Housing. It’s where you sleep, eat, and hang with your family. It’s the epicenter of your life. So it’s no wonder what your house looks like and where it’s located have become huge emotional decisions to be made. Sadly, making housing decisions with your emotions has gotten a lot of Americans in trouble. Housing is simply a financial decision. Sound cold? Maybe. But if you want to live a great life, you’ll spend no more than 25% of your take-home pay on housing. And no, that isn’t just your mortgage or rent. It includes a slew of other housing-related expenses that should be factored into that percentage.

Mortgage or Rent

We’ll start with the obvious. Your housing budget includes your mortgage or rent. If you live on one of the coasts you’ll be lucky to find housing which fits in your 25 percent take-home pay budget. And that’s okay. In order to accommodate the higher housing costs you’ll have to “steal” money from other budget categories. This doesn’t fly if the cost of living in your area is reasonable, though. Adjusting your budget to cover your dream home’s mortgage is still a bad idea if you can find reasonable and cheaper options in your budget. When housing is over 25% of your take-home pay, it places strain on the rest of your financial life and opens you up to more risk than your income can justify.