Whether you’re a renter or homeowner, the topic of housing expenses is a particularly critical one. While there’s no one-size-fits-all approach to the right amount to spend, there are a few pointers that can help you figure out your ideal housing budget.

How much should I spend on housing?

There’s an incredible amount of advice out there that suggests how much you should spend on your home.

A popular guideline is the 30% rule, which dictates that no more than 30% of your take-home pay should be spent on housing. But that’s not always realistic. This is especially true in market climates where demand exceeds supply, or rents and home loan interest rates are higher than usual. Plus, it doesn’t take into account individual preferences, needs and budgets.

Instead, it’s worth thinking about all of the personal factors that could determine your housing costs. Then, you can come up with a figure that works for you and your budget. Once you’ve landed on that figure, you can adjust accordingly if you need to. Like, say, if your circumstances change and you suddenly need to pivot your housing situation.

Questions to ask yourself to determine your housing expenses

What’s your income?

The amount of money you bring in is obviously one of the most fundamental factors. While we’re absolutely not advising that anyone base their housing spend simply on how much they earn , it can give you a better idea of your budget.

For example, if your income is on the higher end, you might comfortably afford spending half your money on housing and still have enough left over to cover day-to-day expenses. If it’s on the lower end, you might prefer to go for a cheaper place.

Include all of your household income sources, like your salary (and your spouse's, if applicable) and any passive income you earn from shares or an investment property .

Where are you living and what kind of property do you have?

With the exception of some tree change hotspots, major cities tend to be pricier places to live than regional or rural areas.

There’s also significant variance between suburbs within those cities. If you want (or need) to live closer to the CBD, you might be faced with high housing costs. Or, perhaps you want to be in a premium suburb to be close to good schools and need to pay more to achieve that. But if you can live further out or don't have any obligations tying you to a particular area, you may find you can spend less on housing.

The type of property you want to live in is another factor. If you’ve got a family, you might need a house with a few extra bedrooms and more ample outdoor space than your solo neighbour – thus possibly upping your housing costs.

Are you renting, or paying off a mortgage?

Depending on the size of a mortgage and interest rates, rental payments may be cheaper than mortgage repayments. So, before you apply for a mortgage, you should calculate your proposed repayment figures. While these figures can fluctuate based on interest rates, a mortgage may require you to fork out more. Plus, there are often additional housing costs on top of just mortgage payments, such as insurance and rates. Those should potentially be factored in when comparing housing costs.

However, some homeowners are fine with allocating a higher amount of income towards mortgage repayments rather than rent. This is because they’re building equity in something that’s theirs and aren’t saddled with the task of saving for a home deposit at the same time. Which brings us to…

If you're renting, are you saving for a home deposit?

Saving for a deposit often takes several years and a lot of sacrifice.

If you’re renting and saving at the same time, and hoping to buy ASAP, putting less of your income towards housing may allow you to save more at a faster rate. But if you’re in no particular rush, you might prefer to save less each week and go at a slower pace.

If you have a mortgage, how quickly are you hoping to pay it off?

You’ve got two options when it comes to mortgage payments. The first is interest-only payments, where you only pay interest. The second is principal and interest payments, where you pay off the interest and the money you’re borrowing at the same time.

Interest-only payments are generally cheaper, giving you the ability to spend less of your income to pay down the mortgage and instead increase your overall cash flow. You can usually get away with making interest-only payments for the first 5-10 years before having to switch to interest and principal payments.

The downside of interest-only is that you’re not actually paying off your loan. Instead, you are only paying the interest owed on your mortgage. While principal and interest payments will cost you more in the short term, they do properly chip away at your home loan and can help you repay your mortgage faster.

Aside from a mortgage, do you have any debts that require regular repayments?

You might have other debts that are taking up some of your budget, like HECS-HELP, an outstanding tax bill, credit cards, a personal loan, a car loan, or something else entirely.

If debt repayments are part of your budget, you may prefer to spend less on housing to accommodate them.

What's the ratio of "good debt" to "bad debt"?

On the subject of debt , it’s worth mentioning that not all debt is the same.

Some debts are considered “good debt” – meaning they have the potential to boost your income and net worth. One example of "good debt" is a mortgage, because housing is typically thought of as an investment that can result in growth over time. In both cases, though, the "good debt" classification depends on your capacity to comfortably repay them.

Others are defined as “bad debt”, in that they don’t provide any return on your investment and could possibly deplete your wealth. Think credit card debt and personal loans for non-essentials.

We get that debt isn’t necessarily that black and white. But it could be worthwhile thinking about the ratio of “good debt” to “bad debt” in your total debt. “Good debt” generally (but not always) attracts lower interest rates and builds wealth, while the opposite is often true for “bad debt”.

Beyond household expenses, do you have any essential ongoing costs?

Creating a clear picture of your overall expenses can help you figure out where housing sits. You could have several other responsibilities that demand your hard-earned money, or you may have none – potentially freeing you up to spend more on where you live.

Some of these additional outgoings could include:

• Dependents (including pets). Kids generally don’t come cheap . They have countless ongoing costs like clothes, food, medical bills, activities… the list goes on. Pets are another expense to consider. While arguably cheaper than kids, they do require food, vet visits, and so on
• Childcare or school fees. This one deserves a special mention because it’s probably one of the biggest overheads when it comes to kids – sometimes costing hundreds per week
• Education costs. Beyond your kids, you might be paying your own education costs. It could be an online course to upskill, or training in a new area
• Medical and wellness expenses. Whether it’s a chronic condition that needs ongoing management, medications, or even your gym membership
• Bills. Think phone and internet, utilities, credit cards…
• Insurance. This covers all manner of insurance, like your car insurance, home and contents, business insurance, and any other policies
• Transport. You might have a regular spend on public transport each week, or for fuel and other running costs for your car
• Entertainment. This is a highly variable one because everyone’s got their own preferences. But entertainment is important to include because you might see it as a necessary cost. Think about what’s non-negotiable for you when it comes to eating out, going to the movies, pursuing hobbies, or whatever it is you enjoy doing
• Clothing. We’re not just talking about discretionary spending. This also encompasses clothes for your kids, work, laundry and dry cleaning costs, and so on
• Investments. You might invest your money regularly to build your wealth and see that as a vital part of your budget
• Charity donations. If these are essential to you, make sure to factor them into your budget

Do you have an emergency fund?

An emergency fund is a pool of money you can lean on if you come up against any unexpected costs – like car repairs, medical bills, or losing an income source.

Having an emergency fund may be beneficial if you’re already spending more of your income on housing and are faced with an unanticipated bill that your day-to-day budget doesn’t allow for. It can also help you avoid dipping into your long-term savings or investment accounts or putting those expenses into high-interest debt like credit cards.

What does the current market look like?

This one’s important, because while it affects your housing costs and options, it’s often out of your control.

See, the property market ebbs and flows. There are times when there’s an ample supply of housing, rental properties are cheaper, and home loan interest rates are at a manageable level. During these periods, you may have more choice and flexibility as to how much you want to spend.

Then there are times when the rental market is incredibly tight, and rents (and/or interest rates) have skyrocketed. In these cycles, you’re simply at the mercy of whatever the market’s doing. This can make it a little trickier to manage housing costs, possibly forcing you to spend more than you would otherwise.

So, how much should you spend?

Let’s look at how all of the above could factor into someone’s decision. Both of these examples are fairly extreme, but they may help you understand where housing factors in.

Person A has a good income, but numerous ongoing expenses: kids, pets, car loan repayments, medical bills…the lot. They’re also loaded with “bad debt” like credit cards and personal loans, and they’re trying to save for their first home . They choose to cap their housing costs at a low percentage, looking for affordable housing that allows them to cover their overheads and save at the same time.

Person B doesn’t have any dependents, has already paid off their student debt, and has income from multiple sources (salary, investment property and shares). They also own their current home and want to pay it off as soon as possible. They decide to allocate a higher percentage of their income to housing, opting for principal and interest payments, so they can get rid of their mortgage faster.

While these examples demonstrate what someone might choose to spend on housing, ultimately the decision is yours. By using these thought-starters, you can try and settle on a percentage that best suits your needs.

Happy home-hunting!