Should you afford what you can afford?

I live (and want to live) a comfortable life but I do not want to maximize my consumption just because I have money to do it.

In 2014, I was in the looking for a house to buy (primary residence). Like most rational people, I wanted to start with a budget. I wanted to find out answer to the following question:

“Given my income, what is the least amount I should spend on housing?” I searched for days and weeks, but did not find an answer.

Let me first elaborate on my question. I have good income. I tend to be frugal (simple living). But I did not want to be frugal to the extreme, I did not want to end up below the ‘suggested bottom’. I had often heard people talk about “You should not spend more than x% of your salary on housing”. I wanted to hear something like “You should spend at least y% of your salary on housing”.

I did not find my answer, here is what I found – I found hundreds and hundreds of websites and blogs telling me ‘the upper limit of how much should I spend’. Here are some examples:
1. Your monthly total debt should not be more than 43% of your take home pay
2. Your house should not cost more than 2.5 times your gross annual base pay

This related to my car buying experience too – the salesman always kept on coming back to monthly payments saying “It is only $391 a month, you can afford that”. And I was thinking in my mind “Should I afford it just because I can?”.

Coming back to my housing question – I do not have an answer today on how much is the minimum you should spend. Frankly, I did not start to write the post looking for an answer.

Affordability calculator

Affordability calculator

All I would like to discuss today is – should you afford what you can? Since no website was able to tell me the ‘suggested minimum’, I believe most people are not thinking along those lines.

Per the affordability calculator present on www.zillow.com, someone earning $100,000 a year without any other debt can afford a house worth $489,216. They make the calculations using some assumptions and those assumptions are not our focus today.

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