5 Things Gen Z Must Do When Housing Is More Than 30% of Their Income
Written by
Adam Palasciano
Edited by
Nicholas Morine
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The cost of living is up these days, and that includes the cost of housing. The National Association of Realtors reported that the monthly mortgage payment on a typical, existing single-family home with a 20% down payment was $2,037. That represents a 9.3% increase from just one year ago. Renters are facing higher costs too. Rents across the U.S. are rising at an average of 1.5 faster than wage growth since 2019, per StreetEasy.
We’ve all heard of the so-called “30% rule” that says you shouldn’t spend more than 30% of your gross monthly income on housing. But, is this age-old rule still relevant? Maybe not.
Earnest highlighted that the 30% rule no longer applies since it’s an outdated financial benchmark that doesn’t accurately affect today’s cost of living. The reality is that you may need to spend more than 30% of your income on housing.
If you’re a Gen Zer spending more than 30% of your income on housing, you’ll want to take some steps to ensure you have enough money for necessary housing costs in a stubbornly expensive economy.
Here are five ways for Gen Z to save money to put towards housing costs, according to Earnest.
1. Calculate Your Average Monthly Spending
Carefully analyzing and calculating your monthly spending is crucial to determining how much you can spend in each category. If you have no choice but to spend more than 30% of your gross monthly income on housing, then be sure to trim spending in categories that may not be necessary. This can include clipping your morning coffee run or to quit buying lunch at the office.
2. Use the 50/30/20 Budgeting Method
The 50/30/30 budgeting method is simple — set aside 50% of your take-home pay for rent, utilities, transportation, groceries, insurance, and other essentials, 30% for wants such as new clothes and entertainment, and 20% for savings and paying down debt. Following this budget formula can help ensure you’re covering housing costs with any issues.
3. Save Extra Money in an Emergency Fund
If your housing costs are higher than you’d like, be sure to find room in your budget to add money to an emergency high-yield savings account every month. Consider cutting back on your wants to save more money. If your housing costs are high, you’ll want to build a financial cushion in case of a job loss or other circumstances that may reduce or eliminate your income. Saving up at least 6 months of living expenses is important, but saving more is better if you can.
4. Cut Back on Eating Out
Dining out with friends and family can be enjoyable and fun. However, it also comes at a high cost. If you’re spending too much on dinners out or going to happy hour every week, consider cutting back on this type of discretionary spending.
5. Cancel Unused Subscriptions
There are so many monthly subscriptions that we pay for these days. If you’re spending on Netflix, Hulu, HBO Max, Spotify, and more, consider which subscriptions you don’t use often (or at all). Canceling one or more monthly subscriptions that you can live without can free up extra cash each month.
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