Do The Money Guy’s Housing Rules Change in High-Cost Areas?

Well, we’ve got a question from MG up next. This is an interesting one. Mm, do any of your rules change for those of us living in higher cost of living areas? I live in the New York City metro area, and some of your rules, no surprise, specifically regarding housing, are difficult to follow. And I think this is a question, and I think you guys have some good thoughts to tell.

I’m curious to see if we’ll debate this. I want to acknowledge first; you’ve picked up something, MG, that is so true. Before we address, do the rules change? I will address that the rules are harder in some places than others, and the rules are harder for some folks than others. I mean, if you live in a high-cost-of-living area but the wage base of earners in that area is not commensurate, it’s really hard to stick to some of these, right? If you live in a low-cost-of-living area but you’re a high-income earner, then you blow through the rules no problem, right? So, I just want to acknowledge on the outset, yeah, it’s depending on where you live and your unique circumstance; it can be very, very difficult. But I think what’s healthy to know and what’s wise is to go into that knowing that. Like, “Oh, okay, I’m listening to this, but I live in, you know, I think they said New York, New York City, and so housing is going to be an issue. Like, that’s going to be something I’m going to have to figure out and how am I going to navigate that, which means the decisions that I make around that part of my life are likely going to impact decisions in other areas of my life that perhaps other people aren’t making or aren’t having to make. And you should be realistic about that based on where you live. Hey, everything I do, I try to be honest, transparent, and open that these are functional rules that I want you to build your life around.

They’re not just something written from a high up perch point where I tell you how great I was with this, and, you know, screw you if you can’t reach these goals because that’s… I feel like there’s already enough gurus that are kind of like, ‘20% down on that first home, no.’ We build margin; that’s why we have 20/3/8 instead of just telling you to go buy a clunker that might break down on the way. But that’s where… and that’s a great segue, MG, for you is that look, we’ve written these rules to be as dynamic for the general person out there. But I know every one of us is unique as a snowflake or fingerprint or whatever you want to choose because there’s just none of us in our situations are the same. Heck, we wouldn’t have a career; that’s true if it was like because that’s what we’re counting on is that everybody’s so unique that you reach a level of success that you’re like, ‘Man, I need to maximize my version of the best version of myself by taking the relationship to the next level.’ So, MG, let me talk to you specifically because you’ve given me enough to where I can tell you where you’re unique. You live in New York, New York; you probably don’t own a car. Mhm, cars are typically 20/3/8, what is that, eight of the eight, 20% down payment for the car in three years, then 8% of your income. Think about that.

If you don’t have a car, and you’re doing public transportation, there’s a good chance, as long as your total debt load isn’t over that 33 to 35% free margin, you’ve got margin. And so, that means that the rule probably allows you, you know, if you think about that, we don’t want housing to be more than 25%, but you’ve actually got 10% because you don’t have student loans, you don’t have a car loan, you’ve actually got more margin than you probably realize. But I can’t say that I can’t change my rule because not everybody lives in New York City with public transportation.

Now, I want to caution you because I’m just giving you kind of the decoder ring to understand that all of these systems are going to have unique situations like you’ve just described that you’re going to have to understand: what was the context, what was the intent, and how does this pertain to me. But don’t get yourself in a situation to where now you take this thing up to a full 35%. I don’t know if you… if this is rent, uh, rent’s a little more flexible because you can choose to not renew your rent next year. But if you go buy a house that has this 35%, but then, you know, you’re going to get relocated in the next 3 years, you know, and now you’re stuck with this thing that it’s problematic, it changes your ability to move and other things. But that’s why we have a rule about buying houses too, where you’ve got to… it’s got to be a 7 to 10 year decision, and you have to. So, these things are all integrated, and this is why I love the wonderful world of finance is because every dynamic that you tell me about your life, there’s something that’s going to have an impact somewhere else. The ripple effect, the butterfly effect, whatever you want to call it. And I love that; that’s why every time I do a financial plan, it’s like a big exciting jigsaw puzzle or my, you know, home makeover show where you give me your clutter; you give me your disaster. I whip it around, taking all of your different components, and then we come out with this beautiful, succinct, well-executed plan. Man, that’s why I love what we do for a living, and I hope that gives you the guidance to know what you can do with your own finances as well. Are you ready to take your finances to the next level? Check out our Financial Order of Operations resource that outlines the nine steps anyone can take to build wealth and reach financial abundance.