With COVID-related relief programs ending, and with record-breaking rising prices for everyday goods and services, you’ve likely experienced changes to your monthly budget earmarked for housing.
Continued inflation; the end of forbearance and eviction protections; reductions in expanded unemployment; the end of the Advanced Child Tax Credit payments; as well as the expected end of student debt relief later this year all work to make a big dent in monthly income.
The end of the Advanced Child Tax Credit payments can be especially hard on family households. Within weeks of the first payments going out in 2021, a national survey from researchers at the Social Policy Institute found about half of middle-class parents with kids report spending some of their Child Tax Credit on their rent, mortgage, utilities.
For many people, paychecks aren’t back to where they had been pre-COVID, which makes the end of COVID relief even more challenging.
Shared here are a few questions to ask that might indicate it’s time to retool your housing budget.
Is Your Plan Current?
With changes in income, or pressures from rising inflation for food, energy and other expenses, chances are your overall housing budget ratio has changed. A rule of thumb followed by many experts is for homeowners to follow the 28/36 rule. That is, no more than 28% of your monthly gross, or pre-tax, income should go toward housing costs and no more than 36% go toward total debts (including a mortgage and other housing costs).
Take time to assess your monthly income against current expenses to review the suggested housing budget ratio. How have things changed, especially considering the dramatic rise in inflation for everyday items? Do you have a realistic plan for the money that comes in each month? In addition, be sure there is a line item in your budget for groceries, gas, healthcare and medications, childcare, savings, and entertainment. If you haven’t been following a budget, take time to create one no matter how simple to track your expenses so that you can go back, review and adjust as needed.
Can You Manage Debt?
Many people find it hard to manage housing costs when struggling with high credit card debt or other debt. The longer you carry a high interest credit card balance, the more it costs out of your available monthly income. You will save the most money by starting to pay as much extra as you can on your highest-interest debt first, and then once that’s paid off, move on to your second-highest interest debt, and so on.
If you are worried about balancing housing costs with debt payments, talk to your creditors. Some creditors may be able to extend your due date, waive late fees or offer a different payment plan option. Take a few moments to prepare before you call so you can clearly communicate your needs:
If you are feeling stressed by debt, exploring options such as debt management plans or working with a financial counselor could help you reduce monthly payments and reduce the overall cost of your debt. By teaming with a trusted counselor, your debt will be more manageable so you can reduce the risk of putting your housing at risk.
What Steps Can You Take?
Where can you cut costs? You may be able to save money by doing things like planning your meals to save money at the grocery store, canceling streaming services you’re not using, or reducing your electric bill by cutting energy usage.
As noted above, you may also be able to save money on your debt by finding options to lower interest rates or reduce monthly payments
Are any major purchases on the horizon? Can you postpone major purchases like a new car or other large item? So often, when it is time to make a major purchase, it catches us off guard and we immediately turn to credit to pay for it. If your washing machine will need to be replaced in the coming months, try to set aside cash now. So when the time comes to replace it, you may be able to minimize the use of credit.
Is there a way to build up emergency savings? No matter how small, setting aside savings each week can make a life setback a lot easier to handle. Start with what you can. Decide how much you can put into savings and set yourself up with an automated payment. Set up automatic transfers to a savings account, or you can even set up your direct-deposit to deposit a portion of your paycheck into savings every payday. Separating it from your everyday funds keeps you aligned with your budget reduces temptations to spend it and clearly highlights your goal and successes!
Connect with a Housing Counselor
Whether you are experiencing the end of COVID relief programs, or inflation related financial challenges, a housing counselor can work with you to figure out your plan.
You don’t have to go through the process alone. Our housing counselors help you develop a customized plan to stay in your home.
The earlier a household reaches out to our HUD-certified counselors who can examine their entire financial picture and prepare them to manage housing payments, the better.