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Often times, financial disaster can creep up on you. However, if you're watching out for the warning signs, you could avoid disaster before it strikes you and your family.
Here are signs that your home is too big for your budget:
1. Your debt-to-income ratio is too high
The general rule of thumb is that your monthly housing costs -- including your mortgage payments, taxes, eating bills, and maintenance fees -- shouldn't exceed 32% of your gross monthly household income. And your total debt payments each month shouldn't be more than 40% of your gross monthly income
For example, if you are earning $50,000 a year, your home shouldn't cost more than $1,333 per month, and your total debt load shouldn't exceed $1,666 per month. This means that if you have car payments each month of $450 and credit card payments of $300, your housing costs need to stay under $916.
2. You are only making minimum payments on your credit cards
Paying the minimum balance due on your cards might mean you are keeping the credit card companies from harassing you, but it is a key indicator that you are carrying more debt than you can afford. Only paying the minimum balance on your credit cards will keep you in debt for years, and force you to pay large sums in interest.
Make a list of all of your creditors, as well as how much you owe. Then, create a monthly budget that will help you get out of credit card debt as soon as possible. You might have to make some short-term sacrifices, but it will be worth it to free up the money in your budget that you were previously paying to the credit card companies.
Page 1 of 2 -- From ignoring home maintenance issues to a lack of emergency funds, discover three more signs your home is too big for your budget on page 2.
3. You can't afford to pay for home maintenance
It is extremely important that you treat your home well. It is likely the most expensive item you will ever purchase.
If you begin to ignore basic home maintenance issues (like a broken dishwasher or mold in the bathroom) it could lead to more expensive problems in the future, and reduce the value of your home.
4. You don't have an emergency fund
One of the scariest things a homeowner can face is the prospect of losing their home due to financial hardship. Having an emergency fund provides a small cushion for you to fall back on should you lose your job, become ill, or cannot find the money to pay your mortgage for whatever reason.
Most financial experts believe that you need to save between six and eight months of living expenses in an easily accessible account -- and at the very least, you should have enough money to pay for your mortgage for a month or two if your income becomes unstable.
5. You're not saving for retirement
Some people don't worry about saving for retirement in the belief that paying their large mortgage is like having a savings plan. However, for the majority of your mortgage amortization period, over half the money you make in payments will just vanish as interest payments. Additionally, home values will always be changing, and you never know what the real estate market will do in the future.
If you're not independently saving for retirement outside of your home, it is a major sign that your mortgage is too big for your budget.
Although these five financial warning signs can mean that your mortgage payments are too large, it can also be an indication that your spending is out of control, or that your debt load is too large for your income level.
Take some time to have a close look at your budget and your debt load. If you are having a hard time working out the numbers, consider consulting a financial advisor. And regardless of what the problem is, you may need to figure out a way to either boost your income or reduce your spending before the idea of losing the roof over your head becomes a reality.
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