I’m moving to Halifax in January, and I’m very excited to be going back to living in a thriving urban centre. Of course, with that kind of activity comes higher rent prices, which meant that this month, with our January 1st deadline fast approaching, I needed to sit down with our budget and figure out exactly how much we could afford to spend on our new apartment. Unfortunately, this isn’t a straight forward task, and I needed to do a few calculations. Here’s how I figured out how much we should spend on our new apartment:
How Much Should I Spend On Housing
When it comes to deciding how much we could afford to spend on housing, I turned to the Canadian personal finance expert I trust the most: Gail Vaz Oxlade. Gail has been writing about money longer than I’ve been a fully formed adult and I trust her advice. A quick google searched told me that Gail says no more than 35% of your net income (that’s what you bring home) should go to housing costs, and this jives with what I’ve already learned.
The logic behind this rule of thumb is that by limiting the amount you spend on housing, you’ll be free to use your money for saving, debt repayment, car payments, etc. This also helps guard you against emergencies, because housing is not a variable expense that you can cut if you lose your job. Having your housing costs take up just 35% of your net income is a good way to guard against catastrophes.
The 35% housing rule is part of a balanced budget, which looks like this:
Setting My Housing Budget
Normally, setting your ideal housing budget would be as simple as taking your monthly net income and multiplying it by 35%. But our situation is unique and that calculation won’t work for us for a few reasons. First, my husband doesn’t have a job lined up in Halifax yet, so we don’t know what his net income is going to be, therefore we don’t know what our net income is going to be.
In place of his actual income, I’m going to use a worst-case scenario income, which is very very low for someone of his age and skill level. I’m doing this because I want to know that even if he needs to work somewhere less than ideal for a few months before a better job comes along, we’ll still be able to afford our apartment.
The second complication is that our budget doesn’t look like the one in the image above. First, there’s a section missing, and that’s debt, because we don’t have any. Debt makes up 15% of the budget above, and for us, that’s 15% of wiggle room in our budget. Second, our transportation budget is much smaller because our car is paid for, and we both have bicycles. Instead of paying 15% towards transportation like the chart above, (if I use worst-case scenario income for my husband) we’ll be paying closer to 7%. This frees up another 8% of wiggle room in our budget. That’s a total of 23% of our budget that we can reallocate to there categories.
Finding an Apartment We Can Live With
Normally, I’d send that extra wiggle room directly into the savings section of the budget pie chart above, but once I started looking at apartments in Halifax, it became clear to me that I might want to repurpose some of that wiggle room for housing instead. I had some criteria for our apartment, and the places that met that criteria were a little more expensive than 35% of our net worst-case-scenario income. It came down to a classic struggle between wanting to save money, and wanting to find a place we’d be happy to live in for the next 3-5 years while saving for a house down payment, and growing our careers (I’m so done with moving).
Last weekend we went to Halifax and looked at seven different apartments. There were some big, gorgeous and expensive ones, some small, dark and cheap ones, and in the end we found the goldilocks of apartments: a brand new, two-bedroom place in a decent neighbourhood that had just enough drawbacks to make it affordable for us. The final cost with all expenses included? 40% of our worst-case-scenario income.
It’s more than I would’ve liked to spend in a perfect world, but it’ll work for us right now. We can absolutely afford it while still making our retirement contributions and saving for other goals, so I don’t mind spending a little more than we technically should. I also didn’t include any freelance income in my calculations, so I’ll still have lots of side hustle cash coming in to make our savings goals for 2015 a reality.
We signed the lease this week, sent over our damage deposit, and have an official move-in date of January 1st! I’m so excited for this next chapter of our lives, especially now that this big hurdle is out of the way.
What percentage of your income do you spend on housing? I want to know!