Housing can be the single biggest monthly expense in your budget. Your rent or mortgage payment can eat up a significant portion of your income, and it can be particularly difficult to figure out how to spend less on where you live.
In some places, especially cities with high rents and astronomical home prices, keeping housing costs manageable is incredibly difficult. Ideally, experts say you should be spending only around a quarter of your income on housing-related costs. "Total housing costs shouldn't exceed 28%," says Heather Winston, a certified financial planner at retirement plan provider Principal, referring to the "28/36 rule" used by some advisors to help determine home affordability.
"That's superhard, especially for young people in an expensive real estate market," Winston says.
Here are some ways you may be able to save some money whether you're a homeowner or a renter.
1. Consider refinancing
The current economic environment is friendly to homeowners looking to refinance, so it may be a good idea to consider your options.
Mortgage rates are falling, which opens up an opportunity for homeowners to refinance and potentially lower your payments. Rates are 1.25 percentage points lower than they were in October 2018, which could save those with a $300,000 mortgage as much as $2,700 per year.
2. Invest in upgrades
Making some small changes around the house may help you save money on your utility bills.
Salvador Nobre Veiga, a 32-year-old living in Pennsylvania, told Grow earlier this year that he was able to reduce his annual utility costs by 66% by making upgrades to his house. For Nobre Veiga, investing in additional insulation, energy-efficient light bulbs, and a smart thermostat saved him hundreds of dollars per year.
These are upgrades you can consider, too, whether you're a homeowner or a renter. Utility bills cost the average household in the U.S. around $2,000 per year, so a few small upgrades can potentially save you hundreds of dollars annually.
You can negotiate the price of almost anything. The trouble is, many people find it uncomfortable, so they just accept the terms they're offered. But you shouldn't be afraid to ask for a better deal.
You can use your negotiation skills to save money in other areas, too. Homeowners can negotiate with their insurance companies or contractors to save money on certain bills. Renters may be able to negotiate reductions in rent in exchange for making upgrades or repairs to properties, or in exchange for signing longer leases.
It never hurts to ask — just remember to be nice.
4. Consider moving
If you run out of options and can't find a way for your current living situation to make financial sense, it may be in your best interest to move. For renters, this will be easier — though you still may have to pay a fee if you break your lease. But even that might save you money if you can find a significantly less expensive place to rent or share.
Selling a house is a much bigger project, and it can take both an emotional and a financial toll. You can always look at other options, such as selling equity in your home to help you get by, before deciding to put your home on the market.
Even if you're open to moving, make sure you shift to a place you can better afford so you won't end up finding yourself in a worse, or equally difficult, situation. And you probably shouldn't hold out hope that your rent or home prices will decrease in the near future.
As of August 2019, the average rent in the U.S. was $1,472, according to data from Yardi Matrix, a commercial real estate data firm. That's an increase of 3.3% over August 2018. But what you pay will depend a lot on where you live. An apartment in Manhattan will cost you an average of $4,272, for example, whereas an average one in Wichita is only $656.
The cost of owning a home is creeping up, too. "Real homeowner costs for the monthly mortgage payment, taxes, and insurance on a median-priced home jumped 8% from 2017 to 2018, to $1,775 — a 47% increase from 2011," reads the State of the Nation's Housing 2019 report from Harvard's Joint Center for Housing Studies.
When it comes to spending the right amount on housing, the most important thing you can do, Winston says, is to be realistic about what you can afford. Focus only on what you need, find a place that fits into your budget, and only consider buying a home when you've figured out what you'll need in the future.
"Sit down, put some numbers on paper, and think ahead," Winston says.
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