One more financial question

[lovinmyboys]

Well, maybe two:

 

Do you think a family with a household income just slightly above the median income level could rent something for half of their take home pay (rent and utilities) and still have enough left over to cover food, car insurance, gas, and any other necessities? (This would only be for a year)

 

Also, how do you figure out what your after taxes pay will be based in gross pay? Is 80% a decent estimate?

 

Thanks for any help. I'm just trying to figure out how financially feasible our plan for the next year is.

[KrissiK]

Regarding your first question, I wouldn't. Isn't 25-30% what they recommend? Housing is a fixed expense, even if you are just renting, and for me (we tend toward frugality) 50% would be cutting it too close. There are so many unexpected expenses that could crop up during the year.

 

I don't know how you would figure out your second question. I'm sure there's a way.

[nomfaux]

This salary paycheck calculator might be helpful for your second question: http://www.adp.com/tools-and-resources/calculators-and-tools/payroll-calculators/salary-paycheck-calculator.aspx

[JumpyTheFrog]

That's too much for housing. It is at least double what I would feel comfortable with.

[Arcadia]

Also, how do you figure out what your after taxes pay will be based in gross pay? Is 80% a decent estimate?.

It was lower than 80% for us after federal and state tax withholding as well as SSI, SDI and all the rest. I downloaded the IRS and state tax forms and fill them out manually to estimate when we moved to the states.

 

For a year, I'll be okay with rent hitting 50% off take home pay. However our grocery expenses are low, car insurance is affordable and the commute to office for hubby is short. When we rented, he could walk to office and we could walk to grocers.

[lovinmyboys]

I'm just curious as to why you would do want or need to do this to yourself. We've done it for quite a while (when we bought the house 10 years ago we were dual income and now we're not), but it's definitely not easy and I wouldn't recommend if you can avoid it.

It would actually be paying a mortgage and a rent so we could live with Dh where he is working. It's only for a year. We likely won't do it, but I am wondering if it is doable. I would love to keep our family together, but I don't want to put us under huge financial stress either.

[Liz CA]

I agree that 50% on housing is skating on thin ice. A big car repair, medical bill, etc, could derail you.

Most financial advice I heard tends to be in the 25%-35% portion for housing - some even include utility bills in this.

Hard to answer without background info - and you need not provide that on a public forum - just saying I would be uncomfortable with housing swallowing up such a big percentage of income.

[Annie G]

Could you possibly rent your house for a year? If you belong to a church you might find some good leads for renters- maybe a newly married couple that wants to rent for a year before buying a house? Offering it below market value to someone you trust might work- you could keep your house but still recoup some of the money that it takes to pay for two households. 

 

Failing that, does your dh work regular hours? If so perhaps you could get a part time job in the new area- something like retail, grocery store, etc?  

 

Neither option is ideal but in order to keep your family together, it's totally worth thinking about for a year. 

[creekland]

It would actually be paying a mortgage and a rent so we could live with Dh where he is working. It's only for a year. We likely won't do it, but I am wondering if it is doable. I would love to keep our family together, but I don't want to put us under huge financial stress either.

 

I would do it to keep my family together.  It'd be worth it to me to scrimp a ton in other areas.  The one thing you can never get back is time.

 

I'd also look into renting your current house for that year if at all possible.

[Guest]

Not to contradict the previous posts but some BTDT advice if this is unavoidable:

 

They might not rent to you unless you have someone to cosign.

 

If the electricity gets cut off, it is grounds for eviction. Heat is kind of a grey area. You need at least enough to keep the pipes from freezing.

 

You use the grocery money if you have to and go to the food bank, the dumpster, steal from the cat, shove a pillow against your stomach and sing "Jesus loves me this I know" until you can sleep or whatever works.

 

It's very, very expensive to be homeless, even if you tell yourself, "We're camping out for awhile to save rent! Isn't this an exciting adventure?"

 

Do whatever it takes. Just. don't. go. there.

[Mandylubug]

No, I would not do it. we are right at 40% take home pay, no cars, no credit card debt and we are TIGHT.

[Um_2_4]

Remember that renting out your house is no party. I have friends that did this recently and let's just say, yeah, not fun. You need a REALLY good management company (costs some $) and to be prepared to do some minor (and possibly major) repairs (no matter how well you screen). If you were planning to never live in that house again, I would feel differently about renting it out.

 

If it were only for 1 year and we could swing it, I would just stay and have DH rent a room there and visit as possible. Add up the cost of 1 plane ticket per month (or however often or gas/mileage) and see if that is more feasible.

[Carrie12345]

We're at about 30% on an above average income and things are fairly tight.  I know that's mostly b/c we have 5 kids, but you're only one behind us.  Well, that plus some pretty high health insurance, but that's another 18%, which is still below 50% when combined with housing.

[Evan]

Well, maybe two:

 

Do you think a family with a household income just slightly above the median income level could rent something for half of their take home pay (rent and utilities) and still have enough left over to cover food, car insurance, gas, and any other necessities? (This would only be for a year)

 

Also, how do you figure out what your after taxes pay will be based in gross pay? Is 80% a decent estimate?

 

Thanks for any help. I'm just trying to figure out how financially feasible our plan for the next year is.

 

I would be uncomfortable advising anyone in that income bracket to spend 50% of their net income on housing.  

 

I would also consider 80% of gross income a likely overestimation for payroll net unless the employee had no deductions beyond state/federal/FICA AND was earning well under twice the federal poverty level for their family size.  Keep in mind that for 15% threshold for married filing jointly is only 18,150.  Add in FICA withholding and any state income tax and it is easy to get to 20%.  The next tax bracket up starts at 25% with a 73,800 threshold.

[Evan]

Not to contradict the previous posts but some BTDT advice if this is unavoidable:

 

They might not rent to you unless you have someone to cosign.

 

If the electricity gets cut off, it is grounds for eviction. Heat is kind of a grey area. You need at least enough to keep the pipes from freezing.

 

You use the grocery money if you have to and go to the food bank, the dumpster, steal from the cat, shove a pillow against your stomach and sing "Jesus loves me this I know" until you can sleep or whatever works.

 

It's very, very expensive to be homeless, even if you tell yourself, "We're camping out for awhile to save rent! Isn't this an exciting adventure?"

 

Do whatever it takes. Just. don't. go. there.

 

Am I missing something?  It sounds like the original poster and her husband own a house, are exploring, but hoping to avoid, a temporary family split.  It appears the 50% figure reflects paying the mortgage on their long term home and a rental home where her husband will be working for a year.  I did not  see any mention that she planned to live in either place without electricity or heat and I missed where she was considering being homeless.  

 

To the original poster, I suppose I responded hastily to your initial questions without reading the rest of the thread for background.  I still am afraid that a 50% housing budget will make other budget categories hard to cover, however, if you have any savings that you can dip into to supplement your housing for this year to allow the family to be together that may be the best option for your family.  My wife and I did do a temporary family split a few years ago.  We were blessed to only be separated for around four months and we owned a vacation home in the state I and one of our daughters were in during that period so we did not have extra housing expenses.  It was a difficult period of our lives. It was also what we needed to do for our daughter.  With some effort and attention to communication we navigated through that period with our family intact.

[sunnyday]

I would also consider 80% of gross income a likely overestimation for payroll net unless the employee had no deductions beyond state/federal/FICA AND was earning well under twice the federal poverty level for their family size.  Keep in mind that for 15% threshold for married filing jointly is only 18,150.  Add in FICA withholding and any state income tax and it is easy to get to 20%.  The next tax bracket up starts at 25% with a 73,800 threshold.

 

Be careful. Those are marginal rates you are quoting, but you are using them as if they were average tax rates.

[Evan]

Be careful. Those are marginal rates you are quoting, but you are using them as if they were average tax rates.

 

I recognize that the tax rates are marginal (i.e. only income above the threshold is taxed at the applicable percentage). However, on top of the federal and state income tax, there is also social security withholding and medicare deductions which will consume another 7.65% of the income (unless they are above the phaseout but below the additional tax threshold).

 

It appears that the original poster has a family of six. Her exact financial situation is none of my business and I doubt she wishes to share it on a public forum so I am going to use a nice round very hypothetical number of 75,000. This will put the purely hypothetical family a little above 200% of the poverty level which I referenced in my original reply. Crunching hypothetical numbers puts our hypothetical family paying right around 20% of that 75,000 between their federal taxes, their employee share for SS and Medicare, and state income taxes. If they happen to live in a state which doesn’t have income tax then they will come out close to 15% all inclusive. Unfortunately, they will also be over 20% if they live or work in a state with higher state income taxes, or in an area where they also pay local or county state income taxes. Any other payroll deductions, or additionally taxable benefits will also push the income net further below the 80% line.

[maize]

Do you have any savings? We have been in circumstances where housing (rent for a 2 bedroom apartment) was more than half our take home pay. It is not a fun way to live, but if the situation is temporary, just a year or two, and if you have at least something in savings to cover contingencies, it can be done.

[forty-two]

It would actually be paying a mortgage and a rent so we could live with Dh where he is working. It's only for a year. We likely won't do it, but I am wondering if it is doable. I would love to keep our family together, but I don't want to put us under huge financial stress either.

We did this for three years (rent + mortgage, while waiting for our house to sell in another state), and it was between 40-50% of our income, *not* counting utilities (except when his income was cut by the amount of our mortgage and we were in the process of turning the house over to the bank when it *finally* sold). I don't regret it, though it meant we couldn't save anything and didn't have much extras - we had plenty for food and all the necessities plus the all-important high-speed internet ;). Eta: we did have enough savings to have an emergency fund and not be living paycheck to paycheck - we just weren't adding to it much.

[sunnyday]

 

 

I recognize that the tax rates are marginal (i.e. only income above the threshold is taxed at the applicable percentage). However, on top of the federal and state income tax, there is also social security withholding and medicare deductions which will consume another 7.65% of the income (unless they are above the phaseout but below the additional tax threshold).

 

It appears that the original poster has a family of six. Her exact financial situation is none of my business and I doubt she wishes to share it on a public forum so I am going to use a nice round very hypothetical number of 75,000. This will put the purely hypothetical family a little above 200% of the poverty level which I referenced in my original reply. Crunching hypothetical numbers puts our hypothetical family paying right around 20% of that 75,000 between their federal taxes, their employee share for SS and Medicare, and state income taxes. If they happen to live in a state which doesn’t have income tax then they will come out close to 15% all inclusive. Unfortunately, they will also be over 20% if they live or work in a state with higher state income taxes, or in an area where they also pay local or county state income taxes. Any other payroll deductions, or additionally taxable benefits will also push the income net further below the 80% line.

 

 

 

Thanks for clarifying. However I disagree with your math. For 2014 the federal standard deduction is $12,400. The dependent exemption is $3950 per person. And the child tax credit is $1000 per child. So a family of six making $75k (which is more than the OP claims for her household) would be taxed on $39200, for a total of $4972 in tax, and then get $4000 of that credited back for a total of $72 in federal tax owed. Adding FICA and state tax won't bump that up to $15,000.

[Evan]

Thanks for clarifying. However I disagree with your math. For 2014 the federal standard deduction is $12,400. The dependent exemption is $3950 per person. And the child tax credit is $1000 per child. So a family of six making $75k (which is more than the OP claims for her household) would be taxed on $39200, for a total of $4972 in tax, and then get $4000 of that credited back for a total of $72 in federal tax owed. Adding FICA and state tax won't bump that up to $15,000.

 

I will admit that I never considered the child tax credit.  We have never been close to qualifying for it so it was not on my radar.  The tax credit I overlooked pulls my hypothetical family down to losing only 14% of their gross income.  This  presumes they live in a state with state income tax, do not live in a state with employee contributions to unemployment, and do not have other payroll deductions or taxable non-cash benefits.

[Bootsie]

The withoholding for a married couple with income of $2000 every two weeks is $170, or about 8.5%:

 

http://www.irs.gov/pub/irs-pdf/p15.pdf

 

Actual taxes owed may be very different because of deductions, etc.  This does not include social security withholding and any state tax withholding (which varies greatly in different states)  You must also consider any other deductions (medical, 401K contributions, etc.) when estimating take-home pay.

 

Having housing expenses of 50% of take-home is doable, especially if you know that it is only for a year and you plan well. Some things to consider: It sounds as if DH will have some housing expenses at secondary location even if the family does not follow.  How much extra will it cost to house the family rather than just DH?  Will this be an out-of-state move?  How will that affect homeschooling? taxes? Is this location some place you would enjoy?  Is it a place you can enrich your children's education by experiencing a different location for a year--different museums, outdoor areas, culture, weather, etc?  If I thought it could be a positive educational experience for the kids (in addition to keeping the family together), I would probably try to make it happen.

[idnib]

I live in a high COL area and have spent 50% on housing because that's just how it is. Luckily I don't do that now.

 

I would say it depends on several factors:

 

--How much you have in savings for emergencies. Good savings can offset an average income; bad savings can be detrimental to even a high income.

 

--How far the distance is. I would find it more worth it if we would be very far apart  than if we could get together weekends. Take the travel costs into account when comparing.

 

--Whether you can get a month-to-month lease, so if it doesn't work out financially, you can easily get out of you lease and move home. I wouldn't sign a year lease in this situation. In our area it's difficult to get monthly leases right now, at least in decent areas.

[Elisabet1]

Run a quick 1040A and see what is comes up as...use standard deductions so it won't take long.

 

I do not know median income. And number of children matter. Wish I could help more. You can get copies and directions to the 1040a on the irs.gov website.