Housing: The Budget Buster
Brenda's take home pay per month is $2,300 while Stephanie's is $2,650. They understand that they shouldn't spend more than 35 percent of their monthly income on housing, including rent, utilities and any maintenance costs. This leaves 65 percent of their income for all other expenses including, food, clothing, transportation, entertainment, and debt reduction. Both Stephanie and Brenda have some credit card and student loan debt. Going back to housing expenses, Stephanie cannot spend more than $928 on housing and Brenda not more than $805. For Brenda, this is no problem. She wants a reasonably-priced and comfortable one-bedroom apartment. She is able to find one for $550. She gets an all-inclusive Internet, cable and cell phone plan from a local phone company for $100, her electricity bill is on average $100, amounting to a total of $750, which is within her budget.
Stephanie on the other hand would like a one-bedroom apartment but would never be able to afford it while living in New York City. Instead she is able to rent a house with a few friends in which she has her own bedroom but shares common living spaces such as the kitchen, living room, and bathrooms with four other people. All utilities are included and her share of the rent, which is $1,000. This is the cheapest she could find and it put her at $72 above budget and spending 38 percent of her income on housing. Therefore, she has to reduce her spending in other areas. After apportioning her income to other expenses, she has just enough to cover her costs and nothing saved for emergencies or to meet future purchase goals. If an emergency does come up, she would be forced to use her credit card and go further into debt.