Living within your means when paying mortgage, rent

Setting up a monthly budget is a great way to manage your expenses and see where you are spending your money. For most people, the largest monthly expense will go toward paying their mortgage or rent. With so much money going toward housing, you may be wondering just how much it should cost each month.

According to the U.S. Department of Housing and Urban Development, families should spend less than 30 percent of their annual incomes on housing expenses .

If you are spending more than that amount, you may have trouble paying for other important items like groceries, medical bills or car payments. It will also be very difficult to put money toward paying off credit card debt or saving for retirement.

To be on the safe side, financial experts often recommend planning to pay less than 28 percent of your gross income on your housing expenses. Homeowners should include taxes and insurance along with their base mortgage payments. For renters, it's important to remember that your rent is likely to go up each time you renew your lease.

Of course, these are only guidelines. Deciding how much you should pay toward mortgage or rent depends on your own financial situation. You can use your estimated monthly income to help you decide how much you can afford to spend on housing each month.

To plan your housing budget, start by making a list of your average monthly expenses. Include utilities and insurance, groceries, car payments and other recurring payments. It's also a good idea to put some money toward savings and/or paying off credit card debt.

Once you have estimated your monthly expenses, subtract the total from your monthly income and see how much money you have left over. This exercise will give you an idea of how much you can afford for mortgage or rent payments. If the amount you have left over is less than 28 percent, than your housing expenses will have to be lower than that guideline.

Finding affordable housing can be a challenge, but living within your current means will help you avoid financial crises and save for a more expensive home down the road.

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