Can You Live by the 30% Rule?

When I was a student at Indiana University, I worked as an analyst in IU’s Center for Real Estate Studies. I didn’t get rich, but it was a cool college job.  Much of my effort was directed at producing the Housing Affordability Index for the state of Indiana. (In a somewhat related side note, Indianapolis was the most affordable major metropolitan area in the nation in 2012.)

The concept of housing affordability is somewhat abstract, because it relies on a definition of “affordability” that is not really universal.  At IU, we compared median house prices to income for each county in the state, and that also provided us with an index to measure the average for the state.  So we knew if a given area was relatively more affordable than another, and our statewide index could be used to compare to other states.  That was all relative, though.

The 30% rule has come to represent the idea that a homeowner is “burdened” if housing expenses represent more than 30% of gross income.  It’s a de facto standard that isn’t perfect, but is probably a pretty good guide. But is it realistic, especially if you’ve just welcomed twins or triplets to your family? A recent infographic from mint.com illustrates the answer.  (Click on the graphic to make it more readable).

Shelter-Shock

About Kevin O'Reilly, CFP®

Kevin O'Reilly, CFP®, is a financial advisor who specializes in working with parents of twins and triplets. Have a financial question? Ask Kevin!

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