Unless you find a low-priced apartment gem, your largest monthly expense is most likely rent. Depending on where you live, you could be spending from a few hundred to a few thousand on rent monthly. However, it is typically not your only expense. You must also pay for groceries, internet, phone, insurance, and other bills. Renters should not be spending more than 30% of their gross monthly income on rent.
Monthly Rental Budget
So how much should you spend on rent every month? While the exact number is different for everyone, economists recommend allocating no more than 30% of the gross income toward rent. This includes your utilities as well.
50/30/20 Rule
In addition to the “30% rule”, there is another popular budgeting guideline with the same goal of helping you spend less on rent and other expenses. The 50/30/20 rule means that you should spend 50% on housing, utilities, groceries, and other recurring costs, 30% on non-essentials and wants like shopping. The final 20% should go toward savings or paying off debt.
Do Not Spend More than 30%
So why is spending more than 30% of your net income generally a bad idea? The biggest reason is that it simply doesn’t allow you a lot of room to spend on other things. Rent is only one of numerous different costs that people incur every month. If you spend most of what you make on rent, how can you expect to afford other things like groceries or gas for your car?
Limited Savings
Not only that, but even if you manage to afford all of your monthly expenses, you will not have much for savings. It’s important to pay your monthly bills and expenses while still building savings. Whether you’re saving for a down payment on a house, a trip, or just building up an emergency fund, you’ll need to put money away monthly.
Loans with High Interest
This could lead to having to take out loans to cover the cost of these unforeseen emergencies, which can dig you into an even deeper financial hole, one that could potentially take you years to dig yourself out from. Also, while the 30% number is a goal for many people, if you want to retire early or you have some lofty goals when it comes to saving, you will likely need to spend significantly less.
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Set a Budget and Stick With It
While no financial rule is set in stone, and the actual amount you spend will differ depending on your debts and income, the 30% rule is a good one to follow if you require some sort of a guideline. For example, if you have no other debts and lower-than-normal bills, you can probably get away with spending a little bit more on rent than 30%. But if you have a lot of other debts, spending even 30% of your income on your rent each month might be too much.
However, no matter what method you go with (or if you don’t go with one at all), it is important to budget effectively and only spend what you can afford for your rent. Sure, you might see a great place that you would love to live in, but if it doesn’t fit in your budget, you shouldn’t do it. Sticking with your budget is very important and will ensure you won’t be struggling for cash each and every month. It’s also important to consider the hidden costs of living in popular cities, such as New York.
New York City Rents
Tenants looking to lease in New York City also need to adhere by the 40x income rule. Landlords look for tenants with a yearly income that is 40x the monthly rent. For example, renters with a gross income of $80,000/year can afford an apartment worth $2,000/month.
How Much Rent Can I Afford: Use the Calculator
Conclusion
In conclusion, spending more than 30% of your take-home income is generally a bad idea, and hopefully, this article has helped you see why. If you are curious about how much money you can afford for rent based on what you make, use our rent calculator! The calculator is set to help you figure out how much to spend on rent based on your income and other factors you might want to include.
Editor’s Note: We updated this article to enhance readability.
