Home Sweet Home?
It is no news to anyone that living through a pandemic made people stop in their tracks and reflect on their lives. The challenges we all faced were an abrupt reminder that life is precious and can turn on a dime, and many people made or considered big life changes as a result.
For example, it was not uncommon to see city-dwellers sell their homes to move to less populated areas; some out of concern for the virus, and others who decided their pre-pandemic lifestyles and cost of living were no longer desirable. Other relocation reasons included downsizing, weather, politics and restrictions, following a previously “impossible” dream, financial hardship, desire for more space, among other things. No matter the reason, relocating is a big shift, especially for a species known for being hesitant to change! In light of this trend, we thought we’d dive deeper into a few financial considerations one should keep in mind when deciding where to call ‘home.’
Your Housing Budget
During the mandated pandemic lockdowns, people had to find creative ways to keep themselves entertained. Suddenly, the seemingly dull task of reviewing your budget turned into an appealing way to pass time.
Rent, Mortgage, and Other Living Expenses
When spending time with your budget, it’s hard to miss what is usually the most costly item – housing. Related to the pandemic relocation trend, it could be true that this time of reflection gave people the space to realize, “Wow, we are spending way too much on housing!” and more seriously consider changing that reality. After all, it is a given that when talking about housing, the actual cost to put a roof over your head and cover the expenses that come with it varies throughout the country. This wasn’t true for everyone, of course, and many had the opposite experience; the reflection time caused them to realize that they value their current home and lifestyle more than they thought, and that they are okay with spending a bit more to live in an area that they enjoy more.
No matter which side of the fence one’s on, there are a few common rules of thumb to keep in mind to help ensure you’re not living outside of your means when it comes to housing:
- Generally speaking, it is a good practice to devote no more than 30% of your gross monthly income to housing costs. This 30% includes either your mortgage or your rent and your utilities.
- To break it down even further, aim for your utilities to be 10% or less of your gross monthly income, leaving 20% to take care of the big-ticket items (mortgage or rent payment).1
Another item to consider when reflecting on your housing budget is the property tax in the state where you wish to reside. Property tax rates vary widely by state, with some states requiring more than double the amount in property taxes than others. For example, some homes in New Jersey and New Hampshire have property taxes that are almost 2% of the home’s value each year, while property taxes in other states aren’t even one-third of a percent of the property’s value (Louisiana and Hawaii). Of course, another piece of the budgeting puzzle to remember is that property taxes only come with owning a home, not with renting. Here’s a piece on our thoughts about the benefits of renting and buying.
While the dollars and cents review of your housing budget is important, this time of reflection has cast a light on peoples’ values, and has provided time to think about how those values align or misalign with their housing decisions. For example, a lifelong dream that has been pushed under the rug to move to a new part of the country might now be a reality thanks to virtual work environments. Or, perhaps you picked up a new pandemic hobby like gardening that would be better pursued in the suburbs rather than in the city.
Your values drive your choices and decisions and as such, we think spending the time to clarify your values is an invaluable exercise. Here are two worksheets that can help you do just that: Defining True Wealth and Visualize Your Future. After all, it’s about the size of your life, not the size of your wallet®.
The pandemic has reminded us all that life is precious, and it has been a gift to be a part of our Clients’ reflections and to talk through the pros and cons of making changes, big and small. We discussed just one recent trend going on around us in this article, but there are so many ways that individuals are being shaped and re-shaped as a result of the pandemic. If you are considering any type of change or anticipating a big transition, please don’t hesitate to lean on us to help you consider any and every factor along the way. We’re good people to think with®.
- Nagle, Courtney. How Much Should You Plan to Spend on Utilities Each Month? October 29, 2020.
- Popken, Ben. Millions of Americans moved during the pandemic — and most aren’t looking back. NBC News. December 31, 2020.