Apartment hunting is a hassle; you go through listings, pictures, neighborhoods, and more. However, the most important question you ask yourself is, “How much should I spend on rent?” The amount of rent appropriate for you varies depending on your income. This blog will help you figure out how much you can spend on rent and still have money left over for other things.
There are some rules that help you determine how much to set aside for rent. You can decide which of the following is suitable and follow it.
30% Rule For Deciding How Much To Pay As Rent
As per the 30% rule, your rental expenses must not exceed 30% of your gross income. This income amount does not include tax deductions. Let’s simplify it for you, if you earn $4500 a month, multiply it by 0.3 and you get $1350. Thus, you can spend a maximum of $1350 on rent every month.
Now, this calculation is based on a rule established in 1981. If you’re staying in Houston or Tuscan where rents are cheap, you might get affordable housing with rent below the 30% rule amount. On the flip side, if you’re looking for an apartment in Miami or San Francisco, you might have to re-evaluate your annual rental cost given the high rental costs in these cities.
It is best to stick to these calculations to avoid strain on your budget. Over-spending on your rent means having less amount for monthly expenses like groceries, clothes, gas/fuel, etc; plus you may end up in terrible debt.
If the 30% rule does not align with your budget, you can consider following the 50/30/20 rule. This rule entails spending about 50% of your income on household expenses like rent, groceries, utility bills, etc. The remaining 30% is allocated for recreational activities and 20% is strictly for savings.
Now, let’s see how this works out for you. Let’s reconsider the monthly earnings of $4500.Then, $2250 would be your household expenses allocation. $1350 would be for recreational expenses such as going out, shopping, eating out, movies, etc. and $900 would be for savings and emergency repairs funds.
This rule gives you a broader picture of how to budget your monthly expenses. Again, the actual cost may vary depending on your location or the real estate market trends at that point in time.
What Factors You Must Consider When Deciding On Rent
- Debts: These include student loans, mortgages, and even credit card bills. These payments are scheduled monthly, and you might have to pay bloated interest if you miss out. Therefore, if you’ve got a hefty monthly payment for repaying the debts, you should choose lower rental costs.
- Repair Costs: You generally get basic home systems and appliances with your apartment. They are likely to break down as they age. If your landlord is willing to cover the repair expenses or he has a home warranty, then you might be saved from extra repair costs. If not, then you must set aside some money as an emergency repairs fund.
- Utility Costs: The monthly bill for gas, electricity, water, etc. depends on the location you select for your apartment. You must consider the average expenses that you might have to spend on these. This amount gets added to your rent.
- Transportation: If you rent an apartment outside the city limits, you will get cheaper rent. However, the cost of commuting to and from your office or school would increase. Therefore, this is an important cost factor to incorporate into your budget calculation.
- Club or Fitness Memberships: If you’re a gym enthusiast, or like visiting golf clubs or swimming clubs, you might want a membership for them. The cost for the membership is significantly expensive and would require you to re-evaluate your budget.
Align your rental spending with your monthly income to avoid a debt-laden life. Your apartment rent should not lead you to compromise on the essentials in life. Also, savings are an important part of building your future and should not be overlooked. Analyze everything and consider how much of your income you should spend on rent.