I was looking at some estimates for housing costs that said that rent should be 25% of your spendable income and total housing cost about 33%. Mine are much higher at 32% and 40% respectively.
I was thinking this was too high but the same estimates had transportation at 8%. Thanks to where we live, our transportation cost is actually near zero, so maybe these two balance each other out.
Any thoughts on whether this is adequate or if it is too much to spend on housing? i am currently trying to figure out how to save money as it is getting tight and I'm trying to see if i am living beyond my means.
Just set up a budget. Indicate how much money comes in, how much goes out to must pay expenses (lodging, food, gas, heat, cooling, etc), and determine how much is leftover for anything else you want. If that amount is ok, then you're fine. If not, something needs adjusting.
Housing plus transportation should be about 40%, according to your given rule of thumb, and that's where yours are, so I think you're okay. Guidelines are not rules, and must be related to one's individual circumstances. That said, double-check that your transportation expenses are really zero.
It depends on where you live and what your situation is. If you're a born and bred New Yorker who thinks that White Plains, NY is a stop on the way to Canada, than you're ok.
If you're a single person living in downtown Boston, you may want to err on the side of spending less. You may find yourself in a situation in a few short years where you significant other has a job in the suburbs and the prospect of sending your child to a city school is not appealing.
All the guidelines in the world won't help after the fact. We've just fielded a similar question, How big of a mortgage can I realistically afford? The reality is this - the numbers are all based on averages, and on what banks have determined safe ratios to be. Those ratios don't know if you are single or a couple with no children, or have 4 kids. They don't know if you like to take 2 exotic vacations a year, or stay home and build furniture for the grandkids.
To get to the point - Once you're in the house and are paying the mortgage, only you know how your budget is doing. If you love the house and don't mind paying XX% of income to live in that house/location, then it can be right for you.