gooddecisions
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Post by gooddecisions on Jul 12, 2017 11:52:07 GMT -5
How much of a difference is there between 35% of GROSS income and 25% NET income? Are people getting their undies in a bunch over a small amount?
I get 'gross income' that's the total amount I'm compensated (and I often think of it as a "funny money" number - since I obviously do NOT have that much money to spend each year - and it really doesn't indicate how much disposable income I might have...)
How do you calculate Net income - is it just after payroll taxes and SOME payroll deductions? Or does it exclude 401K, FSA, HSA, and whatever other "voluntary" deductions you can take? I'm pretty sure there's no standard (everyone across the country pays the same) deduction amount for the various types of healthcare plans available thru employers (depends on how much the employer contributes).
I'm pretty sure that the amount on my "check" - how much $$ I have to spend is very different from every one else who has the same Gross Income as I do...
I would think the whole 25% of Net Income rule of thumb is simply to try to get people to EXAMINE their income and how they spend money - so they don't get into financial trouble (or get disappointed when they go for a mortgage). There is a line on your paycheck for gross and one is net. So, it's not really a gray area other than the fact that you can adjust optional benefits to increase or decrease your net income. For me, there is a $4,000 difference between my monthly net and monthly gross. That $4000 doesn't get to go to housing.
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TheHaitian
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Post by TheHaitian on Jul 12, 2017 11:54:16 GMT -5
How much of a difference is there between 35% of GROSS income and 25% NET income? Are people getting their undies in a bunch over a small amount? Just did some quick calculations and the difference between 35% of our gross and 25% of our net is $2,114/month. But it is usually no more than 30% of gross and 25% of net on housing (the 2 guidelines) and you get a difference of $1,594/month for us. So no it is not just a few dollars difference; at least not in our case.
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TheHaitian
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Joined: Jul 27, 2014 19:39:10 GMT -5
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Post by TheHaitian on Jul 12, 2017 12:01:35 GMT -5
How much of a difference is there between 35% of GROSS income and 25% NET income? Are people getting their undies in a bunch over a small amount?
I get 'gross income' that's the total amount I'm compensated (and I often think of it as a "funny money" number - since I obviously do NOT have that much money to spend each year - and it really doesn't indicate how much disposable income I might have...)
How do you calculate Net income - is it just after payroll taxes and SOME payroll deductions? Or does it exclude 401K, FSA, HSA, and whatever other "voluntary" deductions you can take? I'm pretty sure there's no standard (everyone across the country pays the same) deduction amount for the various types of healthcare plans available thru employers (depends on how much the employer contributes).
I'm pretty sure that the amount on my "check" - how much $$ I have to spend is very different from every one else who has the same Gross Income as I do...
I would think the whole 25% of Net Income rule of thumb is simply to try to get people to EXAMINE their income and how they spend money - so they don't get into financial trouble (or get disappointed when they go for a mortgage). There is a line on your paycheck for gross and one is net. So, it's not really a gray area other than the fact that you can adjust optional benefits to increase or decrease your net income. For me, there is a $4,000 difference between my monthly net and monthly gross. That $4000 doesn't get to go to housing. About the same for us, we bring home (net) $4,292/month less than we gross.
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hoops902
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Joined: Dec 22, 2010 13:21:29 GMT -5
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Post by hoops902 on Jul 12, 2017 12:07:08 GMT -5
How much of a difference is there between 35% of GROSS income and 25% NET income? Are people getting their undies in a bunch over a small amount?
I get 'gross income' that's the total amount I'm compensated (and I often think of it as a "funny money" number - since I obviously do NOT have that much money to spend each year - and it really doesn't indicate how much disposable income I might have...)
How do you calculate Net income - is it just after payroll taxes and SOME payroll deductions? Or does it exclude 401K, FSA, HSA, and whatever other "voluntary" deductions you can take? I'm pretty sure there's no standard (everyone across the country pays the same) deduction amount for the various types of healthcare plans available thru employers (depends on how much the employer contributes).
I'm pretty sure that the amount on my "check" - how much $$ I have to spend is very different from every one else who has the same Gross Income as I do...
I would think the whole 25% of Net Income rule of thumb is simply to try to get people to EXAMINE their income and how they spend money - so they don't get into financial trouble (or get disappointed when they go for a mortgage). It's a huge difference. It's 35% of a larger number, or 25% of a smaller number. Let's say you're an average household with a $50K gross, and a generous $40K net.
We're talking 35% of gross as $17,500 annual expense. 25% of gross is $10,000 annual expense. So in this case, comparing just gross...we're talking 35% gross and 20% of gross. Significant.
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thyme4change
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Post by thyme4change on Jul 12, 2017 12:28:28 GMT -5
My first mortgage payment was 40-something % of my NET income. That sucked. Then we got raises, etc. Then my husband went to law school and we bought our new house. We were at 28% of GROSS. And then he graduated, and we got promotions and what not. We are down to about 8% of gross. Sheesh. We are doughbags!
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hoops902
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Post by hoops902 on Jul 12, 2017 12:34:55 GMT -5
My first mortgage payment was 40-something % of my NET income. That sucked. Then we got raises, etc. Then my husband went to law school and we bought our new house. We were at 28% of GROSS. And then he graduated, and we got promotions and what not. We are down to about 8% of gross. Sheesh. We are doughbags! That's the other hard part of these kinds of "rules". WHEN should it be 25% of net? There has to be a big difference between me being single and no kids, being single with 3 kids, being married with no kids, married with 3 kids, etc. To your example, it's unlikely to really be static...I'm making a lot more now than I was 5-10 years ago. That doesn't mean I'm going to move every 5 years. That also doesn't mean I want to stay in the kind of place that might have been 25% of my single income just starting out after college.
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Deleted
Joined: Jun 16, 2024 8:08:00 GMT -5
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Post by Deleted on Jul 21, 2017 9:28:18 GMT -5
Doing some late night posting, damn insomnia!
Seems recently this has taken over all finance boards/forums I visit : spend no more than 25% of net income on housing! And I always scratch my head and go WTF? Is that even feasible? Where do you want me to leave? the hoods?
And just like any recently converted Christian with a passion for the new life they have found, people spread it and defend it like it is their life mission and with a passion I think is a bit appalling : Dude I don't know you from nowhere, posting on a stupid forum, why do you care I spend way more than that on housing. Yes I will enjoy my cat food in retirement thank you very much....
Both time we applied for a mortgage (not that banks are always right) all they really cared about is that our total liabilities payments came to 35% or less our total gross income. And when we were renting in Boston and also NY (having to provide paystubs and proof of work) all they cared about is that our rent was 30% or less our total gross income. Those two I understand and are financially sound to me...
25% of net on housing is ... I have only lived 2 places (Oneonta, NY and Windsor,VT) were that was even remotely possible, off course you could purchase a 4 bedrooms, 2 bath home downtown Oneonta or Windsor for 120-130k when I was there (not sure for now... yep just checked on Zillow still holds true); and some smaller or not as up to date homes for 50-100k ...
So I am not saying it is impossible but how feasible on an average scale is that? Off course I expect it to be more feasible if you are in your late 40's-50's and still in the original home you purchase 20-30 years ago vs a young couple in their late 20's just starting out.
Or maybe I am dead wrong and this should be encouraged? I am already in DC where it is not unheard off many young folks just starting out are living 2-3 in a 1 bedroom apartment just so they can afford the rent (no they are not couples, read 2 single beds in the 1 bedroom and someone else is sleeping in the living room)... But that is the price to pay if you want to live in the hip places like Dupont Circle, Foggy Bottom, Kalorama, Georgetown, etc.
But even 1 bedrooms or studios are renting for more than what 25% of our net income would cover in DC and that is not looking for anything fancy. Maybe an English basement? But I doubt they would let 3 adults and 1 baby move in...
Getting caught up after being gone. Totally possible around here. Starter homes are around 100K. Rent is $600/month for a one bedroom cheaper place up to $800 for two bedroom. This is in town. Commute 10 to 15 minutes in and you can get places for less. My coworker pays $625/month for a 3 bedroom manufactured home in a nice area with a yard. I'm at 40% now which is insane, but it's a 15 year loan and a 5 bedroom 3 bath on 15 acres with outbuildings. Lots of room to downsize housing costs there.
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Cookies Galore
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I don't need no instructions to know how to rock
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Post by Cookies Galore on Jul 21, 2017 9:39:39 GMT -5
We live in an urban area. Compared with other major metropolitan areas, the Philly metro area is very affordable. There are pockets of outrageous areas (we moved from one), but the beauty of where I live is you only have to go a couple of miles to find affordable housing. I'm still on my train line, have easy access to the trail, walking distance to bars and restaurants, and we easily saved $100,000. Our entire monthly payment (mortgage, interest, taxes, insurance) is 21% of our net income. Totally doable.
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