How to Avoid Being House Poor: A Guide to Regaining Financial Freedom

Being house poor is no way to live. You’ve decided to go and buy your dream home but now you’re left with little money for things like groceries, let alone saving money or planning for retirement. House poor is a phrase that applies to someone who spends an inordinate amount of their income on home-related expenses and ends up with little left to spend on other costs of living.

It is less of a problem for people who live in fast growing markets. The housing market in Houston is red hot and an investment there may make a profit in a few years. This can be a great improvement over slow housing markets in the central midwest.

You may need to refinance your home, get a second job or you say; sell my house fast. The complexities of the housing market and increased home prices make it all too easy to fall into the house-poor trap. To rectify this problem, worried consumers can review some tips to help improve their financial management skills.

Evaluate your Financial Situation

The first step to managing your finances is to assess your financial position – your income and expenses. To do this you need to prepare a budget that identifies your cash inflows and outflows. When preparing your budget break your expenses down into two broad categories – nondiscretionary and discretionary expenses. Nondiscretionary expenses are expenses that you have to make, whether you want to or not, like buying groceries or paying your rent. Discretionary expenses are expenses that you make by choice, like buying a new pair of shoes or going out for the evening. Think of your spending in these two very broad terms – you will have better control of your finances if you do. Another financial consideration is your debt-to-income ratio. This ratio measures the proportion of your income that goes towards debt repayment (e.g. the monthly interest charged on your mortgage, your monthly credit card payment or your monthly student loan payment). The higher your debt-to-income ratio the greater your financial risk.

Tips for Evaluating Your Financial Situation

Creating a budget is the first step to visualizing your money flow and accordingly prioritize your expenses. You can categorize your expenses, for example, between non-discretionary and discretionary expenses.. Doing so may help you realize which expense categories can be reduced or removed in case of necessity. Determining your debt-to-income ratio is another important factor as people can avoid any future debts that are necessary and also they can pay off some of the current debts that are so as to decrease the ratio of the debt to the income. Some other ways to improve your financial awareness could be to consider how to cut back on your spending. It also helps to visualize what to cut back on e.g. eating out, pocket money , do away with subscriptions etc.

Review your Housing Costs

Typically, your housing costs will be the largest item in your budget. Housing costs can be fixed (that means, you would have to pay them no matter what —— like the mortgage, taxes and interest rates) or they can vary (which usually means they will always be different —— like the yearly maintenance or repairs and the utilities).

Here are some ways to look at your housing expenses: Make sure you know the fixed housing expenses. To calculate what your fixed expenses are or might be, you may want to find out how much the mortgage payments, taxes —— and insurance and interest costs —— will ‘eat’ of your household budget. Then, decide what portion of your budget the fixed housing expenses will consume. (It may help you to know that the less you spend on fixed housing expenses, the more money you will have left to pay taxes and insurance.)

Review your mortgage and its terms. For a mortgage, you should consider the number of years you will have the loan (the amortization term) and possibly the cost of your credit or interest rates. You might want to talk to a mortgage professional to see if you can figure out what mortgage is right for you.

Review your insurance. Insurance is something that homeowners pay for every year. If you want to know what your house insurance costs, you can look on your property insurance from your insurance provider. Your premium cost should be somewhere around what is being listed. Then, figure in some VARIABLE expenses associated with housing. Developing your knowledge of the variable housing expenses associated with the home. Then, you will see a row for all the housing. Some of these rows have actual cost information and others will have budgeted amounts.

Consider Refinancing

Refinancing is a complicated process which generally includes lowering interest rates, extending loan terms, and establishing a new loan with more beneficial terms to the borrower. To begin the path toward refinancing you will have to evaluate your long-term spending and have an idea of where refinancing fits into your personal goals. The following tips will definitely support you in making an informed decision: Explanation of what Refinancing is and How Does It Work: Refinancing enables you to take advantage of lower interest rates and new terms that can change your payment schedule. Refinancing can reduce your interest rate which will allow you to save money every month on your mortgage, usually. This will offer you a lot flexibility; money is often the attraction for many people to refinance. When Does It Makes Sense for Refinancing: When mortgage rates in commerce are considerably lower, than when you initially got the residence, would be a good time to refinance. Refinancing can cause a sizable reduced amount of debt for many things, so it becomes a great deal for many different reasons. Pros and Cons of Refinancing: There are pros and cons to obtaining a refinance loan, as with any financial decision. Billing costs, quit fines, assessment costs, and other related fees are only a few of the additional charges that can be somewhat expensive.

Downsize or Rent a Room

Downsizing is an excellent option to consider to help with being house poor. It involves moving to a smaller house or taking on a roommate who can help offset housing costs, both ways will help cut down expenses. Here are a few tips: Explanation of Downsizing: To downsize, one needs to consider a property with smaller square footage or renting out a smaller apartment to help ease their housing costs.

Benefits of Downsizing: Downsizing eliminates excess space and allows you to cut back on all the items you do not need, provides a more straightforward housing situation, an effortlessly maintainable home which likens to an easier lifestyle.

Exploring Alternative Housing Options: Alternative options include renting a room in your home, which can give you the extra cash to help manage your housing costs. This option can also benefit from company limited otherwise felt by living alone.

Consider Increasing Your Income

Increasing your income, beyond cutting your housing costs, leaves more money in your budget. Here are some options:

Ways to Boost Your Income:

  1. Side jobs, freelancing, starting your own business and other careful means of earning more other than your regular, full-time job.
  2. Evaluating Your Skills, Interests, and Experience to Identify Opportunities for Additional Income. Just like taking on meaningful activities or projects that build your expertise, increasing your skills acknowledges you as an expert in that specific domain, builds your knowledge base across industries and helps you gain insights on how businesses operate.
  3. Balance the Pros of Additional Income Against the Potential Cons of Taking on More Work. Keep time in check to avoid burnout, take up as much as you can handle comfortably and respect manageable boundaries.

Seek Professional Advice

With proper management of finances and keeping housing expenses under control, seeking professional help may be necessary, to get help with the housing debt and come up with a plan for managing it. Seek Help from a Professional Financial Planner: One of the best ways is to learn from the professional financial planner about the categories of necessary expenses to effectively manage money, and also to growing their overall loans so this allows them to design a mutual plan. Investigate Alternatives to Buying Traditional Homes: The non traditional home ownership options such as co-living, or learn to rent tiny spaces parts of their home, if they’re available, may offer them flexible, more sustainable, and cheaper living arrangements without them make lengthy trust and go on to pay them. How to Bargain Deal with Mortgage Landers: Mortgages are generally very costly, and are not ready to sell pursuant to a refinance of the debt. The lender may agree to lower of the amount the is due on the payment before or the whole these loan for family by shorten the duration in the short term.


When the issue of financing plus being house poor enters into the picture, fear may set in, but the critical component that can’t be overlooked is managing your financial portfolio with extreme care. Spending in today’s world is challenging many households at just a clip lower than your housing expenditures, a monthly commitment that easily influences over 60% of your particular monthly obligations.

Pay for the services related to the professionals like will undoubtedly helps you to improve the financial schedule and the program, which in turn limits the debts to a great extent. With the daunting idea of housing burdens, it just simply refuses to be down; the economy is always ongoing so household loans might be less strenuous. Keep your promises to your main objective of housing expenses by moving forward, regardless of how it feels when you owe back certain debts.

How to Avoid Being House Poor: A Guide to Regaining Financial Freedom was last updated April 4th, 2024 by Kelly Maryland