The Average American Spends $1,674 a Month on Housing -- but Is That Too Much?

How much housing expense is too much for your budget?

When we think about what we spend a lot of money on, it's hard to miss housing. It's often thought of most Americans' largest monthly expense, and recent research by The Ascent confirms that. Typical Americans spend $1,674 a month for a roof over their head. Is that an appropriate sum, or is it going overboard?

Is housing busting budgets?

As a general rule, housing costs should not exceed 30% of your take-home pay. And by "housing costs," we're talking mortgage or rent payment, property taxes (if applicable -- you don't pay these as a renter, only as a homeowner), and insurance (renters or homeowners). 

Meanwhile, the average American brings home $67,421 in post-tax income per year, or $5,618 per month. That means this typical American should not spend more than $1,685 per month on housing, so that $1,674 is right on target. 

But that's not the end of it -- the numbers actually get a bit better than that. When we dig deeper into that $1,674, we see that only $979 goes toward housing payments, like rent or a mortgage. The rest goes to things like electricity, water, phone service, trash, internet service, and housekeeping -- expenses that generally aren't factored into the 30% guideline stated above. It seems like Americans are on track with their housing costs. 

A decade or so ago, that wasn't the story at all. Thousands upon thousands of Americans overextended themselves on housing, taking on mortgages they couldn't afford in an overinflated market. Many lost their homes by getting in over their heads. It's therefore encouraging to see that housing expenses are now holding steady at more reasonable levels.

How much can you afford to spend on housing?

If you're looking for a place to live and aren't sure how much to spend, keep that 30% rule in mind, but you should also look at your other expenses to see if you would benefit from adjusting that figure downward. If you owe a lot on your credit cards, for example, and spend a large chunk of your income to pay down that debt, then it's smart to keep your housing costs lower -- perhaps 20% of your take-home pay. The same holds true if your savings account is virtually nonexistent. And if you happen to enjoy luxuries like vacations or restaurant meals, you may find that taking on less house makes it easier to indulge when you want to. 

If you're not in ideal financial shape, you may be better off renting than owning a home. When you rent, your housing costs are more predictable. You write your landlord a check for the amount your lease calls for, pay your renters insurance premiums, and call it a day. When you own property, you risk the variable expenses of maintenance and repairs, which can wreak havoc on your budget. 

It can go the other way, too: In some cases, you might get away with spending a bit more than 30% of your take-home pay on housing. The average American spends $813 a month on transportation. But what if you live in a walkable city, and spend considerably less than that by not owning a vehicle? In that case, you might get away with spending more like 35% or 40% of your pay on housing. And if you move to a city where rents are inflated (think San Francisco or New York City), you may have no choice but to exceed that 30% threshold. 

That many Americans seem to be spending appropriately on housing means they're managing the expense wisely. If you're in the market for a new place to live, it's smart to keep that 30% guideline in mind as you navigate your options, but stay flexible.