Owning your own home, whether it’s a bachelor pad or five-bedroomed mansion, is a deeply personal and emotional attachment we have to a space that transcends rationality. It is bigger and more important than just being about bricks and mortar. For many, home represents a great sense of achievement, independence, protection, love, a refuge and so many other intangibles. In South Africa, the vast majority of the population was restricted from owning their homes and from living in certain areas due to their skin colour. As such, it seen as a sign of progression and pride when one is a home owner.
That is why it is so difficult to contain the subject of home ownership within the confinements of money and affordability. That being said, the financial aspect of home-ownership is just as important as all other variables. In fact, how much you commit towards your home (be it in monthly mortgage installments or the full price tag) can seriously hinder your ability to accumulate wealth over time. Sarah Stanley Fallaw, the director of research for the Affluent Market Institute and co-author of “The Next Millionaire Next Door: Enduring Strategies for Building Wealth”, found that some of the richest people in the world spent a very small portion of their wealth on their homes.
Here are three important things to consider regarding the expenditure on your home:n
- No more than 50% of our income should be spent on your needs (this includes your living expenses)
- You should not be spending more than 30% of your income on living expenses (this includes levies, rates and taxes, monthly mortgage repayments and maintenance of your property)
- The value of your home should not be more than 3 times your annual salary
Sticking to these guidelines will undoubtedly have an impact on where you live and the type of home you are able to buy. For many, these are non-negotiables and that’s what makes this subject so difficult – you are having to confront the fact that your dream home could be getting in the way of your ability to accumulate sufficient wealth in other vehicles over time.