SPENDING FUTURE INCOME 2

One big reason for households to spend future income through the use of & dependence on credit cards (and pile up credit card interest & penalties) is the huge portion of monthly cashflow that has to go into servicing a mortgage.

During the previous period of easy housing money, financial institutions were tolerating and allowing mortgages that ate up as much as 35% to 40% of the household’s monthly cashflow. This is one road to financial disaster.

Having to carry more than 30% of monthly cashflow to service a mortgage will leave inadequate cash for other necessary expenses and lead to inordinate reliance on credit cards, more interest & penalties, loan sharks & subprime credit . . .

The thumb rule for a mortgage that will allow the average houshold to have enough cash for other expenses, to afford a comfortable standard of living, and to maintain a savings rate of 5% of income is 30% of your monthly cashflow.

image from Microsoft Clipart