Older Millennials Are Making This Huge Housing Mistake

Overspending on housing is a trap many older millennials fall into.

Housing is the typical American's largest monthly expense -- but it's a cost that should still be kept in check. As a general rule, it's a good idea to keep housing costs at or below 30% of your take-home pay. Doing so should, in theory, free up enough money for other expenses and keep debt out of the picture.

For renters, that 30% is pretty simple to calculate -- it's the cost of rent. For homeowners, that 30% includes a monthly mortgage payment, property taxes, and homeowners insurance.

But older millennials may be having a hard time staying within these guidelines. According to a recent survey conducted by The Harris Poll on behalf of CNBC Make It, the average older millennial (ages 33 to 40) spends a median amount of $1,200 a month on housing costs. But workers in that age group only take home about $3,200 a month. This means the typical older millennial is spending more than the recommended 30% of income on housing -- and is risking serious debt in the process.

Are you overspending on housing?

Let's be clear -- in some markets (like New York City and San Francisco), it's pretty much impossible to keep housing costs to 30% or less of your income. But in many parts of the country, it is doable, and if you live in one of those areas, you'd be wise to stick to the 30% rule.

If you overspend on housing month after month, you could risk falling behind on other financial goals, like saving for retirement. You might also put yourself at risk of racking up debt if you need to charge other expenses on a credit card.

That's why you may need to reconsider your housing situation if you're spending well above the recommended 30% of your income. If you're a renter, you can look at downsizing or moving neighborhoods once your lease expires. Though you'll spend some money to transport your belongings from one home to the next, you may be able to do so relatively cheaply -- especially if you don't have a ton of furniture and have a couple of friends with pickup trucks who can help you out.

If you own a home, shedding your housing costs is a lot more complicated. One option may be to appeal your property taxes if you feel your home is overvalued. Each year, you'll get an assessment notice telling you what your property is worth. Your property tax bill is calculated by taking your home's assessed value and multiplying it by your local tax rate. If you can lower that assessment, your tax bill should shrink. You can also try shopping around for a better deal on homeowners insurance.

Finally, you can see if refinancing your mortgage will save you money. If you can lower the interest rate on your home loan by a decent amount, it could result in smaller monthly payments -- and more money left over to cover your other bills.

If you're currently in the market to buy a home, you have a solid opportunity to avoid falling into the trap so many older millennials have landed in. To get started, you can use a mortgage calculator to figure out how much house you can afford without exceeding that 30% threshold. Though there are some exceptions to the 30% rule, for the most part, it's a good guide to follow. If you manage to keep your housing costs low from the start, you can avoid some of the financial problems so many of your peers have likely already faced.