Building On a Solid Foundation

Much of the financial crisis gripping our country can be blamed on bad mortgages. Some say the mortgage mess is due to a lack of regulation or corporate oversight. Others say borrowers simply bit off more than they could chew. While the blame game intensifies, the Associated Press just reported on new Census Bureau data showing that 15 percent of all homeowners are spending half of their income or more on housing costs. Those costs include mortgage principle and interest, taxes, insurance, and utilities.

When writing “Money, Purpose, Joy” and its accompanying workbook, I spent a lot of time crunching numbers to develop sample cash flow plans for four different sized households across nine different incomes. All that number crunching left me with one very clear conclusion (not to mention one big headache!): if we are to give generously, save sufficiently, and live with financial breathing space, it’s essential that we have no consumer debt (no credit card balances carried from month to month and no vehicle payments) and spend no more than 25 percent of our monthly gross income on the combination of our mortgage principle and interest, taxes, and insurance. These are countercultural moves, to be sure, but they are foundational elements of a financial plan that will hold up in good times and in bad times.

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