How Much Rent Can I Afford?
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40x / 30% Rule
There are many ways to calculate affordable rent. Some people use the 40x rule since many landlords require that your annual gross income be at least 40 times your monthly rent. To calculate, simply divide your annual gross income by 40 - if you make $120,000 a year, you can spend $3,000 on rent.
An equivalent is the 30% rule, meaning that you can put 30% of your annual gross income in rent. If you make $90,000 a year, you can spend $27,000 on rent, and so your monthly rent will be $2,250.
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More To Consider
While these rules are helpful, none of them factor in expenses. Renting an apartment can cost you more than you imagine. For instance, some buildings charge a pet fee for each pet you have. In New York City, your rent might go up by $35 for you to keep a pet.
Other amenities also play a huge factor. Some buildings charge monthly gym fees and some others don't. If you live in a building that does not have a fitness center, you might spend more on gym memberships.
Nor do the rules mentioned above take into account your financial situation or lifestyle. For example, a newly graduated might be carrying a student loan and has to set aside $200 to $300 per month to repay the loan. An independent contractor might need to have a liability insurance policy in place and has to pay for health insurance himself/herself.
Bad / No Credit
Renting an apartment might cost you more than you imagine. If you are renting with a bad credit score or no credit history, expect to put down more cash for security deposit. You might also find yourself in need of a guarantor if your income does not meet the landlord's requirement.
Having a guarantor often means additional fees, but if chances are your family or friends will be willing to help out. You might also spend extra $10 to $30 per month on renters insurance. In short, keep in mind of all possible expenses when you estimate how much rent you can afford!
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