The rule of thumb in financial planning circles is that you shouldn’t spend more than 25% of your income on housing costs. But if you live in certain cities, it might be a tad difficult to follow that rule. Pity New Yorkers, whose rent costs 63.1% of their income. And New York is cheap compared with other locations.
The accompanying chart compiles data from The Global Cities Business Alliance, which compared the average wage of workers in different cities around the world with the average rental cost, creating a percentage that is not favorable in places like Boston (29.8% on average), Sao Paulo, Brazil (30.2%) or Sydney, Australia (32.1%). But those cities are downright cheap compared with New York, Hong Kong (64.0%) Abu Dhabi (69.5%) or the outlier: Chinese capital Beijing, where rental housing costs 122.9% of the average worker’s income. If you lived in Beijing, you would have to pay every dollar you earned, plus borrow money each month, equivalent to a fifth of your total income, just to afford normal housing.
From a financial planning perspective, we wouldn’t recommend it.
About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years. Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.
Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association.