The Number one Money Question we Asked Google in 2018

Plus the Question we Should be Asking Instead

Photo by Benjamin Dada on Unsplash

The number one personal finance question that people have been asking Google is “how to save for a house”. Beating out “how to save for retirement” which came in at number two.

It should be no great surprise that this is the number one money question on people’s minds at the moment. Home prices are at all-time highs in many major markets. Since 2012, the national average for home prices has increased by nearly 50%, including a 6% increase in 2018.

Meanwhile, increases in average wages have barely kept up with inflation over that time period.

As home prices continue to increase at a faster rate than wages, it becomes more difficult to save up for a down payment.

Making matters worse is that the average cost of rent has increased by 12% above inflation since 2012.

To put it simply, renters are getting hit with a “triple whammy” that is preventing them from becoming homeowners.

  1. As home prices rise so does the size of the required down payment.
  2. Wages have barely kept up with inflation, meaning their purchasing and saving power has been stagnant
  3. Rent has been steadily increasing, making it even more difficult to save money for that down payment.

The Question we Should be Asking Google (and Ourselves)

Rather than asking “how to save for a home?” we ought to be asking “should I save for a home?

It’s dangerous to start with the assumption that buying a home is the right financial decision for you given your current circumstances.

Houses are expensive. In addition to your mortgage payment, you’ll have to pay property taxes, increased utility costs (compared to an apartment) and. maintenance costs. If all that wasn’t enough, you could have to shell out $5,000-$10,000 when your roof or furnace needs to be replaced.

If you are struggling to save enough money for a down payment, think about if you will be able to manage all the expenses that come with homeownership.

If you stretch yourself thin financially, your dream of homeownership could turn into a nightmare. Have you ever heard of the term “house poor”? It refers to a situation where someone spends most of their cash on the various costs associated with their home. People who are house poor have very little cash left over each month to save for retirement, pay down debt or pay for discretionary spending.

How much House can I Afford?

As a Rule of Thumb, the Federal Housing Administration says that you can afford to spend 29%-41% of your gross income on housing. If you made $60,000 per year you would gross $5,000 per month and according to the FHA, you could afford to spend between $1,450 and $2,050 per month on housing.

Personally, I would never spend 41% of my gross income on housing. After you deduct taxes and your other monthly costs like groceries there would be almost nothing left to save for retirement and grow your wealth.

I do understand that I have an above average income and that this may not be an option for lower-income individuals. If you gross $3,000 per month, 41% of your gross income would only amount to $1,230.

If you are Dead-set on Homeownership

If homeownership is your top priority, you’ll need to get your finances and cash flow in shape.

  • If you are struggling to save for a down-payment, you may need to consider picking up a part-time job or side-hustle to bring in some extra money in the short-term.
  • To prevent yourself from becoming “house poor” you may want to consider a house-hack. Many people buy a multi-family property like duplex or triplex where they live in one unit and rent out the other units. A well-executed house-hack can allow you to get your foot in the door of homeownership without becoming house-poor.

This article is for informational purposes only not all information will be accurate. This should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions.