Five Expenses That Will Consume 50 Percent of Your Lifetime Earnings

**nuisance26** · 08-06-2010, 06:34 PM

~I thought this short article was interesting. It gives some rules of thumb for how much you can afford in the five areas. The retirement savings rule was the easiest method I've ever used!
Yahoo! Finance - Financially Fit ~

**mek42** · 08-07-2010, 11:26 AM

Wow, I'm really fiscally conservative.

My rules:

Mortgage initial balance not to exceed 1.5 times annual income at most, with preference being a 1x multiplier.

Maximum car payment $150 per month and this is only if more reliable transportation is needed than cash beater due to long commute.

We don't have kids now. The most we'll be willing to fund is 5 years of state school tuition, fees and books.

Retirement funding is very important. Once we get done with BS2 and 3 we plan to put an additional 10% of our income in non-sheltered accounts for more speculative investments to work towards earlier retirement / self-employment as professional investors.

**pollypurebred39** · 08-07-2010, 04:05 PM

• Don't bite off more HOME than you can chew. How much house can you comfortably afford? For most people the answer is a house with a purchase price of no more than 3x their annual household income. Rationale: the cost of a home includes much more than the monthly mortgage payment. It's also property tax, insurance, upkeep, etc. Typically these costs run 2%-3% of the price of your home each year. Assuming a 20% down payment, a 30-year fixed rate mortgage, and interests rates in the 5%-6% rate, the 3x your income rule of thumb will translate into total housing costs of roughly 30% of your gross income.

We followed this advice, however I now wonder of the wisdom of it. I think we would have faired better if we did everything piece meal.

Example:

- save up and THEN pay for a piece of land in full

- save more and THEN dig a well, septic, etc.

- Save more and THEN buy a trailer and put on the land

- Save more and then start building the home on the land

This takes a lot longer, but at least it's all paid for and no mortgage hanging over your head. My Grandparents saved for 17 years to buy their home, but when they did it was theirs free and clear.

As it stands now we've got a mortgage hanging over our heads and a very shaky economic outlook

• Don't let your CAR drive you to the poor house. The same logic applies to your car. Most people can comfortably afford a car that is 1/3rd of their annual income. If you make $60,000 you can comfortably afford a car that costs $20,000. If that seems low — now you know why so many Americans are in financial trouble. They are driving it. A car has many other costs than simply the monthly payment. There's insurance, gas, parking, maintenance, etc. If you follow this rule of thumb, your total transportation costs should be 10% or less of your gross income.

We followed this advice too, as of now no car payment. But after what we've been through we will NEVER buy a car on loan again. Cash and carry.

We followed this conservative advice and found that when the bottom dropped out of our world we just could not play ball. We decided that we need to act more like our Grandparents from now on. If we had done that from the start, we would not be in the mess we are in.

Live and learn.

I guess we are a bit gun shy. What we've been enduring has been life changing. We will never be the same ever again. When I look at pictures of the people during the Depression, they always had a countenance that bore through the pictures. I never understood the depth of what they were feeling, I still don't. But I understand it more then I ever imagined I would, or could, or for that matter wanted to. I never understood my Uncle who bought two of everything, just in case. Need a coat? Get two. Need a toaster? Get two. After running through our stockpile and all available assets, I get it. I never understood why my Grandmother and Mother canned more vegetables & fruits then our local Mom & Pop store had shelves. I get it now.

I'd like to believe that what we've been enduring is a positive thing, that it will serve us well. But, I can't help but look back and think that we made a GIANT error in judgement owing anybody anything, including mortgage and car payments.