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We've got some range for you today: Dissecting the recommendation to spend 30% on your housing (and if it's outdated), stories of folks receiving inheritances and homes from their parents, and a social experiment on gender and appearance.

Welcome back to #RichGirlRoundup, Money with Katie's weekly segment where Katie and MWK's Executive Producer Henah answer your burning money questions. Each month, we'll put out a call for questions on her Instagram (@moneywithkatie). New episodes every week.

Reminder: This is not financial advice; we are not certified financial professionals—please do your own due diligence.

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Our show is a production of Morning Brew and is produced by Henah Velez and Katie Gatti Tassin, with our audio engineering and sound design from Nick Torres. Devin Emery is our Chief Content Officer and additional fact checking comes from Kate Brandt.

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Mentioned in the Episode

• Florence Given on “when women are most beautiful”

• The 50/30/20 budget

• The 30% rule on housing

• History of the 30% rule

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Katie:

Welcome back, Rich Girls and Boys to the Rich Girl Roundup. It's our weekly casual conversation version of The Money with Katie Show. I'm your host, Katie Gatti Tassin. Here's a quick message from our sponsors.

Before we get into it, this week's upcoming main episode is about lifestyle creep, which is something that I thought we had covered on this show before. I've addressed it so many times it feels like, but it turns out we've only really talked about it in the blog in writing. So I was like, oh, this will be fun. We'll do a little stroll down memory lane. We'll review five years’ worth of philosophical reflections on this topic, see how it's evolved, and where I think the personal finance world more broadly kind of gets it wrong and also where they get it right. So that's coming on Wednesday.

On to the roundup. Henah, what are we discussing today?

Henah:

Well, we have to take a little detour because I feel like I'm talking to Carmela Soprano herself in the flesh.

Katie:

My 23 and Me results are beaming inside some DNA test tube in an office park cubicle.

Henah:

She has the bangs. She has the face framing layers, the bangs, the hair pulled back.

Katie:

Yep, yep. We got a new haircut, guys. I know. I went in for my normal haircut and my normal partial highlight, and I sat down and I just said, I think I want to just be “Elmo in the fire GIF” today. So we started with bangs and then I was like, you know what if we also dyed it pink?

Henah:

My favorite part about you posting your hair was people being like, now we know when you recorded content the day before.

Katie:

Unfortunately I had three videos in the hopper that had not gone out yet with my old hairstyle, so everyone was like, oh, this is old.

Henah:

Okay, well, you did pose a really interesting question, so I wanted to talk about that.

Katie:

Yeah. Okay. This is just funny. I saw a video from a writer named Florence Given who coincidentally also has bangs and pink hair, which maybe there's something subconscious going on there.

Henah:

Oh and you love her.

Katie:

Yeah, and she was talking about how women are their most beautiful selves when they're fully embodied and engrossed and enthralled in something and crucially not thinking about how they look. So not aware of their appearance and the video's like five minutes long. I shared it on Instagram stories too. I just thought it was so mind blowing because she's talking about how a lot of the time we as women are so aware, even if it's just a small fraction of our attention all the time, that is aware of how we look to other people and if we're in different lighting or if our hair's not done or we're talking to someone outside and it's over. Really interesting element of being a woman that you spend so little time in your body, in your own lived experience and so much kind of self objectifying and projecting how others are perceiving you.

So I asked my husband, I said, how often, what percentage of time do you spend thinking about what other people are thinking about how you look or thinking about the perception of your appearance? And he did not understand the premise of the question. He was like, what? Really? 0%? He was like, yeah, no, I don't think about that. And so I asked on Instagram, I said, everybody go ask the men in your life what they have to say. So I'll share some interesting responses. But Henah, did you ask your spouse?

Henah:

I did. I asked my husband and I asked my brother and my brother said, maybe 5% when I'm getting ready in the morning.

Katie:

That was a common one.

Henah:

If it's a Saturday and I'm not going anywhere, maybe 3%. And he said he thinks more about how he comes off personality wise or how he's talking in front of people in meetings, that kind of thing. Which is funny because Jovanni said the same thing. He said, I usually focus on how much more my personality is coming off. I don't want people to think that I'm a douchebag. And then he said, it's probably a small number close to zero. It's more that I look at myself while I'm washing my hands in the bathroom to make sure my shirt is tucked into my pants. But that's about it. So I was like, that must be so nice to be the only time of day that you think about this.

Katie:

What is your answer? How often do you think about it?

Henah:

If I know someone is looking at me a hundred percent of the time?

Katie:

Right?! Okay.

Henah:

That's what I'm saying.

Katie:

I feel like there is always some part of my brain that is self-surveilling and policing what I look like to other people.

Henah:

Even on these recordings, I'll be like, oh, my chin looks weird at this angle. Let me turn my head down.

Katie:

I know. I'm fixing my new bangs. I'm like, oh, I don't like the way that, okay, let me get my phone. I'm going to read some of the funnier and more poignant entries. They run the gamut.

Henah:

How many responses have you gotten so far?

Katie:

A lot of people have weighed in, let's see, responses. So okay, this is a guy answering. I don't think about that at all. I only concentrate on the people that care about me, which I'm like, okay, interesting.

Henah:

That's what I wish I would say.

Katie:

I know. This woman says my husband said none, and he has alopecia and then the little fire emoji. This is a guy who says, I think about this all the time as a bullied former chubby kid, I still do all the time. That was a common answer for men who said, I've struggled with my weight or I have body image issues. That was a common response from the guys that were saying they do think about it.

And then a lot of the answers from women who had asked their husbands were hilarious. Not much if ever. He said he checks his hair in the bathroom mirror, but otherwise never zero. He said, eye roll emoji zero. I don't even have to ask my husband. I know it's zero 1% LOL. Definitely zero on the daily. Maybe once or twice a week I'll think about it.

Henah:

What must that be like to have that much free brain space for other things?

Katie:

Right. Okay. And then this person just put in quotes, this is what their husband said. I don't really understand the question.

Henah:

That's my favorite response.

Katie:

Lots of 0%, 1% people being like, my husband doesn't get it. Oh, this is good. Hubs didn't even dignify the question as if, why would he even waste his time on that must be nice.

There are some that said, I spend 30 to 50% of my day worried about that. So I'm like, it's not like there's no one. It's just the overwhelming amount of them are like, no. But there was one person who responded who said, as a gay man, I not only think about how I might look, but also how inferior I might be perceived while talking. And I thought that was interesting. I was like, oh, there are layers to this.

Henah:

It’s so ingrained in women to spend time thinking about this that we don't even realize that other people are not thinking about this.

Katie:

Yeah. Yeah. The self surveilling.

Henah:

Yeah, I cannot…

Katie:

Well, go listen to hot girl hamster wheel, I guess.

Henah:

But more than that, I'm like, how freeing would it be to have that much time back and mental bandwidth and energy back to not care at all? Because sometimes when you're in full sloth mode and you're rotting in bed on your laptop and then you see a reflection, you see your reflection on the laptop screen and you're like, oh God…

Katie:

Rotting in bed.

Henah:

The triple chin is out, the hair is everywhere, that's probably the only time that I'm not fully thinking about how I look.

Katie:

Yeah. Gosh, it's so funny. Okay, well, I just thought that that was such an interesting aside. So if you're not on the Money with Katie Instagram yet, come join. We'll do fun things like that from time to time as they enter the zeitgeisty psyche. But what are we talking about for today's Rich Girl Roundup?

Henah:

So this week's question came from Sarah P. They said, how can I cope with paying more than the standard 20 to 30% on rent when you love your home and the location? And that was their question. But more broadly, this brought to mind for me the traditional financial advice of not spending more than 30% on housing and kind of when that trade off might seem a little bit maybe upside down or not accurate. So I wanted to chat through this with you, Katie, but I did some digging about traditional financial advice and where it all came from. And so people are really familiar with that 50, 30, 20 model, which is 50% of your budget goes to needs 30% of wants, 20% of savings. And of that 50%, the rule of thumb is you don't spend more than 30% of your take home pay on housing, and I think even your Wealth Planner suggests 28%. And so I was looking into the history of the 30% rule, and I was really surprised because I did not know this. It has roots in the 1969 public housing regulations that came out.

Katie:

Interesting.

Henah:

It came from the fact they'd capped public housing rent a 25% of a tenant's annual income, which then inched up to 30% later.

In that sense, they were kind of arbitrarily picking this number from that subset of folks who are in public housing. But the problem today is that Americans now have other things that they have to pay for, other things that they worry about that back then they didn't have to. So for example, student debt was not really as big an issue. They didn't have to contribute to 401(k) plans, because the pension was the more standard retirement plan. And so I guess in some ways you would want that number to be lower if you have these other situations going on. But I was curious, how did, did you know that?

Katie:

No, I didn't know. I kind of always wondered where it came from. I figured it had something to do with lending requirements, but it makes sense that even the lending requirements came from somewhere. I just figured there was some quant in an actuarial department of an insurance company or a mortgage lender somewhere 50 years ago that was like, all right, according to my calculations, this is the maximum we can squeeze people for the sweet spot of what will let people borrow, where they're least likely to default, but we will make the most money. So interesting that it was public housing. That was the impetus.

Henah:

Do you feel like that number still makes sense today?

Katie:

Well, yeah. It's an interesting question too around the averages in that originating group. So I guess to speak more to the lending element, if we're talking about buying housing, obviously Sarah is asking about rent, but I believe traditional lending requirements will allow you to borrow what would then amount to up to 28% of your gross pay for your mortgage payment, which if you just kind of quickly do the math on that, that can end up closer to 40% of your net pay when all is said and done and you're factoring in the other elements of not just the mortgage, but other housing costs like taxes and insurance.

And so I guess while the size of your overall income will determine how feasible that is, if you're making a hundred thousand dollars a month and you're spending $40,000 on housing, then maybe, yeah, you can probably get buying on the other $60 grand. The more money you have, the easier.

But I don't know, I think to determine how feasible that even is for the average person, if you're talking 40% net pay going to the roof over your head, which again is if you're borrowing at the top of your lending requirement allowance, then 40 cents of every dollar you take home going to housing, I would think that would feel pretty tight for everyone. But the most highly paid individuals though, if this is your situation and you feel differently, please email us. Send us an email at moneywithkatie@morningbrew.com.

Henah:

I think I would maybe fall into that scenario of people because when my husband and I lived in San Francisco, we had a two bedroom, one bath house for $4,000 a month. It was actually considered on the cheap side of things, and that was definitely way more than 30% of our net pay at the time. And so I think I would fall into that. But I know also even when you're renting, you have to make three times your rent in your salary or income anyway for you to qualify for a lot of these. So I feel like either way they kind of get you with the 28% to 35% rule.

Katie:

Yeah. Was it tight? Did it feel tight?

Henah:

It didn't. Only because I don't think that lifestyle creep had affected us yet. However, we didn't have much of a choice because we needed a home in kind of maybe an urgent timeline. We only had three weeks to get up there. We had multiple pets, so we had to look for pet friendly housing. We had to be within driving distance of my husband's office. So it kind of felt like we were pigeonholed.

But now in Atlanta, we're much closer to that 30% number. But for me, it felt very much worth it similar to Sarah because I work from home. So to me, I'm like, yeah, it might be more than I would ideally like to spend, but I love my home and I spend 98% of my time in there.

Katie:

I think of best practices like these as in the corporate world, as we say, thought starters.

It's a starting point. If you spend in line with the averages for everything else, then the puzzle piece for housing will only fit into place if it's also in line with the average. But if you're spending below the average on other things, then you're kind of by definition buying back some wiggle room.

So I always like to illustrate with the example of people that live in New York City, if you're not spending the average 10% of your income on a car, then maybe 40% of your income on housing is actually comfortable to spend because you just bought back another 10%. And as we kind of alluded to with the example of someone who makes a $100,000 a month, the best practices kind of break at very high or very low incomes. People who live in poverty tend to spend more than 50% of their income on housing. People who are very, very wealthy may live extremely lavishly, but still spend relatively speaking very little on housing despite the nominal costs being super high.

So I think the underlying reason why those best practices around things like housing are useful is just because the housing is probably your biggest expense, and it's the thing that you would be most unable to go without or quickly downsize if you were to lose your income. So if it's already really tight and it's not allowing you much wiggle room, then it stands to reason that any interruption in your cashflow could be more dramatically felt.

So I think as I was reflecting on this, I was like, I think if you're going to spend a larger than average percentage of take home pay on housing, then maybe just prioritize a larger than average emergency fund as one way to protect yourself. So in case something happens, it doesn't create a situation where you're feeling stuck or unable to meet the demands of your landlord or your lender.

Henah:

Well, lucky for me, I have too much liquid cash as you all know. So perhaps I am stocked in that arena. No, I think that that makes a ton of sense. And also because it's your shelter. So if you have dependents, if you have pets, if you're living with someone else, those are things that you also need to keep in mind. And I know for me, living in a high cost of living area, there wasn't a lot of range available, but if you can make more money, then that's kind of why I think sometimes focusing on increasing your income might be more valuable than trying to finagle 5% to 10% of your budget into neatly defined categories.

But I do think that there's an interesting rent versus buy calculation that's worth running here, because I know when you did an episode, I don't remember what episode it was, you said, does that mean that you should rent at the tippy top of your income, whatever you feel comfortable with? And you were like, maybe not because that's going to make your—

Katie:

Harder to save for a house.

Henah:

Yeah, harder to save. But at the same time, I think that if you're spending slightly more and you have the flexibility with renting, and it would still be less than if you were to buy a home of the comparable size or same area, then I feel like it's okay to spend more than the 20 to 30%. What do you think?

Katie:

It almost feels like what really matters is what is happening with the rest of the money? Are you still able to save a lot of money or is it making it impossible to do so? Which I think almost always is going to boil down to percentages are great, but what is the total income we're talking about? Because that's kind of where the rubber meets the road.

And if you're a renter trying to become an owner, then renting at the tippy top of your affordability and not saving money for the, you're just in a cycle at that point. So I think that the other element of the renting and owning that's interesting is I do think that the answer maybe varies ever so slightly depending on whether you're paying more for rent or your principal interest, taxes, insurance, and that's that rent can be easily changed within 12 months if you need to downsize or if something changes in your financial situation, that means, okay, this thing that used to be only slightly too expensive is now way too expensive because my income has changed or my other expenses have changed, you have more flexibility to adjust that expense.

But even though that's not really the case with owning, you could sell a house, but as we all know, you don't really want to have to sell a house quickly or from a position where you're on your back foot a little bit because it's such a huge transaction. But when you're talking about principal interest, taxes and insurance as an owner, some percentage of those expenses, the principle is going back into an asset that you own. So it's not quite the same as an expense that's going fully out the door.

So I guess I would probably say if this is an issue or a consideration where you feel like it's a little bit on the borderline as an owner maybe trying to figure out what percentage of the monthly outgoing cashflow is going toward equity and then almost negating that off or netting that off and going, okay, what's the unrecoverable cost associated here? Is that less interesting than that upper threshold? Because the rest, I mean, the other money is technically kind of staying in your pocket unless the home value really goes down, which is possible. It's not like that's never happened before, but if you're really going to stay in that house for a while, theoretically you will someday get that money back. So that's something else I would think about.

Henah:

The tides are turning people, Katie's coming around on the home ownership piece of this perhaps.

Katie:

Sadly, no, not right now. I did, I just talked to Katy Song, the CFP about this, we're going to move next year back to Colorado most likely. And so I was asking her about whether we should rent or buy, and she's looking at all of our numbers and we're talking about how much we rent for now and the home value we rent for now, and the median home value in Boulder, Colorado is $958,000.

Henah:

Small potatoes.

Katie:

She ran an analysis on homes worth between $1 million and I think $1.4 million to be like, what is the range of values? If the median is $960K, then half of the houses cost more than that. So she looked at the values.

We actually compared the house that we rent here is Zestimated, we'll say, at $1.1 million. Granted, we are in Northern California, so houses are not exactly inexpensive here, but we pay around $5,000 a month, and the numbers for the Boulder, Colorado home purchase of a $1.1 million house would've been, $230K down. So you're initially pulling $230,000 out of the market, and then monthly, depending on the interest rate with insurance and taxes included between $7,300-$7,600 a month.

And she was like, yeah, no. She's like, would not do that, would absolutely just keep saving and investing. The difference, would give it some time. And she's like, just be opportunistic. Wait for the next downturn. Wait for something in the economy to change. Wait even until you maybe find an interesting deal off market or something eventually will change, right? Nothing goes up into the right forever. There's going to be blips in that climb. So she was like, be opportunistic financially. I would not recommend making that choice right now. And I was like, dope. Don't have to tell me twice.

Henah:

Well, this kind of relates, I think, to the crazy money story I had for this week.

Katie:

Okay…

Henah:

So it's two short stories, but I wanted to get your thoughts on these because they blew my mind. Okay. The first one, a friend of mine told me that her uncle was selling their home, and the buyers were parents who were gifting their child a home for their wedding.

Katie:
Oh my God.

Henah:

So the uncle sold a house worth five or $600,000. Parents bought it to gift to their kid, and then I also know someone personally who is gifted a $2 million penthouse after graduation and it's paid off. So I wanted to know what you thought, Katie.

Katie:

Well, immediately I'm like, is there a tax implication on gifting a $2 million penthouse?

Henah:

I like how that was your thought and not, oh, can that happen to me? That was my thought.

Katie:

Well, because immediately I'm like, there's got to be some sort of loophole or tax benefit. Someone was doing that to take advantage of.

Henah:

I don't know. I want to assume that maybe it's under their parents' name and they just pay the insurance taxes, HOA fees kind of thing.

Katie:

At that point. Oh my God. You know what though? I mean, but even if you have a $2 million place that's paid off your property taxes, your insurance, those things are based on the value of the home and they never go away. And in New York City, if you're talking about a penthouse, you're also probably talking about building fees, HOA fees. There's certainly other costs associated. I bet you they're paying $5-$10k month, just an unrecoverable cost to maintain that $2 million place.

Henah:

I think yes, easily, but also, I guess I'm just more shook about the fact that these parents were gifting these things to their children at such high value.

Katie:

Yeah, okay. I just Googled it. Anytime you gift another person property valued over $15,000. I think that's the gift tax exclusion. You have to fill out a gift tax form.

Henah:

I think it might just be under their parents' name though.

Katie:

Oh, they didn't actually transfer ownership.

Henah:

I think they were like, we bought a $2 million home. You can stay there now and only pay this. It's yours, and when we die, it'll be yours. Anyway. That's my thought. I don't know.

Katie:

Oh my gosh. You know what though? Could be kind of a play though for the parents if they're like, oh, all you have to do is pay the $5-$10k/month in operating costs and it's yours. It's like they basically just, they got renters out of it. Their kids are just the tenants that are covering the costs.

Henah:

I have a couple of friends recently who told me that their parents basically bought them a home or gave them their inheritance money now so that they could have a longer timeline with it, and their parents don't feel like they have to die in order for their kids to enjoy, and they get to see the fruits of that. Not in that scenario. I wish I, no, actually, mom, if you're listening, enjoy the money. It's yours. But I don't know. I don't know what it's like to have that much wealth where you could just gift your child a home.

Katie:

I know. My parents any, because they're still so frugal, I try to threaten them into spending all their money. I'll be like, if I inherit your money, I'm going to spend it on Birkin bags, so you might as well spend it. You might as well enjoy it.

Henah:

Don’t you have to get invited to buy a Birkin bag?

Katie:

Yeah, I'm going to spend it on playing the Hermes game so that I can get it. I'm just trying to drive home to them. You should spend it. I don't need it, and I'm going to waste it if you give it to me. So you spend it, you enjoy it.

Henah:

My parents' current thing is that, yes, they could give it to me, but they're worried that they might need it for healthcare when they're older.

Katie:

Of course, of course.

Henah:

They’re like, this is this nest egg we're planning to leave you, but we don't really know. So I'm just surprised. And parents are like, here's your inheritance early, because what if you end up needing that money?

Katie:

It just goes to you how wealthy those people actually are because that's probably just a very small fraction of their overall.

Henah:

No, both of the people I can think of their parents are working families, working class people.

Katie:

Interesting. Yeah. Then I don't know. I mean, yeah, I would assume that you'd be afraid to deplete your estate early because you're right. You never know what the future holds. You get into a nice, upscale, assisted living facility. You're talking $150k a year, easy. So that's surprising to me.

Henah:

You would know Carmela, you paid for Livia in that house, who knows how long.

Katie:

All right. On that note, that is all for this week's Rich Girl Roundup, and we'll see you on Wednesday to talk about the dangers of lifestyle creep.