Living within your means

Don't bite off more  HOME than you can chew. How much house can you comfortably afford?

For most people the answer is a house with a purchase price of no more than 4x their annual household income. Rationale: the cost of a home includes much more than the monthly mortgage payment. It's also property tax, insurance, upkeep, etc.

Typically these costs run 2%-3% of the price of your home each year. Assuming a 20% down payment, a 5 year fixed rate mortgage, amortized over 35 years, and interest rates in the 4%-5% rate, the 4x your income rule of thumb will translate into total housing costs of roughly 30% of your gross income.

Don't let your CAR drive you to the poor house. The same logic applies to your car.

Most people can comfortably afford a car that is one-third of their annual income. If you make $60,000 you can comfortably afford a car that costs $20,000. If that seems low - now you know why so many people are in financial trouble. They are driving it. A car has many other costs than simply the monthly payment. There's insurance, gas, parking, maintenance, etc.

If you follow this rule of thumb, your total transportation costs should be 10% or less of your gross income. Read
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