How Much of Your Money Should You Be Spending on Rent?
One main aspect of maintaining a healthy budget is knowing how much you can afford to spend on various items. Rent is often the biggest part of a person’s monthly expenses, and determining how much you should spend on your rent can be tricky. While your income might indicate you can afford a certain amount, when you factor in other expenses, the amount that you can really comfortably afford can change.
In addition to figuring out how much you can afford, your decision about how much to spend will depend on other factors. For example, you may be able to afford a certain amount, but you might only be willing to pay top dollar for a specific location and type of rental. You also have to decide how much space you need. Here are some important questions to consider when deciding how much of your money you can spend on rent.
1. How much can I afford?
The first thing you need to do when determining how much money you should spend on rent is to determine how much you can actually afford. An Affordability Calculator can help you start this step. Try this one by HousingConnections.org. A general rule of thumb is that you shouldn’t spend more than roughly thirty percent of your income on rent, but that rule doesn’t factor in all of your expenses, and usually, neither do affordability calculators.
The exact amount that you can afford will depend on your other debt and bills as well, and also, you should consider whether or not utilities are included in the rental price. Start by writing down all of your expenses, and then see what is left. Next, consider the following questions and determine how much you are comfortable spending on rent.
2. Where do I want to live?
Not researching the area where a potential apartment or house is located is one of the biggest mistakes that renters can make. You should take time to determine where you want to live, taking into consideration the safety of the area, the schools (if applicable), the convenience of nearby stores, and so on. You also might be attached to a particular part of town for other reasons, like the neighborhood itself. If you are attached to a specific area, you might be willing to spend more to live there, especially if you will have a short commute to work. On the other hand, even if the price of an apartment is at the bottom of your budget, if you won’t be happy with your surroundings, the deal will not be worth it.
3. What kind of space do I want?
When looking for a rental, you need to figure out how much space you need. If you live alone, you might be comfortable in a studio apartment or a one bedroom, but you also might want more space. If you are hoping to live with roommates, you also need to consider how many rooms you might want, and the same is true for people living with a spouse or children. Your job also might be an important part of your decision. If you need a home office, you will want to factor that in when you make your decision. You also might be looking for a particular layout, or a balcony, amenities, and so on. Although you should have a top dollar that you are willing to spend, how much of that budgeted amount you actually spend should depend somewhat on how much of your wishlist you are getting.
4. How does the cost of living compare to other areas?
If you are looking for a rental in an area that you have lived in for a while, you may already know what the cost of living is like. However, if you are moving to another city or state, or you are renting for the first time, it’s important to consider the cost of living in the area in which you want to rent. There are many sites that will allow you to compare the cost of living in several cities, like this one by Sperling’s. If you know that the cost of living is cheaper in a certain area, you might feel more comfortable spending more of your income on an ideal rental because you won’t have to spend as much on groceries and other items. At the same time, if the cost of living is expensive, you might have to expect to spend more to get what you want (or you might need to spend less in order to pay for your other bills.)
5. What are my priorities?
While having a beautiful home in the perfect neighborhood is nice, it isn’t always the most important thing. Even if you have a large income or your bills don’t account for much of the money you have each month, that doesn’t mean you should spend a lot on rent. You also need to figure out if you are saving enough for emergencies, and for retirement. If you have a lot of debt, you might want to get a more affordable place and pay down your debt before you start spending a lot of money on a fancy place. If you like to go out with your friends, or you enjoy traveling, and renting a home at the top of your budget will make those hobbies hard to do, then you might be better off choosing an apartment that is affordable (even if it doesn’t meet your entire wish list.)
There is no magic number that is the right amount to spend for each person who is searching for a rental. You should determine the most you can spend, but after that, you will need to look at several other factors.