Money Rehab with Nicole Lapin - How to Set Your Housing Budget

Episode Date: October 26, 2021

We obviously all want to find MTV-Cribs-worthy houses. But, how do we do that without breaking the bank? Nicole walks us through how to find your perfect home, at your perfect price. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

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Malcolm Gladwell, and Malala Yousafzai. My bulletin, The Money Minute, brings you all my favorite tips and tricks and headlines to supplement your money rehab journey. If you haven't listened to Money Rehab on repeat, as you should, and you have been rushing to take notes and to keep up with episodes, well, don't you worry. The Money Minute has this information written down so that you don't have to worry about taking notes while listening to the show. You can find money advice right on my Bulletin site, have finance tips delivered right to your inbox, or re-listen to the Money Rehab Archive. Basically, it's your one-stop shop for financial advice. And it's live right now, so head over to NicoleLappin.bulletin.com and subscribe today.

Now, let's get to the episode. Hey, guys, are you ready for some money rehab? Wall Street has been completely upended by an unlikely player, GameStop. And should I have a 401k? You don't do it? No, I never have. Girl! You think the whole world revolves around you and your money well it doesn't charge for wasting our time i will take a check like an old school you recognize her from anchoring on cnn cnbc and bloomberg the only financial expert you don't need a dictionary to understand. Nicole Lappin. When it's time to find a new place to call home, the first thing you're

going to need to do when you start looking at places online is to put in your budget. It's one quick click of a button, but it can take a long time to figure out. Money rehabber Fatima calls in with this question. long time to figure out. Money rehabber Fatima calls in with this question. Hey, Nicole. My name's Fatima, and I just got a job offer, and I'm moving to New York. It's a lot to figure out. I know that I'll be making 80K, but I'm not sure what my budget should be. What do you think? One of our foundational episodes of Money Rehab is episode six, how the fuck do I make a budget? If you haven't listened, cue that one up next. But if you have listened, you'll remember that I have an easy cheat sheet when it comes to making your

spending plan. And what is a spending plan? Between you and me, a spending plan is a budget with a glow up. I've just rebranded budget to spending plan because we've all learned to cower at the word budget. Plus, conventional wisdom has dictated that a budget should be created around where you need to stop spending. That's bogus. A budget should encapsulate where you can spend money. Hence, the spending plan rebrand glue up. And because I promised to demystify this world of money for you, I made putting together a spending plan pretty simple. It's just three E's. And here's how I break it down.

This is what you should spend as a percentage of what you're making. 70% should go to the essentials. So that's the stuff you probably pay every month, like your rent or mortgage, your utilities, food, transportation, bills, insurance, loan payments, the basics. Then 15% should be the end game. So that's the things for your future self, like taking a great trip or having a sweet retirement or buying a home or investing more money or supporting a child or a parent in the long run. 15% should be

on the extras, the fun stuff, eating out or ordering in, getting the price of your shoe because it's so pretty and you want it, whatever does it for you. Within that spending plan, the biggest chunk of your essentials budget is going to go to housing. I recommend allowing for your housing budget to be 35% of what you're making. That is a big percentage. That's half of your essentials allotment. Half of 70% is 35. And over a third of your entire spending plan. But housing is a big deal. It's home base. It's where you can strike out or knock it out of the park. And I'll tell you from all the time I've spent helping people untangle their financial messes that housing is one of the top three things people go to financial planners

to figure out. Here's the way to find your perfect number, Fatima. I'm going to first give you the general formula, which may sound like a lot of mumbo jumbo initially, but then I'll use the formula to get your golden number. The general formula is that you should take your annual salary and multiply it by 35% or 0.35, then divide that number by 12, and you get your target monthly rent budget. So Fatima, let's use that formula and find your golden number. First, we take $80,000, your annual salary, and we multiply it by 0.35, which gives us $28,000. That's 35% of your total salary. $28,000. That's 35% of your total salary. To find out what you should be paying per month, we divide that $28,000 by 12 and we get, to be exact, $2,333.33. That is your monthly housing budget, Fatima. New York is an expensive city, but that should give you a healthy budget to

look around. For anyone out there who just did the math and is now thinking, oh lord, I am spending more than 35% on housing, don't fret. You're okay. I am not going to tell you that you need to break your lease and blow the popsicle stand. But when your lease is up, I would recommend looking around and seeing if you can find a place within the 35% sweet spot. If you find something that is more than 35%, I won't be mad if you do some math to try and figure out if it will work. If a building above your budget is helping you cut costs in other areas, well, then we can talk. For example, if you're looking at a building that has a gym included, so you get to cancel your gym membership and save money, maybe that works for

your spending plan. But this brings me to an important point. If you're spending more than 35% on housing in order to make your spending plan work, you need to spend less in another area of your spending plan because that's how balancing a budget works, right? If you're spending more in one area, you need to be spending less somewhere else. Otherwise, you're just spending more than you're making, and that is bad news bears. And what I found by doing this for a long time is that when people are overspending in the essentials category, they're not compensating by making cuts to the extras category. No, no, people skimp on the end game category,

which means contributing less to retirement or not saving for that new roof on your house or squirreling money away to start a family. When you contribute less than 15% to your end game, all you're doing is pushing back the start date on your dreams. And is that worth splurging on housing? Maybe you feel like it is, but I'm guessing probably not. For today's tip, you can take straight to the bank. If you find a place that is more than 35% of your spending plan and you love, love, love it, don't forget, you can always try to negotiate it down to what works for your spending plan. Worst case scenario is that they say no. And best case scenario is that your perfect home is perfect for your spending plan. So why not?

is perfect for your spending plan. So why not? Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design.

And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.