DAVE RAMSEY

Dave Ramsey says: Tips for saving are more of a guideline, not a rule

Aug 8, 2023, 1:00 PM

piggy bank, house and house plans...

(Unsplash Photo)

(Unsplash Photo)

Dear Dave,

Is there any flexibility in your rule about not spending more than 25% of your take-home pay on rent or monthly mortgage payments? I live downtown in Washington, D.C., and I’m finding it’s pretty hard to do here. I make about $90,000 a year, but I’m spending a little over $2,000 a month in rent. Rent is my largest expense by far, and I don’t spend a lot of other money, so I’m still able to save a little and do other things. Can you give me your opinion about this approach?

— Tanner

Dear Tanner,

True, I advise people to spend no more than 25% of their take-home pay on housing. Math still works in every city and state in the country. You don’t get a pass on math just because you live in Washington, D.C., even though Congress and a lot of other people there think you do.

But there’s really nothing magical about 25%. The purpose behind it is, I don’t want you to be house poor. If you find yourself still able to save and invest because you keep other financial aspects of your lifestyle so low, then you’re okay. The problem with most people starts when they’ve got a high cost of housing, and those payments put a real squeeze on their budgets. It doesn’t leave them enough room to save up to buy the next car, so that car becomes debt. The same thing happens with Christmas and vacations and everything else. They don’t have enough extra money to save for things because a huge chunk of their income is flying out the door every month wrapped up in rent or a house payment.

Now, you’re telling me your situation works for you because you’ve made room in your budget and live a very frugal lifestyle by choice. That’s cool. I’m not mad at you about that. But here’s the thing: Whatever you spend on rent disappears. And the more money you burn, the less you’ve got on hand for other things.

I’m not exactly sure how you adjust that in your situation. Maybe you move outside the city and commute, or perhaps you add a roommate into the equation. Or, maybe you’re fine with how things are and that’s the way you want to live. That’s okay, too. But my reasoning behind the 25% figure—which is actually more of a guideline than a rule—is so you don’t become house poor. I want you to be able to save, invest and give generously. Plus, I want you to own your own home one day.

And you won’t be able to do that if everything you make is going toward big payments!

— Dave

Comments

Comment guidelines: No name-calling, personal attacks, profanity, or insults. Please keep the conversation civil and help us moderate comments by reporting abuse.
comments powered by Disqus

Dave Ramsey

Mortgage, debt, stock market: Financial advice for 2025...

Dave Ramsey

Dave Ramsey says: Senior mother’s mortgage advice and the best-laid plans about debt

Do you have concerns about mortgage, debt and the stock market? Dave Ramsey has a variety of answers for concerned.

7 days ago

Emergency fund, getting out of debt: 2025 Dave Ramsey advice...

Dave Ramsey

Dave Ramsey says: Make your money safe and easily accessible – How to get out of debt quickly

One reader asks Dave Ramsey about an emergency fund strategy, while another is curious about getting out of debt. Here's his advice for both.

14 days ago

Employees don't care about your mission statement? Try this...

Dave Ramsey

Dave Ramsey says: How to make your employees care about your company mission

Are you a business owner who has ever said, "My employees don't care about my company's mission statement"? Check out this article.

16 days ago

should a teenager have an emergency fund 205...

Dave Ramsey

Dave Ramsey says: Should a teenager have an emergency fund, too?

One of Dave Ramsey's followers wonders if he should encourage his teenager, who has a part-time job, to create an emergency fund.

21 days ago

Sales management job caught your eye? 2 email tips to follow...

Dave Ramsey

Dave Ramsey says: How many follow-up emails should you send after a job interview?

In this letter, a listener of the Dave Ramsey Show asks him how many follow-up emails she should sent after applying to a sales management job.

28 days ago

financial obligations Phoenix Arizona money...

Dave Ramsey

Dave Ramsey says: Honor your financial obligations

Financial expert Dave Ramsey shares a letter from a reader and shares advice on why it's important to honor your financial obligations.

1 month ago

Sponsored Articles

...

Collins Comfort Masters

Collins Comfort Masters: Your go-to plumbing experts in Arizona

Collins Comfort Masters, a trusted name in HVAC, water and plumbing since 1985, is you go-to plumbers for the residents of Phoenix and the Valley.

...

The UPS Store

How The UPS Store is giving back to the community

PHOENIX -- As 2024 nears a close, The UPS Store is looking to give back to the Arizona community with the holiday season approaching.

...

Schwartz Laser Eye Center

Don’t miss the action with this game-changing procedure

PHOENIX -- The clear lens exchange procedure has emerged as a popular alternative to LASIK eye surgery.

Dave Ramsey says: Tips for saving are more of a guideline, not a rule