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When people say "30% of your income is spent on housing," do they usually mean pre-tax or post-tax? The article claims you need $145K a year to afford a $2000/
by surfmike 10y ago
When people say "30% of your income is spent on housing," do they usually mean pre-tax or post-tax?
The article claims you need $145K a year to afford a $2000/month apartment. But assuming that you lose 40% to taxes, you would still be left with $5,250 a month after housing. That sounds a lot higher than it should be for the lower limit of affordability.
If you assume 30% of pre-tax income, and $2000/month rent, you get a required income of $80,000 -- still high, but not as outrageous as the figure he comes up with.
- wott 10y agoThe first paragraph says how much a resident would need to make to spend 30 percent of earned after-tax income on rent for a two-bedroom apartment.
- surfmike 10y agoIt sounds like he's using a different standard than is commonly used (i.e. 30% pretax is the often cited standard)
- ksenzee 10y agoFiguring this pre-tax isn't very useful. If you were in the (theoretical) 70% tax bracket and you spent 30% of your pre-tax income on housing, you'd starve.
- surfmike 10y agoSure except taxes aren't that high in California. 30-45% is a much more realistic range for income taxes (state + federal + payroll).
- dschuler 10y agoWhere are they higher, in the US? It's hard to imagine paying more than that and still not getting free healthcare and 4 weeks min. vacation, as you would in Germany, for example.
- laurencerowe 10y agoThe US spends almost as much on public healthcare as EU countries - a couple of %GDP less than Germany but the same as the UK - and then the same amount again of private healthcare. That it gets so much less for its money shows how effective the medical-insurance complex js been at lobbying. In California we enjoy US levels of public services with European levels of taxation and landowners get rich. (Taxation doesn't pay for vacation.)
- refurb 10y agoWhat's the connection between taxes and the amount of vacation you get?
- harmmonica 10y agoThe article says post tax but the standard is closer to what you're saying. For a landlord renting a property, for instance, the safe rule of thumb is typically for your tenant to have a gross annual salary of 40x the monthly rent (which for a 2k rental would be 80k gross salary). Using 145k is way too conservative. Similarly, when buying a house, the debt-to-income ratio is calculated on gross (pre tax) income as well and is 28% for housing costs (principal, interest, taxes and insurance), which lines up pretty well with the standard rental calculation.
- irrational 10y agoHuh, maybe it's time for my family to move on up since my gross annual salary is 80x my current housing payment.
- jdavis703 10y agoWell there goes your retirement savings... (Assuming that's where your extra money was going).
- cmurf 10y agoOr buy a 2nd house, or increase savings. The big problem spending more than 30% is if you're a renter, it make savings, even a rainy day fun let alone longer term or a moving budget, much harder.
- twblalock 10y agoThe scale changes as your income increases. As you pointed out, someone who makes $145k could easily spend 30%, or even 50%, of pre-tax income on housing and still have more left over than most peoples' entire monthly income. On the other hand, someone making $40k per year who spends 30% of pre-tax income on housing is going to have a pretty tight budget. So, these are all pretty rough guidelines, and the best thing to do is to spend an amount on housing that does not compromise your other financial goals, no matter what the percentage happens to be.