2 Scenarios Where It's Okay to Spend More Than 30% of Your Income on Housing

by Maurie Backman | Updated July 19, 2021 - First published on June 12, 2021

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Toy houses and a hand on a calculator.

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Though it's best to keep your housing costs to 30% of your income, in some cases, you can get away with exceeding that limit.

As a general rule, it's a good idea to avoid spending more than 30% of your take-home pay on housing. And by "housing," we're talking about rent payments for tenants. For homeowners, we're talking about a monthly mortgage payment, property taxes, insurance, and any other fixed costs that may be involved, like homeowners association fees. If you keep your housing costs to that 30% threshold, you'll be less likely to fall behind on your other bills and rack up debt in the process.

That said, sometimes it's okay to spend more than 30% of your income on housing. In fact, in the past, I've done that myself. Here are two such scenarios.

1. Your other expenses are low

The reason you don't want to go overboard on housing costs is that you'll want to leave yourself with enough room to pay your remaining bills. Remember, housing is only one of many necessities your budget needs to cover. You'll also need to pay for transportation, utilities, food, and healthcare, to name a few. Plus, let's be real -- you need some money left over for leisure and entertainment.

But if the bulk of your expenses are very low, then you may do just fine with a mortgage or rent payment that causes you to go above 30% of your pay. For example, say you live in a city and your home is within walking distance to your office, stores, and restaurants. In that case, you might spend virtually nothing on transportation, whereas someone who needs a car might spend hundreds of dollars every month on an auto loan payment, insurance, fuel, and maintenance. What's more, if you're a pretty frugal person who doesn't spend a lot to travel or go out, then treating yourself to a larger home makes sense -- even if it means spending more than 30% of your earnings.

2. You have access to high-paying jobs

When I first moved to New York City in my early 20s, I too found myself spending more than 30% of my take-home pay on rent. On the other hand, living there gave me an opportunity to earn more money than I would've made had I settled down in a different city.

Sometimes, you have to pay a premium to live in certain parts of the country, and no matter how conservative you try to be when seeking out housing, you might still get stuck spending a small fortune to put a roof over your head. But if paying more for housing allows you to earn more, things should at least even out, and you may, ideally, come out ahead.

Incidentally, when I lived in New York City and spent a lot of money to rent a small apartment, I not only got paid decently by the financial firm I worked for, but I also spent next to nothing on transportation since I didn't have a car and took the subway sparingly. Also, because my apartment was the size of a glorified shoebox, I didn't have very high utility costs. Plus, I made smart choices that gave me the flexibility to spend more on rent, like packing my lunches for work instead of spending what could've easily been $10 to $15 a day at a local cafe, and shopping for things like clothing infrequently.

As a general rule, keeping your housing costs to 30% of your take-home pay or less is a smart system to follow. But there are definitely exceptions, and if these scenarios apply to you, know that you're not necessarily setting yourself up for financial doom.

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