If you’re thinking of getting your own place, then you might be wondering how much of your salary should you spend on rent. The truth is, there are more factors than just your rent when it comes to how much you can truly afford. Read on to discover what you need to know before you sign a lease.
How Much of Your Salary Should You Spend on Rent
The quick and easy answer is that experts say you shouldn’t spend more than 30 percent of your monthly income on rent.
So, if you are making $2,500 dollars per month before taxes, you should spend no more than $750 for your monthly rent.
But, that’s not the whole picture.
Here are a few other things you need to take into consideration besides your annual income before you decide what works for you.
1. Your Debt Level
There is a lot more to consider than just your monthly income when it comes to how much you should spend a month on rent.
Yes, you can use the 30 percent rule of thumb, but what if you have a lot of debt such as student loans or a lot of credit card debt?
These payments may take a larger percentage of your monthly budget.
If you take an additional 30 percent for rent, you may find that you have very little left.
If you have some sort of emergency, you may not have the cash left over to pay your monthly rent payment or your other bills because you won’t have a big enough cushion each month.
2. Your Savings
Do you have any savings? How much can you currently afford to take out of your annual salary to stick in your retirement savings or savings for other goals such as buying a house or sending your kids to college?
Experts say you should be saving at least 10 percent and even better 20 percent of your monthly income.
That means if you are spending 30 percent of your income on housing, you are already at 50 percent of your monthly income.
The point is, if your rent is too high, you will be stealing from your future.
Also, do you have an emergency fund?
What if you lose your job or are injured in an accident or become ill and can’t work?
Do you have enough money in your savings account to pay for essential expenses?
Experts disagree on how much you should keep in your emergency fund, but most say anywhere from three to six months of your monthly expenses.
Some will go as high as twelve months.
If your rent is too high compared to your other costs and you lose your job without this fund, you could find yourself out of your apartment faster than you think.
3. Your Utility Costs
Depending on what part of the country you live in, your utility costs could be higher than average.
For example, here in Illinois, my electric and gas costs to keep my house warm in the winter months double or more.
My bills can be $300 and even $350 a month during the winter months while they are $150 to $200 other times of the year.
After your monthly debt payments and your rent, will you have additional money left in your personal budget to pay these additional costs during the winter months?
4. The Cost of Living in Your Area
You’ll also want to take into consideration your other living expenses.
If you’re living in an expensive city such as Boston or San Francisco, your cost of living will be very high.
This means you will spend more on everything from groceries to gas for your car to entertainment.
If your other monthly expenses are too high, then you will be stretched really thin depending on your housing costs.
You may also enjoy:
5. Transportation Costs
If you live in a large city, your transportation costs can be extremely high as well.
Your apartment may or may not have available parking. If it doesn’t you’ll have to fight for a spot on the street or you will have to pay for a parking garage.
Also, if you drive to work, you will have to pay for parking a second time.
These costs add up.
Public transportation might be an option, but if you enjoy the freedom of having your own car, you might not want to give it up.
You may also enjoy:
To Sum it All Up:
The point is, yes you can use the 30 percent rule to decide how much you can afford to pay in rent, but take into account all of your other financial factors. Determine your budget and how much money you have going out each month before you add a rent payment. Then decide if you will have a large enough buffer if something goes wrong in your life. Then you will know just how much money you should be spending each month on rent.