Do the old rules still apply?

Aunt Bea

Aunt Bea

SF VIP
Location
Near Mount Pilot
This morning, I was going over my year to date expenses and started thinking about some of the old rules that I started out with and how they have changed in the years since I retired.

The big one was budgeting 25-28% of income for rent/housing expenses and limiting total housing/consumer debt to 33-36% of gross income.

Today, my rent/housing expense, without consumer debt, is approaching 50%.

Other outdated guidelines that I remember were limiting a house purchase to 2 1/2 times annual gross income and limiting automobiles to 6 months gross income.

Not complaining, just noticing the changes in my life and wondering what, if any, changes in the old guidelines others may have noticed.
 

Aunt Bea said:
The big one was budgeting 25-28% of income for rent/housing expenses and limiting total housing/consumer debt to 33-36% of gross income.
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If a person owns their home (i.e., no mortgage) then I was thinking that their only "housing expenses" would be taxes and insurance. But shouldn't that also include repair and upkeep? I guess when the roof needs to be replaced, the house exterior painted, or the heating system upgraded for instance, those costs should be included as part of "housing expenses" but I think they would be hard to estimate and prorate.
 
There are so very many variables when it comes to those kind of financial rules that I'm not sure they were valid fifty years ago or today. Personally I've never budgeted according to any rules but my own, and that rule is live within my means.
 

Tommy said:
If a person owns their home (i.e., no mortgage) then I was thinking that their only "housing expenses" would be taxes and insurance. But shouldn't that also include repair and upkeep? I guess when the roof needs to be replaced, the house exterior painted, or the heating system upgraded for instance, those costs should be included as part of "housing expenses" but I think they would be hard to estimate and prorate.
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Maintenance costs 3-5% of the home's value per year.
 
During our working years, my wife and I didn't follow prescribed budgets, but always lived below our means, and that's how we managed to save money.

We only bought 2 houses, and paid far less for both than the loan(s) we would have qualified for. But the costs of maintenance, taxes, insurance, equipment to mow the yard (or paying to have it mowed) and optional periodic updates, were far more than the mortgage(s).

Now I'm living alone. My mortgage payment is only $326 / month, but I just now checked to see what I averaged spending per month for this house last year, and it was $1100 / month. Had we bought a more expensive house, I could be forced to sell it in order to make savings last through the remaining years of retirement.

I have a very low principal balance. I have the money to pay it off, but it's a low interest rate, so I do not. The house has risen significantly in value since we bought it, but that will not personally benefit me in any way, since any gain will go to heirs when it's sold.
 
gruntlabor said:
I will study this and apply.
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Did you mean study and reply, instead of apply?
I don't see how maintenance costs can be expressed as a percentage of the home's value, but I find various sources confirming post #5. And, I found this from Bankrate: "Home maintenance alone averages more than $8,800 a year."
I can only say that I've kept close tabs on all my home maintenance expenses, and they have not approached anywhere near that amount.
 
Home maintenance is a numbers game. For instance…you buy a home with a fifteen year old double roof…you can expect a major roof overhaul in 10 years or so. Same goes for air conditioners and such. Where you are in the cycle of lifespan for your replaceable/repairable items can mean a lot. Last year I spent 10k on a new refrigeration heat unit…this year I probably will spend little if anything on home maintenance.
 
I overthink too many things, it's my nature. But on this one I keep it simple.
Don't touch the savings unless it's absolutely needed.
Don't buy on a whim or peer pressure
Don't buy wants, you have enough crap
Always keep a cushion for something unexpected in the checking.
Don't overdo a splurge or do them too often.
And watch that electric bill projection and never give them what they expect. I truly think they want to convince you
to overuse the AC/Heat and think it's normal to use that amount.
Keep those CC's locked until you need to use one. Having lock them I realize I use them a lot less as well as protect my accts.
 
Muskrat said:
Home maintenance is a numbers game. For instance…you buy a home with a fifteen year old double roof…you can expect a major roof overhaul in 10 years or so. Same goes for air conditioners and such. Where you are in the cycle of lifespan for your replaceable/repairable items can mean a lot. Last year I spent 10k on a new refrigeration heat unit…this year I probably will spend little if anything on home maintenance.
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Yes, when you spread major expenses like you enumerated over the course of years, it would mount up. "Fortunately" [?] in Texas, we get hail every few years, so we're usually only out our deductible in roof replacement. I've never paid full price for a new roof.

On the other hand, a foundation repair can be in the tens-of-thousands.

Sorry your a/c heat unit cost that much. I had to get a new one about 10 years ago and it was $5500, but with today's prices, that would likely be doubled.
 
MACKTEXAS said:
Did you mean study and reply, instead of apply?
I don't see how maintenance costs can be expressed as a percentage of the home's value, but I find various sources confirming post #5. And, I found this from Bankrate: "Home maintenance alone averages more than $8,800 a year."
I can only say that I've kept close tabs on all my home maintenance expenses, and they have not approached anywhere near that amount.
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:) Hi Mack. No, I express those costs according to the percentage of my income, not according to the value of the house (I misread againstthegrain's post).
I meant I would see how the 3.5% of my income would compare with my budgeted amount. I don't use percentages, I use amounts.
This year, for example, my house got a new roof, and sewer work done, plumbing repairs, very expensive tree removal, etc. Like the most expensive year ever! But I average these expenses over their expected lifespan with a max of ten years.
To budget for home maintenance, I'd been in the habit of averaging budgets over three years and using that number to plan a current budget. I was looking forward to seeing how 3.5% of income would compare.
To use 3.5% of the value of the house makes no sense to me either.
 
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I can’t remember the last time I budgeted for anything -- perhaps when I was in my twenties. The last time I had a personal loan was in my late teens. From my twenties onward, my approach has been simple, not that I even really saw it as a 'rule' at the time: if I can’t afford it, I don’t buy it until I can. I’ve always lived within my means, as dictated by my circumstances at any given time.

In my early twenties I decided I didn’t want to spend my life budgeting. So I turned away from the concept entirely. I didn’t want the act of, or the time taken ‘budgeting’ to take over a significant portion of my life.

I’ve had a mortgage, though: a 40% mortgage, having paid 60% of the house up front. Even then, I made sure I had the capital to cover the remaining 40% if needed.

These days, if I want something, I buy it. The only ‘budgeting technique’ I use is asking whether it’s good value for money and likely to last for a reasonable time, based on how reliable it might be. My general approach through life has been to spend with the future in mind, not just for the here and now. I don’t need the latest and greatest. Many other people do seem to 'need' the latest thing -- they buy early, prices then come down, and that’s when I buy. I don’t need the latest iPhone every year! Other people will overspend, so I don’t have to.

I do still keep an eye on my income and expenses, always have, more so since Microsoft first released MS Money. But I’ve never used it as a budgeting tool, just as a way to stay aware.

I suppose for me it’s about maintaining a kind og self regulating financial mindset, rather than trying to follow a budgeting formula that would need constant revisiting and adjustment every year or so. I’ve never wanted to put myself in a position where I’m spending time managing a system instead of simply managing myself.

Manage youself, and a 'sytem' will naturally develop and follow by itself.
 
My wife is a CFA(Chartered Financial Analyst) and FSA(Actuary) specializing in risk management so there was a budget and 32+ years later, there is still a budget. She did a wonderful job keeping us housed, making sure we saved, and getting our child educated.

Me on the other hand, not so much, either at home or running my business. ;)
 
Magna-Carta said:
In my early twenties I decided I didn’t want to spend my life budgeting. So I turned away from the concept entirely. I didn’t want the act of, or the time taken ‘budgeting’ to take over a significant portion of my life.
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I don't adhere to a budget plan either. If my house needs work, for example, it has to be done regardless of any budget. I do track my expenses by categories and tabulate them at the end of each month so I can compare spending over time, and I may sometimes refer to that as a budget when I post something, but it really isn't.
 
Aunt Bea said:
I used to have a lot more don’ts and be a lot more conservative but I’m gradually moving into the YOLO camp.

Now, I divide my assets by my life expectancy and that gives me a feel for how much I can splurge and how careful I need to be as I approach the cemetery.
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yeah i really really want to jump on the YOLO bandwagon but it’s one heck of a jump lol

This Side of the Cemetery
 

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