more reasonable if you earn 100K than if you earn 30K.

The mortgage guideline is a maximum of 28%. People often forget that part. When we bought our house, our payment was about 18 or 19% of income and it got smaller over time as our income rose. There's no way we would have bought a house that would have cost us 25 or 28% of income.

Another factor is how much other debt there is. If you have 100K in student loans, you can't pay that and 25% to a mortgage and 20% to savings. You won't have enough money to go around.

Home ownership isn't right for everyone. Not everyone can afford it. Not everyone should buy. It needs to make sense both financially and situationally. For example, if you aren't sure you will be staying in a particular location long term, you probably shouldn't buy.

So yes, the numbers can and do work but you always need to look at the big picture.