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How much is too much?
Old 05-24-2007, 08:04 PM   #1
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How much is too much?

Hello all,

I just graduated from college and will be making $50,000 next year and I would like to know if $1,200/month is too much to spend on housing.

I know 30% is the rule of thumb...what do you all think?

Also, does anyone know the figures are far as "take-home" pay? I have been using a figure of 68% of my gross income annually and monthly. Is this about correct?

3.0% fixed state tax in Illinois
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Old 05-24-2007, 08:44 PM   #2
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I've got a family of four with a much higher income than that and my house payment is very close to that. If it's just you and you want to get a nice start with your investing. I would look for cheaper housing.
When we were in pre-kid mode right out of college we rented bedrooms to friends and covered the houe payment on house #1, house #2 was a duplex and after collecting rent dealing with expenses etc, we were living there for less than $200 a month in a nice neighborhood.
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Old 05-24-2007, 09:24 PM   #3
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Quote:
Originally Posted by yamasho View Post
Hello all,
I just graduated from college and will be making $50,000 next year.........

Also, does anyone know the figures are far as "take-home" pay? I have been using a figure of 68% of my gross income annually and monthly. Is this about correct?

3.0% fixed state tax in Illinois

That is about what I was making before I FIRE'd, and the 68% is very close to what I was netting. Single with no dependents. I'm in IL, also.
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Old 05-24-2007, 10:31 PM   #4
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looks like you will clear roughly 2800/mo. on the 30% (it is based on after tax usually) rule, you should be aiming for 840/mo or less.

1200 would be over 30%. its doable but if you have ambitious savings goals, things might get tight.

how about info on:
-car payment?
-student loan payment?
-other monthly expenses (netflix etc?)

monthly budget is probably the way to go so you need to list those things out.
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Old 05-24-2007, 11:25 PM   #5
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A lot depends on how hard it is to find affordable housing where you live. And, are you renting or buying? And do you have to house a whole family, or just yourself?

I live in the New Orleans area. At your income I rented for $750/mo, which was just 18% of my gross salary.

My salary rose for a couple of years, during which I saved a 20% down payment for a house. Then I bought the house, and my total payments (including tax and insurance) were $1000/mo, 19% of my salary. I live alone, so it is not a huge house. As time went by, my salary continued to rise and I got a promotion, while my house payments remained the same. So, I was sittin' pretty.

I chose to live way beneath my means and pay off the house in just four years, so now I make no mortgage payments. My property tax and insurance on my house now amount to 3.5% of my salary. I am shoveling money into my ER nestegg faster than you would believe, with no rent or mortgage to pay off.

I could not have bought a house and paid it off so fast if I had started out paying $1200/mo. Guess that's my point. Some people like to pay off mortgages, others don't. That's a consideration.
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Old 05-25-2007, 10:55 AM   #6
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Yamasho,

I may be able to give you some perspective. I am just 1.5 years out of school, living in the greater Chicago area, with a salary of ~$60K.

For a short answer, $1200/mos. on housing is doable, but you will probably have to pass on saving/investing opportunities because things will be somewhat tight. To your second question, on $60K with 16% to my 401(K), health insurance deducted, taxes, and a few other minor benefits' deductions I take home about ~$3000 /mos.

I currently split a monthly housing payment of $1350, leaving me with a monthly housing cost of $1350/2 = $675. Spending less on housing allows me to contribute 16% to my 401(K), max out my Roth IRA, and set aside $500 per month in an online savings account intended for a down payment on a home in a few years. My monthly expenses are fairly standard and am able to meet them comfortably- ~$230 car pmt., ~$200 for student loans, then insurance, utilities, and other living expenses which I would say are on the cheaper end of things (I don't have a lot of meals at restaurants, spend nights out, etc.).

I would recommend trying to find a roommate - it will greatly reduce your cost of living. Also, depending on where you are planning on living and requirements for your job, you may be able to get by without purchasing a car and avoid that monthly payment.
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Old 05-26-2007, 11:27 AM   #7
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Look at it this way. If you can find a place for 1/2 that (share some rooms in a house or live in a studio or whatever) then you will have an extra $7,200 at the end of the year to invest. That would motivate me to find a cheaper place.
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Old 05-26-2007, 12:09 PM   #8
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Quote:
Originally Posted by yamasho View Post
Hello all,

I just graduated from college and will be making $50,000 next year and I would like to know if $1,200/month is too much to spend on housing.

I know 30% is the rule of thumb...what do you all think?
Salary-wise, I was in almost the exact situation when I graduated almost 10 years ago, and I think I started off paying $900/mo rent. I quickly realized this was too much if I wanted to save anything substantial. Within a year I'd downsized to a different apt, paying about $600/mo.

I'd recommend playing around with a compound interest calculator to see what $300-$400 saved each month can add up to in 20 years. It can be really motivating. The bottom line is that the more you put away when you're younger, the easier it will be later on. You have time on your side now; use it wisely. Don't underestimate the effects of compounding!
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Old 05-31-2007, 01:42 PM   #9
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Salary-wise, I was in almost the exact situation when I graduated almost 10 years ago, and I think I started off paying $900/mo rent. I quickly realized this was too much if I wanted to save anything substantial. Within a year I'd downsized to a different apt, paying about $600/mo.
Same story here.. Around 1998 when I started working full-time, making ~$50K I had an $850/month apartment. Once married, my wife and I (combined income at the time of ~$100K) moved to a smaller cheaper apartment ($550/month) so we could plow every extra penny into debt repayment and saving for a house.

Personally, I'd use the "30%" figures as an absolute upper bound. It may be appropriate for lower-income folks, but contrary to what mortgage brokers may tell you it definitely should not scale up with your income. Currently our mortgage + property tax is about 5% of our income. It's a great feeling knowing that your housing costs aren't eating you out of, er, house and home (so to speak).
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Old 05-31-2007, 05:07 PM   #10
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Originally Posted by yamasho View Post
Hello all,
Also, does anyone know the figures are far as "take-home" pay? I have been using a figure of 68% of my gross income annually and monthly. Is this about correct?
Try the calculator at:

PaycheckCity.com - Paycheck Calculator

When I have used it, it has been within a penny of the actual amount.

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Old 06-05-2007, 05:05 PM   #11
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I am moving to Chicago, IL...so that justifies the high cost of housing a tad bit. I did not want to be too far from work. Being that I work in the loop, I found a place in the loop/streeterville for what I believe to be a very good price.

I simply wanted to know if you all felt as if $1,200/month was too much on my budget (50,000 per annum)

One factor to consider is that I am ditching my car so my only large expense will be housing.

SecondCor521, I believe I am getting paid "bi-weekly", however I am not sure and it may be "semi-monthly". Why are the yielded values so different when using these two different pay frequencies? (on paycheckcity.com)
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Old 06-05-2007, 05:28 PM   #12
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Quote:
Originally Posted by yamasho View Post
I am moving to Chicago, IL...so that justifies the high cost of housing a tad bit. I did not want to be too far from work. Being that I work in the loop, I found a place in the loop/streeterville for what I believe to be a very good price.

I simply wanted to know if you all felt as if $1,200/month was too much on my budget (50,000 per annum)
I think you got your answers, though you may not like most of them.

Quote:
Originally Posted by yamasho View Post
One factor to consider is that I am ditching my car so my only large expense will be housing.
Doesn't change my answer. Spending a lot on a car would just make it worse. How about a roommate?

Quote:
Originally Posted by yamasho View Post
I believe I am getting paid "bi-weekly", however I am not sure and it may be "semi-monthly". Why are the yielded values so different when using these two different pay frequencies? (on paycheckcity.com)
There are 26 or occasionally 27 bi-weekly paychecks in a year. There are 24 semi-monthly paychecks in a year. Could that be enough of a difference to account for it? (I haven't gone to that site.)
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Old 06-11-2007, 10:47 AM   #13
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Originally Posted by yamasho View Post
SecondCor521, I believe I am getting paid "bi-weekly", however I am not sure and it may be "semi-monthly". Why are the yielded values so different when using these two different pay frequencies? (on paycheckcity.com)

Want2Retire gave you one of two likely answers. The other is that you may have not entered your data consistently between the two cases. You could go back and reenter the data a second time; if the numbers you get are consistent with the first time, then data entry is probably not your problem. You could then see if the biweekly amount is equal to 24/26ths of the semimonthly amount or close to it; that would indicate that Want2Retire was right.

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Old 06-11-2007, 03:17 PM   #14
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As others have said, I started with about $50k income (and my wife had the same) and we started in a $750 per month apartment.

$1200 for yourself on $50k income is a bit expensive. If you're getting rid of your car, and plan on saving a lot, you'll probably end up ok, assuming you don't continue to increase your spending along with salary increases.

Getting a roommate or living somewhere cheaper may help, but then again, you'd probably want a car which would be an additional expense.

Anyway, you could be doing worse, so good luck in whatever choices you make
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