The Fragile Home
The long term rule of thumb (from The Great Depression forward) for how much you should spend on a home — mortgage, insurance, and taxes — is 25% or your income.
Unfortunately, inexpensive debt, bad advice, and the shrinking incomes we’ve seen since the 1970’s has changed that. Today, over 50% of households with mortgages pay in excess of 25%!
Of course, that’s unsustainable. Here’s why:
- It makes it nearly impossible to save any money, or the home becomes the sole source of “savings.” We already see this. 60% of Americans aged 55-65 don’t have any money saved for retirement.
- It forces bad financial decisions. With costs that high, there’s few options other than consumer debt to finance ongoing financial hiccups/needs.
- A home like this makes you financially fragile. The loss of a job (or part of a job) or an unexpected medical/legal expense can drive people into bankruptcy very quickly.
The upshot? Owning a standard family home — a fragile home — makes attaining the American dream nearly impossible. The solution? Change the dream.