There are plenty of personal finance rules out there, and the 28/36 rule is one of the most well-known. It’s designed to help you keep housing and debt costs in check, but like any rule, it’s not one-size-fits-all.
In this post, we’ll break down what it means, how it works, and how to adjust it to fit your financial goals.
Breaking Down the 28/36 Rule
The 28/36 rule is a widely used guideline in personal finance that helps determine how much of your income should go toward housing and total debt. It acts as a benchmark to keep debt manageable while ensuring enough flexibility for other financial goals.
What does the 28 mean?
The 28% figure refers to the portion of your gross monthly income that should go toward housing costs. This includes:
- Rent or mortgage payments
- Property taxes
- Homeowners insurance
- HOA fees (if applicable)
The goal is to prevent people from spending too much on housing at the expense of other essentials. Keeping housing costs within this range allows for financial stability while leaving room for necessary expenses like food, transportation, and savings.
If your housing expenses exceed 28%, it does not automatically mean financial disaster. However, it could indicate that other areas of your budget need adjusting. In high-cost areas, many people exceed this threshold, but the key is to balance other financial priorities to avoid overextending yourself.
What does the 36 mean?
The 36% figure represents the total percentage of your gross monthly income that should go toward all debt obligations. This includes:
- Housing costs (mortgage or rent, taxes, insurance)
- Credit card payments
- Student loans
- Car loans
- Personal loans
This rule helps ensure that debt remains manageable and does not overwhelm your budget. Staying within this range reduces the risk of financial stress, missed payments, or difficulties saving for the future.
Not everyone will fit neatly into this framework. Those with higher incomes may find that they can comfortably exceed these limits without financial strain, while lower-income earners may need to be even more cautious about taking on debt.
Why these percentages matter
The 28/36 rule provides a financial structure that prioritizes stability. Keeping housing and debt costs within these limits reduces the risk of overcommitment and creates space for savings and investments.
These percentages also serve as a useful benchmark for major financial decisions, such as determining how much house you can afford, deciding whether to take on new debt and understanding your financial flexibility before making big purchases.
While the rule helps set clear financial boundaries, it shouldn’t be treated as a strict requirement. Housing costs vary by location, income levels differ, and financial goals are personal.
You might need to adjust these numbers based on your circumstances, whether allowing more room for savings or accommodating higher living costs. Ultimately, the goal is to use this rule as a guideline rather than a hard-and-fast rule, adapting it to fit your unique financial needs while maintaining overall financial health.
How Does the 28/36 Rule Work?
The 28/36 rule provides a structured way to assess financial health, ensuring that housing and debt payments remain within manageable limits. While the percentages offer a guideline, real-world application often requires flexibility based on personal circumstances.
Example of the rule in action
To see how this works, consider someone earning $5,000 per month before taxes.
According to the 28/36 rule, their maximum housing costs should be 28 percent of their income, which is $1,400 per month. This includes rent or mortgage payments, property taxes, homeowners insurance, and any associated fees.
For total debt obligations, the 36 percent limit means that monthly payments should not exceed $1,800. This includes housing costs, car loans, student loans, credit card payments, and other outstanding debts.
If this person’s housing costs are $1,600 per month, they are already exceeding the 28 percent guideline. To stay within the overall debt limit, they would need to lower other debt payments by $200 per month.
This example highlights why the 28/36 rule is a guideline rather than a strict requirement. Financial situations vary, and in some cases, it may be necessary to adjust certain expenses while maintaining an overall financial balance.
The rule provides a useful framework, but personal financial health depends on multiple factors, including savings, emergency funds, and future financial goals.
How to Get Started with the 28/36 Rule
The first step is assessing your current financial situation and then making adjustments as needed. You don’t need to follow the rule blindly, just use it to create financial stability while working towards your long-term goals.
1. Calculate your current ratios
Before making any financial changes, determine where you currently stand. Start by calculating your gross monthly income—this is your income before taxes and deductions. Once you have that number, apply the 28 and 36 percent thresholds.
For example, if your gross monthly income is $6,000, 28 percent of that would be $1,680, which represents the maximum recommended housing expenses. The 36 percent threshold means total monthly debt payments, including housing, should not exceed $2,160. Compare these figures to your actual spending to see if your expenses align with the recommended limits.
If your housing costs are over 28 percent, it does not necessarily mean you’re in financial trouble, but it may indicate the need for budget adjustments. If your total debt exceeds 36 percent, you may need to focus on reducing debt to improve financial stability.
For more information on the 28/36 rule and how to use it to make a purchasing decision, read my article, How Much House Can I Afford Using The 28/36 Rule?
2. Evaluate your current budget
Once you know your current ratios, take a deeper look at your budget. Break down all essential expenses, including rent or mortgage payments, property taxes, homeowners insurance, and any debt payments. Then, review your discretionary spending—things like dining out, subscriptions, and entertainment.
If you’re over the 28/36 thresholds, look for areas where spending can be adjusted. Sometimes, small changes, like cutting back on non-essential expenses, can make a big difference. Other times, more significant financial decisions, such as refinancing loans or negotiating lower interest rates, may be necessary to bring expenses within the recommended limits.
If you need help figuring out your current debts and making a game plan for payments, you can use my Debt Payoff Calculator. You just need to enter your balanced owed, estimated interest rate, and monthly payments.
3. Reduce housing expenses
If housing costs consume too much of your income, there are ways to bring them down. Homeowners might consider refinancing a mortgage to secure a lower interest rate, which can lead to lower monthly payments and substantial savings over time.
If refinancing isn’t an option, making extra payments toward the principal balance can reduce long-term interest costs and shorten the loan term. Moving to a more affordable area is another option, but it isn’t always practical. Relocating can save money in the long run, but it may come with additional expenses, such as moving costs, increased commuting expenses, or a lower quality of life. If relocation isn’t feasible, adjusting other budget areas can help compensate for higher housing costs.
In high-cost-of-living areas, keeping housing expenses under 28 percent may not be realistic. In these cases, adjustments should be made elsewhere in the budget to avoid financial strain. The key is ensuring that high housing costs don’t prevent progress toward other financial goals, such as saving for emergencies, retirement, or long-term investments.
This budget balance is also something you should consider before buying a house. If you want more advice on what goes into the decision, read my article, Should I Buy a House Now? (5 Guidelines & Perfect Timing Tips).
4. Pay down high-interest debt
If total debt exceeds the 36 percent threshold, prioritizing high-interest debt can help bring it under control. Credit card balances, payday loans, and other high-interest debt accumulate quickly, making them a financial burden that can strain monthly cash flow. Paying them off first frees up money that can be used more effectively elsewhere.
One strategy is the avalanche method, which focuses on paying off the highest-interest debt first while making minimum payments on other balances. This approach minimizes the total interest paid over time. The snowball method, on the other hand, starts with the smallest debt balance to build momentum and create a sense of progress. Both strategies work, but the key is choosing one and staying consistent.
For those struggling with multiple high-interest debts, refinancing or consolidating loans can be an option:
- A debt consolidation loan can combine multiple debts into one with a lower interest rate.
- A balance transfer credit card may allow you to move high-interest debt to a zero or low-interest promotional rate.
- Refinancing existing loans can reduce interest rates and lower monthly payments, making debt more manageable.
Cutting back on discretionary spending can also help direct more money toward debt repayment. Even small adjustments, such as dining out less frequently or temporarily reducing entertainment expenses, can make a significant impact over time.
5. Boost your income
If cutting expenses alone isn’t enough to align your finances with the 28/36 rule, increasing income can create the flexibility needed to stay within the recommended thresholds. A higher income allows for easier debt repayment, better savings habits, and more financial freedom.
One option is negotiating a raise at your current job. If you have consistently delivered results, bringing data on your contributions to a salary discussion can help make the case for higher pay. If a raise isn’t possible, exploring new job opportunities with better compensation can be another path to increasing earnings.
Side hustles can also provide an additional income stream. Freelancing, consulting, tutoring, or selling products online are popular ways to earn a second income without committing to a second full-time job. Monetizing a skill, such as graphic design, writing, or coding, can create long-term income potential.
For those more flexible, starting a small business or investing in income-generating assets can create lasting financial growth. Rental properties, dividend stocks, or digital products are examples of passive income streams that can help balance debt ratios without requiring constant active effort.
The Benefits of Following the 28/36 Rule
The 28/36 rule helps keep debt manageable while providing a clear structure for budgeting and long-term financial stability.
Keeps your debt manageable
One of the biggest advantages of the 28/36 rule is that it helps prevent excessive debt. By capping housing and total debt payments it ensures that you don’t take on financial obligations that could become unmanageable. Staying within these limits reduces the risk of missed payments, late fees, and damage to your credit score, all of which can have long-term financial consequences.
Managing debt responsibly also improves your financial flexibility. When debt is controlled, you can handle unexpected expenses, such as medical bills, car repairs, or job loss, without resorting to high-interest credit cards or payday loans.
The less debt you carry, the more control you have over your income, allowing you to direct money toward building savings, investing, or other financial priorities.
Simplifies budgeting
The 28/36 rule removes the guesswork from budgeting by providing clear spending limits on two of the biggest financial obligations—housing and debt. Instead of struggling to figure out how much you should spend in these categories, the percentages offer a straightforward guideline that makes financial planning easier.
With these fixed limits, structuring a budget becomes simpler. By knowing exactly how much of your income should go toward housing and debt, you can plan your finances more effectively and avoid the stress of overspending.
The rule also encourages regular financial check-ins. Since your income and expenses may change over time, revisiting your budget periodically ensures that you stay within the recommended limits or make necessary adjustments if circumstances shift. It provides a reliable framework for assessing financial health and making informed money decisions.
Builds your financial discipline
Following the 28/36 rule encourages responsible money management by setting clear boundaries on borrowing. It helps reinforce good financial habits, such as living within your means and prioritizing essential expenses over discretionary spending. With a structured approach to debt, it becomes easier to avoid impulse purchases or lifestyle inflation that could push you beyond your financial limits.
This discipline extends to long-term financial goals as well. Staying within the 28/36 guideline means you’re more likely to have extra cash flow available for saving and investing. Whether it is putting money into a retirement account, saving for a down payment on a house, or investing in professional growth, financial discipline allows you to make decisions that support future stability.
Many people who follow this rule also find building and maintaining an emergency fund easier. Since debt payments remain manageable, the budget has more room to set aside money for unexpected expenses. This level of preparedness can prevent financial setbacks that often arise from emergencies or sudden life changes.
Protects you against financial emergencies
Keeping debt levels under control allows for greater financial resilience. When housing and debt payments stay within reasonable limits, you’re less likely to struggle when unexpected expenses arise. Whether it is a medical bill, car repair, or temporary job loss, having lower costs fixed makes it easier to navigate financial disruptions without accumulating more debt.
A lower debt burden also means you can build an emergency fund more effectively. Since debt does not consume an overwhelming portion of your income, setting aside money for unexpected situations becomes more realistic. This creates a financial safety net that prevents you from relying on credit cards or loans to cover emergencies, reducing the risk of falling into a cycle of debt.
Another overlooked benefit is that lower debt levels can improve your ability to qualify for financial assistance in tough times. If you ever need to refinance a loan, take out a personal loan for an emergency, or apply for mortgage forbearance, having a low debt-to-income ratio increases your chances of approval.
The Limitations of the 28/36 Rule
The 28/36 rule provides a structured approach to managing debt and housing expenses, but it isn’t a perfect fit for everyone. Here are some major drawbacks to be aware of when following the rule:
The rule doesn’t always fit
The 28/36 rule is a general guideline, not a one-size-fits-all solution. Some people may find that following it too strictly creates unnecessary financial strain or prevents them from making progress toward other financial goals.
- High-cost-of-living areas: In cities where housing prices are significantly above the national average, spending more than 28 percent on housing may be unavoidable. Many people in these areas allocate 35 to 40 percent of their income to housing while adjusting other areas of their budget accordingly.
- Lower-income households: The rule assumes that a certain percentage of income can cover basic living expenses, but for lower-income earners, essential costs like food, healthcare, and transportation may take up a larger portion of their budget.
- Irregular or fluctuating income: Freelancers, business owners, or commission-based workers may have incomes that vary from month to month. A strict percentage-based rule may not reflect the financial reality of these individuals, who might need a more flexible approach.
- Temporary financial circumstances: Some people may choose to take on more debt for a specific reason, such as pursuing higher education, relocating for a better job opportunity, or investing in a business. While this might temporarily push them above the 36 percent debt limit, it could lead to better long-term financial stability.
Rather than treating this rule as an absolute requirement, using it as a starting point is more practical. Making informed adjustments based on individual financial situations ensures that housing and debt expenses remain manageable while allowing flexibility.
May exclude lower-income households
As previously touched on, the 28/36 rule can be difficult to follow for individuals earning lower wages. Essential living costs often take up a larger percentage of their income, leaving little room to stay within these prescribed limits.
If rent alone consumes more than 28 percent of take-home pay, and there are still necessities like food, healthcare, and transportation to cover, adhering to this rule may not be possible. In such cases, a more tailored budgeting approach is necessary, focusing on overall affordability rather than specific percentage limits.
Some lower-income individuals may also rely on debt for necessary expenses, such as medical bills or car repairs, which can push their total debt obligations beyond 36 percent. In these situations, prioritizing debt repayment and gradually improving financial stability is more important than strictly following a predetermined ratio.
Oversimplifies financial priorities
While the 28/36 rule provides a useful framework, it does not account for the full range of financial priorities that individuals may have. Everyone’s financial goals are different, and sticking rigidly to these numbers may cause important trade-offs.
- Savings and investments: The rule does not specify how much should be allocated toward retirement accounts, emergency funds, or other long-term investments. Someone aggressively saving for retirement may intentionally keep housing costs low while directing more income toward their portfolio.
- Early debt repayment: If a person wants to pay off their mortgage, student loans, or credit card debt faster, they may exceed the 36 percent guideline temporarily to eliminate debt more quickly. This could be a strategic move, even if it does not fit within the rule’s framework.
- Career advancement opportunities: Investing in professional development, certifications, or further education may require diverting funds to meet these ratios.
- Major life changes: Life events such as having children, caring for aging parents, or dealing with unexpected financial emergencies may shift priorities.
Instead of focusing solely on the percentages, make sure that financial decisions align with your personal priorities and long-term goals. Adapting the rule to fit your circumstances allows for a more balanced approach to money management.
Flexibility is key
Rather than viewing the 28/36 rule as an absolute rule, it should be used as a flexible guideline that can be adjusted based on personal needs. Financial success isn’t about adhering to rigid formulas but about making decisions supporting a stable and fulfilling life.
Some people may need to tweak the rule slightly, while others may require a completely different approach. What matters most is maintaining a financial plan that balances housing, debt, savings, and lifestyle choices to promote long-term stability and financial security.
How to Adjust the Rule to Fit Your Rich Life
Your financial goals, location, and lifestyle will all influence how much you should realistically spend on housing and debt. Instead of forcing yourself to fit within these percentages, it’s important to adapt the rule to work for you while maintaining financial stability.
Living in high-cost areas
In cities where housing costs are significantly higher than average, following the 28 percent housing guideline may not be possible. Many people in high-cost-of-living areas spend 35 to 40 percent of their income on rent or mortgage payments simply because housing options at a lower percentage don’t exist.
If housing costs are higher, adjustments should be made elsewhere in the budget. This could mean cutting back on unnecessary spending, increasing income through side hustles, or delaying large purchases. While spending more on housing might be necessary, it should not come at the cost of financial security.
In extreme cases, relocating to a lower-cost area could be an option. However, your decision should be weighed against other factors, such as career opportunities, family considerations, and quality of life.
Prioritizing financial goals
The 28/36 rule does not consider individual financial priorities, so blindly following it may not always align with your bigger financial picture. Some may intentionally allocate less toward housing or debt to focus on other goals. Others might temporarily exceed these limits to fast-track financial milestones.
Short-term goals
Certain financial goals require temporary adjustments to spending ratios. If saving for a down payment on a home, for example, it might make sense to keep housing costs lower for a period while funneling extra income into savings. Similarly, someone aggressively paying off debt may temporarily exceed the 36 percent guideline to eliminate high-interest loans faster.
Short-term flexibility is crucial. If a higher debt-to-income ratio helps achieve financial freedom sooner, the temporary trade-off can be worth it. The important part is ensuring that short-term financial decisions don’t create long-term instability.
Long-term priorities
Wealth-building strategies often require shifting spending habits beyond what the 28/36 rule suggests. Some people spend less on housing to maximize investments in stocks, real estate, or business ventures. Others may take on a higher mortgage payment with confidence that future income growth will make it more manageable.
Long-term financial success isn’t about sticking to arbitrary percentages. It’s about making intentional choices that align with future goals. If adjusting the 28/36 rule helps you build wealth or secure financial independence, then it’s a better strategy than rigidly following a predefined formula.
Alternatives to the 28/36 Rule
The 28/36 rule is just one approach to managing money, but it isn’t the only option. Different financial strategies can offer more flexibility depending on income, financial goals, and lifestyle.
My Conscious Spending Plan
Unlike the 28/36 rule, which focuses strictly on housing and debt percentages, the Conscious Spending Plan (CSP) is designed to help you take control of your money while still enjoying the things that matter to you. Instead of limiting yourself to rigid percentages, it encourages spending in a way that aligns with your personal goals and values.
Here’s how the Conscious Spending Plan works:
- Fixed Costs: Essential expenses such as rent or mortgage, utilities, insurance, and minimum debt payments. These should stay within a reasonable percentage of income but don’t have to fit the exact 28/36 framework.
- Investments and Savings: This category includes contributions to retirement accounts, emergency funds, and long-term savings. Rather than focusing on debt limits alone, CSP ensures you actively grow your wealth.
- Guilt-Free Spending: A core feature of CSP is setting aside money for things you love—travel, hobbies, dining out, or experiences. Instead of feeling restricted by traditional budget rules, the goal is to be intentional with your spending.
- Flexible Adjustments: Unlike strict budget formulas, CSP allows you to adapt based on financial goals, life changes, or unexpected expenses. If you want to save aggressively for a few months or increase discretionary spending during a milestone year, you can do so.
This method ensures that your financial plan reflects your values rather than outdated percentage-based rules. If you want more guidance, my article, Conscious Spending Basics (a guide to achieving your Rich Life), can help you start designing a financial plan that works for you.
The 50/30/20 budgeting rule
This method provides a broader framework for managing money and building a budget compared to the 28/36 rule. It works by dividing income into three main categories:
- 50 percent for needs, including housing, utilities, groceries, and minimum debt payments.
- 30 percent for wants, such as travel, dining, shopping, and entertainment.
- 20 percent for savings and debt repayment beyond minimum payments.
Compared to the 28/36 rule, the 50/30/20 approach offers more flexibility, allowing for a higher allocation toward discretionary spending. It is particularly useful for those who want a simple, easy-to-follow budgeting system that accounts for necessities and lifestyle choices.
The debt-to-income ratio (DTI)
Lenders commonly use the debt-to-income (DTI) ratio to evaluate creditworthiness, but it is also a useful tool for personal finance. Unlike the 28/36 rule, which separates housing costs from other debt, DTI measures total monthly debt payments as a percentage of gross income.
Most lenders prefer a DTI of 43 percent or lower, but a lower percentage is ideal for financial stability. This approach allows more flexibility, especially for individuals with high student loans or unique financial situations that don’t fit traditional budgeting models.
Don’t forget, the 28/36 rule is a helpful guideline, but it isn’t the only way to manage your money. Long-term financial success comes from balancing debt, savings, and spending in a way that aligns with your goals and lifestyle.
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