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Housing costs have ballooned recently. Here’s how to help manage them, no matter your budget.
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Housing is expensive right now, and it’s taking a toll on many people’s personal finances. Recent data from McKinsey shows members of Gen Z (those under 25) spend 37.3% of their income on housing.
That’s higher than the maximum 30% of income most experts recommend spending on housing, but it’s not the younger generation’s fault for overspending on housing. The average home price jumped 27.7% over the past three years and is now a staggering $431,000.
Rising interest rates have made housing even more unaffordable, which has sidelined many potential home buyers, especially first-time buyers.
Making matters worse for Gen Z is the fact that rent prices have also soared over the past few years. Data reported by The Wall Street Journal over the summer showed that urban rent prices rose 17.8% from the beginning of the pandemic and were up 25.8% in the suburbs.
In short, housing prices have soared, which has put pressure on many Americans’ finances, including Gen Z.
Why experts recommend spending no more than 30%
Chase Bank says that the recommendation for spending no more than 30% of your gross income on rent came from a government report in the 1980s, which showed that Americans who spent more than that percentage were “cost-burdened.”
Spending more than 30% of your income on rent can make it much more difficult to cover other bills like credit card payments, or to pay for essentials like food and utilities.
What to do if you need to spend more on housing
According to McKinsey, the median annual income for Gen Z is $38,325. This makes it difficult for many people to adhere to the 30% rule. So, while spending more than that on housing may not be a good idea, it may be unavoidable for some people. If you find yourself in this position, here are a few suggestions to potentially improve your situation.
Brush up on your negotiating skills
Some people don’t realize that your monthly rent can be negotiated. I’ve successfully negotiated my rent price lower (before I signed the contract) and negotiated my rental agreement to be on a month-to-month basis. You may not be able to lower your current rent, but before you renew your lease or when you move to your next rental, try your hand at negotiating before you sign on the dotted line.
Evaluate current expenses
Sifting through your current expenses to find things you can cut out is Budgeting 101, but it can be a quick way to find extra cash to help you cover rental payments. There may be one or two subscriptions you don’t need. Many budgeting apps automatically track costs and help you find expenses you can cut out.
Get creative to boost your income
There are a lot of great apps that can help you make a little extra income each month. I’ve used Fiverr to pick up additional freelance writing jobs, and there are a handful of great platforms for gig workers to help offset your housing costs, no matter what skills you have.
Gen Z may be feeling the pinch of housing costs the most right now, but many Americans are also affected. That’s why tracking your expenses using a budgeting app and finding ways to cut out expenses may be more important than ever. You may not be able to get your housing costs under 30% of your spending, but even making a few adjustments may put you in a better financial position.
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