Do you know what percentage of income your mortgage payment is?

Your car loan?

Do you set debt targets?

Debt targets are not a new concept, however, in my opinion, they are not discussed nearly enough with individuals of all stages of life.

When you bought your first house did you aim for your mortgage payment (principal, interest, taxes, and insurance) to be under a certain percentage of your income?

If you’re like most of us, you just asked the lender how much they would lend you based on the information you provided them.

Did you know that traditionally it is advised not to commit more than 28% of your gross income to your mortgage?

Time for an example:

If you and your spouse’s household gross income is $5,000 a month, your mortgage payment should not exceed $1,400 a month.  

$3,600 left over a month, that seems like a decent ratio at first glance, right?

  • Upon further review, the $5,000 a month gross is $60,000 a year.
  • $60,000 a year filed jointly in South Carolina is taxed at 15.24%.
  • This equates to $4,238 net a month for the household, and $2,838 after the mortgage comes out.
  • Let’s say the couple in the example were careful when they bought their cars, they bought used, and instead of having car payments at the national average ($516 per car a month), they pay $800 a month combined for their cars.
  • This leaves $2,038 a month for their remaining expenses.
  • They now have $1,702 a month for their remaining expenses.
  • They must now pay for electricity, water, gas, pest control, and home repairs out of their income.
  • Let’s assume electricity averages $100 a month, water $50, gas $30, pest control $50, and they set aside $100 a month for potential home repairs.
  • They now have $1,372 (or $343 a week) remaining to pay for groceries, gas, date nights, paying on student loans, and saving for holidays and vacations…..

Does that 28% of income dedicated to their mortgage look decent anymore?

Using debt targets is a great way to help you with your life goals.

Make sure you are accounting for each and every expense when you plan, it really makes things easier to justify (or decide against) when you put the information down and work the numbers!

Check out our new scheduling link by clicking here, and let’s get a plan together for whatever you’re dealing with in life!