Dave Says: A home shouldn’t leave you house poor

Dear Dave,

My husband and I were listening to your radio show the other day. In it, you were speaking to a lady about buying a home. When you talk about mortgage payments being 25 percent or less of your take-home pay, does this figure include taxes and insurance or just principal and interest?

Ann

 

Dear Ann,

That figure includes taxes and insurance, too. The whole idea is to make sure your house payment is manageable. You don’t want to have so much money going toward your mortgage every month, what I call being “house poor,” that you can’t take care of your other financial responsibilities or enjoy life.

It’s simple. You have more money when you don’t have debt. If you want to build wealth, you have to get out of the payment business. When one-third to one-half of everything you bring home is going to creditors, you have less money for other stuff—other important stuff.

Trust me, I get it. A home is a huge expense that very few people, especially those just starting out, can afford to pay for in cash. That’s why I don’t beat people up for getting a 15-year, fixed-rate mortgage. But that’s the only kind of mortgage I recommend.

And yes, make sure the monthly payments are just 25 percent, or less, of your take-home pay!

—Dave

 

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover.The Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

Blogs

Dave Says: Playing the lottery robs you of your future

Dave Says: Playing the lottery robs you of your future

Dear Dave, I’ve been struggling financially for the past few months, so I’ve been playing the lottery once a week. To me, the chance to win millions is worth a few dollars a month, even if things are tight. Paula   Dear Paula, You’ve told me you’re having money troubles, and at the same time…

Dave Says: Keep your dignity, and work your way out

Dave Says: Keep your dignity, and work your way out

Dear Dave, My wife and I will both turn 30 next month. We have two young children, and we make a little over $85,000 combined. The problem is we have about $70,000 in debt. Some of it is credit card debt, but nearly $50,000 is in two car loans. Her mom and dad have offered…

How to Budget in the New Year     

How to Budget in the New Year     

We all love a good New Year’s celebration, but with it comes the reminder of goals, responsibilities, and resolutions for the upcoming year. And if you’re like most people, somewhere in the middle of all your resolutions is money—as in, the desire to manage it better.