Podcast Summary: "How Much Home Can You Really Afford in 2025?"

Money Guy Show
Hosts: Brian Preston and Bo Hanson
Release Date: June 4, 2025

1. Introduction to the Topic

The episode kicks off with a pressing question relevant to many young and prospective homebuyers: "How much home can you actually afford in 2025?" Brian Preston introduces the topic, highlighting the growing concern among young individuals about the rising costs of homeownership.

Brian Preston [00:05]: "Here is a big question that a lot of young people are thinking about. How much home can you actually afford in 2025?"

Bo Hanson emphasizes the elusive nature of homeownership today, likening it to the "white whale" – a seemingly unattainable goal.

Bo Hanson [00:12]: "It's almost like for people today that are not homeowners yet, it's almost like it's the white whale. It is like that unachievable goal that it seems to keep moving further and further."

2. Data on Median Income Required to Afford Homes by State

Brian introduces a visual capitalists map showcasing the median income needed to purchase a three-bedroom home across different states.

Brian Preston [01:02]: "There's this interesting map that's come up in our purview of how much people have to make to afford homes in each state."

Bo clarifies that the data represents the median income necessary to buy a three-bedroom home per state.

Bo Hanson [01:15]: "This is the median income recommended for buying a three bedroom home by state."

3. Affordability Challenges and Statistics

The hosts discuss the significant disparity between the recommended median incomes and the actual median household income in the U.S.

Bo Hanson [02:06]: "The average is about $124,000. Well, if you think about $124,000 being the recommended income, and we know that right now the median household income in this country is right at about $76,000."

This gap implies that individuals need approximately 160% of the median household income to afford a three-bedroom home, pushing many into aggressive financial decisions.

Bo Hanson [02:43]: "They're saying that you need about 160% of the median household income in order to buy a three bedroom home. That's daunting and I think it's causing a lot of people to potentially make... aggressive financial decisions."

4. Money Guy's Home Buying Checklist

Bo outlines essential rules to guide prospective homebuyers in making sound financial decisions:

1. Stay in the Location: Commit to living in the chosen area for at least five to seven years.
2. Down Payment Flexibility: First-time buyers can put down less than 20%, though it's advisable to determine an appropriate amount based on personal savings and local housing costs.
3. Housing Cost Limit: Ensure that housing expenses do not exceed 25% of your monthly gross income.

Bo Hanson [03:10]: "The most important one when it comes to affordability is that my housing costs cannot exceed 25% of my monthly gross income."

5. Case Study: Affording Homes at Different Income Levels

Using the Money Guy rules, the hosts present a case study illustrating how income levels affect home affordability:

• Median Household Income ($75,000): Affords a $250,000 home.
• $100,000 Household Income: Enables the purchase of a $330,000 home.
• $125,000 Household Income: Allows for a $409,000 home.

Bo Hanson [04:17]: "We're going to assume that you have a 5% down payment... what size home does that mean that you could afford?"

This analysis underscores the regional variations in home prices and the challenges faced by those earning median incomes.

6. Strategies and Takeaways for Buyers

Brian and Bo offer actionable strategies for potential homebuyers:

• Utilize Online Tools: Moneyguy.com offers a home buying calculator to help individuals assess their affordability based on personal financial data.

  Brian Preston [02:43]: "If you go to moneyguy.com resources we actually have a home buying calculator... seeing how this all lays out for you."

• Adjust Financial Priorities: It's acceptable to pause certain financial steps to achieve life goals, such as homeownership.

  Bo Hanson [06:34]: "Money is nothing more than a tool that allows you to achieve the goals that you have."

• Flexibility in Down Payments: While 20% is traditional, first-time buyers can consider lower percentages based on their financial situation.

  Bo Hanson [07:38]: "Maybe it's 10%, maybe it's 15, maybe it's 20. But you get to define that for yourself."

• Diversify Financial Assets: Avoid over-reliance on home equity by building a diverse portfolio of investments.

  Brian Preston [08:48]: "Don't let your success... too many Americans count on their house being their biggest financial asset. It is what we call a use asset."

7. Listener Questions and Answers

The latter part of the episode features a live Q&A session where listeners pose questions to the hosts. Below are highlights of some key questions and responses:

a. Housing Affordability for First-Time Buyers

Question by Colby P. [10:17]:
"I'm 23 and on step six of the financial order of operations. I'm saving for my first home in a high-cost area. To keep my monthly payment at 25% of my income, I'd need to put 40% down. Would it be smarter to put down 40% upfront or do 20% and keep the rest in a high-yield savings account?"

Bo Hanson's Response [10:44]:
Advises maintaining a robust emergency fund and cautious financial planning to avoid overextending oneself.

Bo Hanson [11:58]: "You really ought to think about fully funding that emergency fund... whether it's selling losers or some winners... you can net to zero."

Brian Preston's Insight [14:02]:
Emphasizes the importance of career stability before making significant housing commitments.

Brian Preston [14:55]: "You don't have to feel like if you're trying to solve it, you'll get peace... making lifestyle choices could come back to bite you."

b. Managing Emergency Funds and Investments

Question by Coco for Otoro [43:00]:
"I had to dip into my emergency fund and now I'm struggling to build it back up. Should I continue investing, or prioritize rebuilding my emergency fund?"

Bo Hanson's Advice [43:06]:
Recommends prioritizing the emergency fund before resuming investments, suggesting strategies like cutting expenses or increasing income.

Bo Hanson [43:36]: "Get that emergency fund back... cut your expenses down... Or increase your income."

c. Planning for Special Needs Children

Question by Caleb S. [36:28]:
"My wife and I are planning for the future needs of a special needs child. We're on step eight of the financial order of operations. How do we plan for needs that are not fully known?"

Bo Hanson [36:28]:
Encourages conservative financial planning and utilizing tools like ABLE accounts for special needs savings.

Bo Hanson [40:34]: "Saving for multiple retirements, not just mine and my wife's, but also for my kids."

Brian Preston [36:51]:
Shares personal experiences and highlights the importance of estate and trust planning.

Brian Preston [39:36]: "I want to prepare as a parent who's gone through this journey... you don't have to feel like if you're trying to solve it, you'll get peace."

d. Graduate School Funding and Tax Benefits

Question by Ken B. [50:02]:
"I'm 33 years old, making $120k in Indiana. I'm looking to go to graduate school in three years. Indiana offers a 20% tax credit on 529 contributions. Should I prioritize the 529 for tax savings?"

Bo Hanson [50:42]:
Explains the benefits of using tax-advantaged accounts like 529s and advises on optimizing payment strategies.

Bo Hanson [50:42]: "If using a 529 is just a short-term conduit... there is nothing at all wrong with that."

Brian Preston [51:57]:
Stresses the importance of maximizing tax benefits while maintaining a solid financial foundation.

Brian Preston [53:11]: "Respect emergency reserves... Make sure the why intersects."

e. Employee Stock Purchase Plans (ESPP)

Question by Wes [56:38]:
"My company has a generous stock purchase plan with a 15% discount. How does this fit into the financial order of operations?"

Bo Hanson [57:26]:
Supports taking full advantage of ESPPs while cautioning against over-concentration in company stocks.

Bo Hanson [57:55]: "Once I hit the qualifying disposition, I'm going to begin selling that off."

Brian Preston [58:15]:
Highlights the importance of having a strategy to diversify investments and avoid excessive reliance on employer stock.

Brian Preston [58:15]: "Reinvest the earnings... keep that separated from your investment capital."

8. Conclusion and Final Thoughts

Brian and Bo wrap up the episode by reiterating their commitment to empowering listeners with financial knowledge. They emphasize that money is a tool to achieve personal goals and encourage listeners to utilize the resources available on their website.

Brian Preston [61:29]: "Money is a tool. It's not the goal. If you don't have your why lined up and understand what you're actually building for, I think you're gonna find it's just not fulfilling."

They also extend gratitude to their live audience and remind listeners to subscribe to stay updated with their content.

Key Takeaways

1. Understand Your Budget: Utilize tools like the Money Guy home buying calculator to assess affordability based on personal income and local market conditions.

2. Prioritize Financial Stability: Maintain an emergency fund and avoid overextending financially when considering major purchases like a home.

3. Flexibility in Financial Planning: Be open to adjusting traditional financial rules (e.g., down payment percentages) based on individual circumstances and goals.

4. Diversify Investments: Avoid placing all financial assets into a single investment, such as a home or employer stock, to mitigate risks.

5. Strategic Goal Setting: Align financial decisions with personal life goals and long-term aspirations to ensure fulfillment and stability.

6. Leverage Tax-Advantaged Accounts: Make use of available tax benefits, such as 529 plans and ESPPs, while maintaining a balanced and diversified financial portfolio.

For more insights and resources, visit moneyguy.com/resources.